U.S. GOVERNMENT PRINTING OFFICE

65–904CC WASHINGTON : 2000

A REVIEW OF THE FCC’s SPECTRUM POLICIES

FOR THE 21st CENTURY AND H.R. 4758, THE

SPECTRUM RESOURCE ASSURANCE ACT

HEARING

BEFORE THE

SUBCOMMITTEE ON TELECOMMUNICATIONS,

TRADE, AND CONSUMER PROTECTION

OF THE

COMMITTEE ON COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

JULY 19, 2000

Serial No. 106–142

Printed for the use of the Committee on Commerce

(

COMMITTEE ON COMMERCE

TOM BLILEY, Virginia, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

MICHAEL G. OXLEY, Ohio

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

Vice Chairman

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

TOM A. COBURN, Oklahoma

RICK LAZIO, New York

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

RON KLINK, Pennsylvania

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

TOM SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

JAMES E. DERDERIAN, Chief of Staff

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE, AND CONSUMER PROTECTION

W.J. ‘‘BILLY’’ TAUZIN, Louisiana, Chairman

MICHAEL G. OXLEY, Ohio,

Vice Chairman

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ROBERT L. EHRLICH, Jr., Maryland

TOM BLILEY, Virginia,

(Ex Officio)

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

BART GORDON, Tennessee

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

BILL LUTHER, Minnesota

RON KLINK, Pennsylvania

TOM SAWYER, Ohio

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

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C O N T E N T S

Page

Testimony of:

Baca, Rudy L., Global Strategist, Precursor Group ....................................... 85

Gutknecht, Hon. Gil, a Representative in Congress from the State of

Minnesota ...................................................................................................... 16

Kelley, Mark, Chief Technology Officer, Leap Communications International .......................................................................................................... 88

Lee, Hon. Malcolm R., Assistant Deputy Secretary, Department of State .. 42

Nethercutt, Hon. George R., Jr., a Representative in Congress from the

State of Washington ..................................................................................... 14

Rohde, Hon. Gregory L., Assistant Secretary, Department of Commerce ... 22

Smith, Craig M., Vice President, Strategic Planning, SBC Wireless ........... 73

Strigl, Dennis F., President and Chief Executive Officer, Verizon Wireless ................................................................................................................. 79

Sugrue, Thomas J., Chief, Wireless Telecommunications Bureau, Federal

Communications Commission; accompanied by Dale N. Hatfield, Chief,

Office of Engineering and Technology, Federal Communications Commission ........................................................................................................... 34

Material submitted for the record by:

Flanigan, Matthew J., President, Telecommunications Industry Association, prepared statement of .......................................................................... 101

Hatfield, Dale N., Chief, Office of Engineering and Technology, Federal

Communications Commission, letter dated August 25, 2000, enclosing

response for the record ................................................................................. 111

Wolley, Howard, Vice President, Federal Relations, Verizon Wireless,

letter dated July 28, 2000, enclosing response for the record ................... 104

(III)

(1)

A REVIEW OF THE FCC’s SPECTRUM POLICIES FOR THE 21st CENTURY AND H.R. 4758,

THE SPECTRUM RESOURCE ASSURANCE

ACT

WEDNESDAY, JULY 19, 2000

HOUSE OF REPRESENTATIVES,

COMMITTEE ON COMMERCE,

SUBCOMMITTEE ON TELECOMMUNICATIONS,

TRADE, AND CONSUMER PROTECTION,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:05 a.m. in room

2322, Rayburn House Office Building, Hon. W.J. ‘‘Billy’’ Tauzin

(chairman) presiding.

Members present: Representatives Tauzin, Oxley, Stearns, Cox,

Largent, Shimkus, Pickering, Markey, Boucher, Rush, Wynn, Luther, Sawyer, Green, McCarthy, and Dingell (ex officio).

Also present: Representative Bilbray.

Staff present: Mike O’Rielly, majority staff; Cliff Riccio, legislative analyst; and Andy Levin, minority counsel.

Mr. TAUZIN. The hearing will come to order.

We want to ask the first panel if they would kindly take their

seats this morning. Let me first welcome you all to this long-awaited spectrum management policy hearing, which I like to refer to as

the U.S. spectrum policy blueprint for the 21st Century.

We will hear today from two panels of distinguished experts, one

representing the government and the public sector and one representing the private sector.

Our panelists, I am assured, are prepared to comment on a wide

array of spectrum issues, ranging from those that have global important to those that are quite local in scope.

Nonetheless, all of the issues should and will be addressed together today because they essentially raise the same policy consideration, that is, how do we reconstruct our domestic and international spectrum management policies to ensure that our commercial and that our public spectrums, resources that frankly grow

more scarce every day, are allocated as efficaciously as possible.

On the domestic front, of course, Congressman Gutknecht and

Nethercutt are going to address today the FCC’s unfortunate treatment of certain long-standing licenses issued to operate on the

1427 to 1432 MHz band. I want to applaud them for their leadership on this issue.

I have some questions regarding this situation and I have a few

questions today for the FCC about its rules prohibiting the

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warehousing of KA band spectrum slots that may be hindering the

broader deployment of broadband services to rural and underserved

areas of the United States.

This is also a legislative hearing on H.R. 4758, which is a bill introduced by Cliff Stearns which lifts the FCC’s artificially imposed

spectrum caps for future auctions.

I am an original co-sponsor of this legislation and I believe it

could provide some relief in the immediate future in terms of helping our American spectrum managers find available bands for the

rural and Third Generation wireless services.

I might add an area of communications development where the

United States, I believe, woefully lags the rest of the world.

Also, the upcoming 700-MHz auction is quickly approaching. It

appears that there have been many complications surrounding the

band-clearing plan for Channels 60 to 69.

In light of the complicated issues surrounding the transition to

digital television, it is still very much in question whether broadcasters providing analog services within Channel 60 to 69 today

will be able to vacate these channels even by the year 2006.

We are going to have hearings very shortly on the issue of the

digital transition. There are grave concerns that we are well behind

in that effort that was scheduled to be completed by the year 2006.

Surely Congress never intended that viewer’s analog signals

could be taken away from them before a digital signal is available

in most of our markets.

Consequently, there are so many issues that broadcasters, old

companies, design licenses in the 700 MHz band need to work out

before you rush to auction off the system.

Moreover, it doesn’t make a whole lot of sense to me to issue licenses now that may not vest any rights of possession to the licensees for another 6 or more years. As I said before, there is more to

an auction than raising revenue for the Federal Government.

I am inclined to agree with my colleague in the Senate, Senator

Domenici of New Mexico, who has indicated that it may be more

prudent to delay the 700-MHz auction for purposes of clarifying the

uses of the spectrum.

I simply do not believe that going forward with such an auction

to meet the September 30 target date for collection of revenue,

which I am now more convinced our government doesn’t obviously

need would be in the public interest.

On the international front, the scheduling of this auction management hearing could not come at a more opportune time with the

recent June 2 conclusion of the International Telecommunications

World Radio Conference.

At the Global Spectrum Summit held in Istanbul, spectrum managers from all over the world formulated future spectrum allocation

plans that will have a very dramatic impact on the U.S. economy

and the Congress should therefore thoroughly review the impact of

these plans.

Discussions on WRC-2000, which included over 160 nations,

verify the need for additional spectrum for international mobile

telecommunications and reaffirm the need to identify potential

bands worldwide to accommodate the growing demand for Third

Generation services, commonly referred to as 3-G.

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Third Generation wireless services include enhanced voice, video,

Internet and other broadband capabilities using wireless spectrum.

While the U.S. is just beginning to study potential spectrum

availability for 3-G services, much of the world, especially Europe

and Asia, is rapidly moving forward with licensing, deployment of

these 3-G capabilities.

International carriers are capturing a greater share of the marketplace by providing advanced mobile services. In the U.S. it has

become painfully evident that there is no long-term spectrum management plan for deployment of 3-G and advanced services.

Personally, I am concerned that we have fallen well behind Asia

and Europe in the deployment of these new wireless technologies.

Some have suggested that the rest of the world has recognized

the U.S. dominance in the e-commerce arena and the only way the

rest of the world can counter is by leap-frogging the U.S. technology by putting low-cost, handheld Internet computing devises in

the possession of their entrepreneurs.

We know there is no simple solution. The wireless spectrum allocation decisions are inter-dependent upon spectrum uses.

I hope we can learn more about the requisite studies and reallocation process that need to occur if we are going to implement

3-G in the U.S. in the very near future.

While telecommunications has been a substantial contributor to

the high tech revolution that has kept our economy growing, wireless telecommunications is a vital part of the economy.

The wireless industry has demonstrated that competition has

driven the provision of new services and falling prices for American

consumers.

It is essential for the continued expansion of the U.S. economy

that a well-planned, well-perceived and well-conceived spectrum

management policy become the blueprint to fulfill U.S. spectrum

needs.

Now is the time to begin the process specifying how and when

Third Generation can be made domestically available on a goingforward basis.

Failure to keep pace with world allocation and failure to harmonize U.S. spectrum allocation with the rest of the world will no

doubt harm U.S. consumers, U.S. manufacturers and U.S. service

providers.

So this is a very important hearing and we look forward to the

testimony of both of these very important panels.

The Chair now yields to my friend, the ranking minority member

from Massachusetts, Mr. Markey, for an opening statement.

Mr. MARKEY. Thank you, Mr. Chairman, very much. I would like

to commend you for calling this hearing this morning on various

spectrum related issues, including legislation that proposes to remove the so-called spectrum cap.

As we know, spectrum at any given time is a finite resource. We

also know that every company currently utilizing the spectrum or

hoping to harness the airwaves in the future for their new gadget,

regardless of its particular application, all have one thing in common: They all want more spectrum.

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Because we obviously cannot accede to the requests of all companies and all industries and all technologies at the same time, we

are forced to ration use of the spectrum.

The FCC is tasked, in coordination with NTIA to manage use of

spectrum resources and to allocate and assign airwave frequencies

so that we derive the maximum benefit for the American public.

This is not an easy job.

Yet, NTIA and the FCC have performed this job in a way that

today provides Americans with the most competitive, most innovative wireless markets in the world.

Without question, wireless consumers increasingly enjoy the benefits of a concerted policy articulated by both the Congress and the

FCC to ensure a competitive marketplace for wireless goods and

services.

Today, more wireless consumers have five or more wireless carriers to choose from. The result of adding competition to the original cellular duopoly has been a dramatic lowering of prices and an

acceleration of the introduction of innovative pricing plans and

wireless products.

Our success in adding competition has its roots in the FCC’s eligibility rules for obtaining new wireless licenses and in the spectrum cap, which is designed to prevent licensees from obtaining an

unhealthy consolidation of the public spectrum resources in individual markets.

In short, the spectrum cap set today at 45 MHz in major markets

and 55 MHz in rural markets ensures that there will be at least

four competitors in each area.

Given the palpable benefits that the spectrum cap policy has

achieved for American consumers, I do not believe it is wise at this

time to remove it.

New spectrum sharing technologies or sophisticated compression

techniques will allow companies to wring more efficiency out of

what they currently have.

In addition, increased investments in infrastructure such as additional cell sites can help alleviate congestion in isolated instances.

On their existing frequencies, wireless companies will be able to

roll out new web-based services, indeed many are doing so today.

Retention of the spectrum cap will permit such advances while simultaneously maintaining the competitive gains we have thus far

painstakingly secured for consumers.

Moreover, in the aftermath of the recent World Radio Conference

in Istanbul the United States must now full assess the frequencies

identified at Istanbul in order to ascertain whether additional spectrum could or should be made available for so-called 3-G services.

If such additional spectrum is allocated for 3-G services in the future, then it would be appropriate at that time to examine adjusting the spectrum cap.

I strongly believe, however, that any such future adjustments in

the cap should only be made if we retain the competitive marketplace structure that exists today.

Again, I want to thank you, Mr. Chairman, for calling this hearing. I look forward to hearing from our witnesses.

Mr. TAUZIN. I thank my friend.

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The Chair is now pleased to recognize the author of the very wise

legislation that is before this subcommittee today, my friend from

Florida, Mr. Cliff Stearns.

Mr. STEARNS. I also want to commend you for this hearing and

also for your cogent opening statement on my legislation.

I want to thank the folks that have co-sponsored my bill, particularly yourself, Mr. Chairman, Mr. Oxley, Mr. Deal, Mr. Ehrlich and

of course, Mr. Rogan and Mr. Boucher.

I look forward to the witnesses.

With the conclusion of the International Telecommunication

Union’s World Radio Conference recent assembly and new rounds

of spectrum auctions around the corner, this is a very timely and

important hearing into over spectrum policies and management

issues.

Mr. Chairman, the wireless industry is perhaps the most dynamic sector of telecommunications today. It is an exciting time.

Practically every day I read or hear about some wireless innovation

that will make our lives a little easier, more exciting.

But as everyone knows, the spectrum is getting more scarce and

most costly than it was a few years ago. One of the pressing goals

of the World Radio Conference was to allocate spectrum for Third

Generation wireless, 3-G, and establish international spectrum use,

thereby reducing disputes over both domestic and international use

of spectrum.

However, the administration may have missed the opportunity to

harmonize spectrum uses to assure that as wireless innovators are

given access to spectrum, such access does not frustrate existing

users, particularly when it comes to public safety and national security.

Therefore, I am interested to hear Assistant Secretary Rohde’s

testimony and what plans the administration has to assure efficient spectrum use while allowing innovation to flourish.

While Secretary Rohde and Ambassador Shutler are to be commended for their tireless efforts in furthering the United States

spectrum needs, the Federal Communications Commission Wireless

Bureau deserves an equal amount of credit.

While Congress deliberates streamlining and reforming the FCC,

the Wireless Bureau under the direction of the Bureau Chief, Tom

Sugrue, is to be commended for reducing by 99 percent the number

of items that have been pending at the Bureau for a year or more.

This illustrates the Wireless Bureau is capable and can be trusted to properly execute one of its core functions.

However, Mr. Chairman, I disagree with the policies and direction of the Commission on spectrum management, particularly

spectrum limits and auctions.

While the FCC had the foresight not to impose spectrum caps on

the upcoming 700-MHz auction of Channels 60 through 69, I do

have some concerns that rushing to start the auctions in September will result in a spectrum train wreck waiting to happen, ultimately causing more harm than good to the wireless marketplace.

For starters, spectrum to be auctioned may not even be available

by 2006 and there is no clear process to determine how much or

when the incumbent broadcasters will clear the spectrum.

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Additionally, the FCC even lacks the authority to ensure the incumbent broadcasters vacate the spectrum in a timely manner.

This uncertainty by the bidders will surely mean the U.S. Treasury and the American taxpayer will be deprived of the true value

of this spectrum.

Congress needs to carefully examine and weigh the positives and

negatives of whether the auction should proceed as scheduled or

further delay the auction.

While the auctions are one of my concerns, the other is the FCC’s

policy on continuing its spectrum cap of 45 MHz on commercial mobile spectrum licenses.

That is the reason that I have introduced the bill, which repeals

the FCC spectrum cap on auctions conducted after the first of this

year.

It ensures, Mr. Chairman, that market forces rather than regulations drive the wireless sector. Let me make clear for the record

that this legislation serves as a means to begin a dialog and examination of our spectrum policies and I have every intention to work

with my colleagues and the witnesses and industry representatives

to improve this legislation.

Today the commercial wireless industry is the most competitive

sector of the United States telecommunication marketplace. More

than 94 million people use wireless phones in the United States.

Two hundred thirty eight million Americans can now choose between three and seven wireless providers. More than 88 million

Americans can now choose from among six or more wireless providers and 88 million Americans can chose among five wireless providers.

While in the early years of commercial mobile services the cap

served as a means to ensure that competition thrived, the current

45-MHz spectrum cap is beginning to impact innovation and competition in the wireless industry.

Without sufficient spectrum, wireless carriers will soon face increasing difficult in meeting the growing demand for existing services, as well as face limited competition by denying wireless providers access to open markets.

Consumers ultimately are denied the benefits that arise from additional competition such as lower prices and innovative services.

Furthermore, wireless providers have limited room for advanced

services such as data on their networks as they plan for Third Generation, 3-G, services, which will include enhanced voice, video,

Internet and other broadband capabilities.

The lack of spectrum threatens the ability to expand current systems and entice new customers. Additionally, continuation of the

spectrum cap will result in the continued lag of the United States

companies behind Europe and Japan in the deployment of wireless

3-G technologies.

To put the United States 45 MHz cap in perspective, Japan’s

leading wireless carrier, DOCOMO, has 86 MHz of spectrum everywhere in its country and in Britain most companies operate with

a 90 MHz spectrum allocation cap.

I have a chart here, which illustrates what I just mentioned. The

U.S. is dwarfed internationally as compared to Japan, Britain or

even Argentina in allowing spectrum allocations.

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In fact, many countries, including Australia, Brazil, Korea, the

Philippines, Singapore, Taiwan and Venezuela don’t even have a

spectrum cap.

So, Mr. Chairman, the spectrum cap was originally adopted in

order to prevent the concentration of control over spectrum in too

few hands. But with competition in the provision of wireless services now a reality, rigid structural regulations such as a spectrum

cap are no longer necessary to ensure a robust wireless marketplace.

Commissioner Michael Powell in the 1998 biennial review of

spectrum caps stated, ‘‘I cannot imagine any other industry segment that can better laud their state of economic competition as

meaningful.’’ Furthermore, the anti-trust agency’s review of mergers between

wireless carriers is sufficient to prevent undue market competition

by wireless carriers even in the absence of the market cap.

Commissioner Powell, who once served as an anti-trust attorney

at the Department of Justice furthermore stated, ‘‘I think the barriers to reconsolidation are pretty high.’’ Finally, this legislation I am offering prevents the FCC from imposing the commercial mobile radio service spectrum cap on spectrum auction after January 1, 2000. It does not repeal the current

spectrum cap on CMRS spectrum or lift the cap on spectrum that

has already been auctioned.

I think this legislation is timely to ensure innovation and competition in this country and I thank you again for holding this

hearing.

Mr. TAUZIN. The Chair thanks the gentleman.

The Chair is pleased now to welcome and recognize the ranking

minority member of the full community, the gentleman from Michigan, Mr. Dingell, for an opening statement.

Mr. DINGELL. Mr. Chairman, first of all, thank you for recognizing me. Second of all, thank you for holding the hearing.

The Federal Communications Commission was established nearly

70 years ago. The primary purpose of that agency at that time and

today, too, is managing the public spectrum. In my view, that duty

remains the most important function of the Commission to this

very day.

Unfortunately, the FCC needs, at times, to be reminded of where

its priorities lie. Instead of focusing here on making sure that services are delivered to the public in the most efficient and timely

manner with competition and other virtues that would be helpful

to the consumer, the agency not infrequently strays from its core

mission to pursue some other agenda. At this time I do not know

what that agenda might be.

For example, this community has repeatedly advised the commission to take steps to avert what has become known very widely as

the C-block debacle.

The advice of the community was largely ignored by the agency.

The FCC issued C-block licenses after protracted delay, causing untenable financial difficulties to the bidders.

The debt restructuring plan eventually adopted by the FCC was

too little, too late, and wholly unworkable. Many companies that

had bid on these licenses found themselves with few alternatives

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but to seek Federal bankruptcy protection, something which has

complicated the situation and which has delayed the entire handling of the matter.

Why is this important? We would not be holding this hearing

today on H.R. 4758, a bill dealing with the application of spectrum

caps to the re-auction of C-block licenses if these companies were

actually competing in the marketplace.

We would than have 4 to 6 competitors in every market. The

United States would be well on its way to achieving wireless substitution for landline service, as is the case in many other countries

around the world.

You may draw from that statement that we are falling behind

other countries because of the behavior of the FCC. The commission, however, still has the opportunity to adopt a pro-competitive,

pro-consumer plan with respect to most of these C-block licenses.

But, as usual, it stubbornly refuses to do so for reasons that

quite frankly are beyond my comprehension. The FCC could simply

accept full payment of nearly $5 billion from the largest C-block licensee.

This additional competitor would immediately begin providing

service in countless markets throughout the country. Instead, the

commission wrong-headedly insists on re-auctioning these licenses,

in large part to incumbent wireless companies in existing markets.

By definition, this means less competition, higher prices and poorer

service for consumers.

If the spectrum cap is eliminated as proposed here, incumbents

would bid on all the re-auctioned spectrum making a bad situation

still worse and reducing the level of competition and service available to consumers as well as potentially reducing the value of the

sale to the taxpayers. We will hear much today about the need for

incumbent providers to get access to more spectrum. Perhaps that

is so. I do not question either the arguments nor the motives. I

think it is perfectly reasonable to devote more spectrum for commercial mobile service in the light of exponential growth and demand as well as future rollout of so-called Third Generation services. In fact, I support the allocation of new spectrum for this purpose as well as the commensurate increase in the spectrum cap

when this new spectrum is auctioned off.

However, additional spectrum should not be made available to

incumbents by taking it from everyone would-be competitors, particularly those who are already licensed but not operating in the

band. This action would clearly be contrary to the public interest

and would certainly cause a significant loss of competition. Not

only would it reduce the number of competitors in the market, but

it would actually cause further delay in the rollout of new services.

It also would raise questions as to the value of sales by the FCC

with consequent losses of money to taxpayers.

Because most of the C-block licenses the FCC wants to re-auction

are currently embroiled in litigation, the high bidder in any re-auction would most certainly be precluded from occupying the spectrum for a substantial period of time.

Even if potential bidders were willing to assume this risk, the

public would be precluded from receiving the benefits of additional

capacity until the courts lift the cloud over its title.

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I would note to all that this could take years to resolve and during the time that we wander in this quagmire service will not be

made available to the consuming public and we won’t have the vaguest idea of who will get the spectrum or who will get to use it

and how the service will be made available to consumers.

The agency still has an opportunity to settle the litigation once and for all. It can do the simple, intelligent thing, accept nearly $5

billion on behalf of the U.S. taxpayers, watch these licenses go to

work as early as tomorrow for the benefit of American consumers

to increase competition and very frankly to serve the public interest.

Or, the commission can, as it appears to be determined to do, opt

for protracted litigation, a cloud over the re-auction, and fewer

competitors in the market, a delay in service rollout and probably

a loss in money for the taxpayers.

It would appear that the commission should spend more time in

managing the spectrum for the public benefit and less time in Federal court.

Thank you, Mr. Chairman.

Mr. TAUZIN. The Chair thanks the gentleman.

The Chair wishes to associate itself with the gentleman’s comments regarding the C-block auction. I think they are awfully cogent and well placed.

I hope the commission begins to pay some attention to that kind

of logic. It makes awfully good sense.

Mr. DINGELL. We share that hope.

Mr. TAUZIN. We certainly do.

The Chair will recognize the vice chairman of the committee, Mr.

Oxley from Ohio.

Mr. OXLEY. Thank you, Mr. Chairman. Let me welcome our good

friends and colleagues, Mr. George Nethercutt and Gil Gutknecht

as well as Greg Rohde and Tom Sugrue. Neither one of them are

strangers to the committee, particularly. We are glad to have you

here.

I sponsored the spectrum auction legislation back in the 1980’s

and for a while there I thought I was a lonely voice, indeed I was

a lonely voice in the wilderness.

Finally, in 1993, we struck pay dirt and passed the first spectrum auctions of the radio spectrum and indeed produced tens of

billions of dollars for the public treasury, something that all of us

in this committee should be very proud that we were able to accomplish.

It wasn’t easy, but I think the success of the auctions over the

years have been obvious to everybody concerned in terms of dollars

raised and in terms of fairly allocating a valuable public resource.

As a frequent critic of the FCC, it is only fair that I commend

the FCC for its management of the bidding process, particularly

the first round, I thought, went extremely well. It was very well

managed and in a situation that nobody had ever had a opportunity to participate in before.

From my discussions and witnessing the auctions firsthand, I

have to give a great deal of credit to the FCC and the staff for what

they were able to do. All of us as taxpayers and consumers are benefiting from those decisions.

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But spectrum auctions and spectrum management are about

more than just money, although that is obviously one heck of an

important component, particularly in the lean years when we had

massive budget deficits.

Spectrum policy is also about things such as promoting the deployment of new technologies, protecting public safety, managing

interference, and coordinating with international bodies.

So as I said, I am pleased that we hold today’s hearing to examine these issues, all of which are quite current, and particularly as

a co-sponsor of the gentleman from Florida, Mr. Stearns’ legislation

to lift the caps on the amount of new spectrum providers may purchase at auction, I do believe that the existing caps could hinder

the timely deployment of Third Generation wireless services in

some markets, much to the detriment of our economic expansion,

much to the detriment of new technologies, much to the detriment

of consumer choice.

So I am pleased to associate myself with the remarks of the gentleman from Florida and to commend him for his legislation. That

is why I am proud to be a co-sponsor.

I am looking forward to a lively discussions on these and other

issues. With that, I yield back.

Mr. TAUZIN. The Chair thanks the gentleman The Chair recognizes the gentleman from Ohio, Mr. Sawyer, for an opening statement.

Mr. SAWYER. Thank you, Mr. Chairman. Thank you for this hearing. It is a pleasure to welcome our witnesses, particularly George

and Gil, to the committee.

The subject we are here to talk about today is important. The

May 2000 World Radio Conference was a great success. Specifically

the U.S. was able to identify three additional bands of spectrum for

3-G allocation.

This additional spectrum is anticipated to meet the forecasted

growth of traffic and services that will outstrip the capacity of spectrum identified in 1992. After the success of the conference, it is

time to begin the process of identifying and specifying how and

when additional 3-G spectrum can be made available domestically.

While some European countries in Japan are expected to begin

deployment as early as 2001. U.S. wireless industry does not anticipate 3-G deployment until around 2003.

Failure to keep pace with world allocation and failure to reconcile U.S. spectrum allocation with the rest of the world will harm

U.S. consumers, manufacturers and service providers.

There are a lot of problems and roadblocks associated with U.S.

allocation of the three additional bands because much of the spectrum set aside is already being used.

For example, the 1755 to 1850 MHz band is currently allocated

in the United States for exclusive government use.

While the European Union would like that spectrum to be allocated for 3-G services in the U.S., some Federal agencies, particularly the Department of Defense are concerned that any 3-G services that are licensed in the band could interfere with existing

DOD communications.

11

I also understand that much of the spectrum to be allocated in

the next spectrum auction scheduled for September is already used

by television stations.

I would really be interested in hearing today from NTIA and

FCC regarding the effects of high-density mobile and fixed systems

and their impact on existing planned communication systems and

some of the additional frequency bands identified at the conference.

I am also interested in hearing today from the FCC regarding

spectrum caps. These caps have caused network congestion and extended busy signals or delays. They have been routinely criticized

by many communications providers as preventing the growth and

innovation of existing wireless networks and systems.

Mr. Stearns’ bill is one approach to deal with those problems. I

understand there may also be technological approaches that would

be just as effective.

I look forward to a candid discussions with the FCC on the full

range of options. There are many of us who are on the committee

who a friend of Elmore Brock, the Chairman of the European

Union Foreign Affairs Committee. He joined us in Tucson earlier

this year and as we drove the airport together he pulled out his

telephone and began a conversation in German. It went on for 4

or 5 minutes. When he got done he closed his phone and he looked

at me and said, ‘‘I was conducting a live radio interview in Germany with some of the editors of my newspapers.’’ He said, ‘‘They thought I was there.’’ He said, ‘‘Can you do that with your phone?’’ I said I didn’t think I could.

He said, ‘‘Wait until you see what we are going to be able to do

next year.’’ I just hope that American consumers will have the opportunity

to do the same thing that Elmore Brock does as a matter of ordinary conduct of business.

Finally, let me say, Mr. Chairman, that I think you are right to

note that despite the fact that Mr. Oxley is regularly credited with

putting us over the top in terms of balancing the Federal budget,

that spectrum allocation should not drive fiscal policy, but it is also

important to understand that fiscal policy should not drive spectrum allocation.

With that, I yield back the balance of my time.

Mr. TAUZIN. I thank my friend. I would like to point out that we

can do that with some of our phones. We just can’t do it in German.

The Chair yields to my friend from Oklahoma, Mr. Largent.

Mr. LARGENT. Thank you, Mr. Chairman. I have no questions at

this time.

Mr. TAUZIN. Mr. Wynn from Maryland is recognized.

Mr. WYNN. Thank you, Mr. Chairman. I don’t have a formal

opening statement. I just want to express a concern that I have or

more of an inquiry. As we talk about spectrum management, I hope

we do not focus exclusively on the role of the FCC, but we also

focus on the management by the companies.

I have been advised that some companies that are managing

their spectrum are saying that they actually have adequate

amounts of spectrum at this point while others are saying that as

12

a result of tremendous demand that they need to have the caps lifted.

I have not reached a conclusion on this issue, but I did find it

interesting that there is apparently some different of opinion within the industry on this issue.

The second issue that I had an interest in was the notion of the

designated entity. I think it was initially designed to bring new entrants and diversity.

I would like to know more about who these companies are and

whether in fact that goal is in fact being achieved, if these are in

fact companies that reflect diversity or whether they are just companies who would be natural competitors and whether or not the

designated entity notion really has any meaning today.

So I hope that those issues will be reflected in the course of today’s hearing. Thank you.

Mr. TAUZIN. I thank the gentleman. Are there any further requests for opening statements? The gentleman from Chicago is recognized.

Mr. RUSH. Thank you, Mr. Chairman. Mr. Chairman, I commend

you on this hearings that you are holding this morning. As technology continues to develop at a fast pace, Americans are becoming

more savvy in the field of technology and are demanding highspeed data.

The ability to download information, music and videos, from the

Internet onto their wireless phone is becoming the accepted norm.

However, many technology companies are unable to meet this

norm or consumer demand because of the lack of spectrum.

Further, it is argued that many American companies are unable

to compete globally in the telecommunication market because their

foreign counterparts have access to more spectrum than they do.

The availability of spectrum is thus a important issue that must

be dealt with delicately. It is suggested that one way to deal with

this issue is to repeal the spectrum cap, especially in C- and Fblock licenses.

However, I fervently and unequivocally oppose any proposal to

curtail the C-block licenses for designated entities. I would like to

caution my colleagues that any proposal to tinker with the C-block

licenses should not undermine the spirit of those licenses, which is

to provide diversity in the communication field.

With that in mind, Mr. Chairman, I thank you again for holding

this hearing and I yield back the balance of my time.

Mr. TAUZIN. I thank the gentleman. Are there further requests?

Mr. Luther from Minnesota.

Mr. LUTHER. Thank you, Mr. Chairman. I just also wanted to

thank you for holding the hearing and wanted to recognize Representative Gil Gutknecht, a fellow Minnesotan who came to this

body the same year as myself and I am pleased that he is having

the opportunity to testify here today. Thank you.

Mr. TAUZIN. He gets a lot of respect from this committee, I want

you to know that. Thank you, Mr. Luther.

Are there any further requests for opening statements?

[Additional statements submitted for the record follow:]

13

PREPARED STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF ILLINOIS

Thank you Mr. Chairman for holding this very timely and important hearing this

morning on spectrum management policy.

With the explosion of wireless phone services—as well as other services which require the use of radio frequencies—the demand for spectrum, especially by telecommunications companies, has increased dramatically.

In addition to the increase in wireless customers, is the trend for people to stay

on their wireless phones longer, and the roll out of ‘‘3-G’’ services that offers consumers broadband and multimedia capabilities, which are serving as a even greater

drain on spectrum. As a result, the wireless companies are crying out for more spectrum.

In just a matter of just 2 short years, we have come upon an urgent policy challenge. In order to maintain our competitive edge in the wireless communications industry, the U.S. will have to deploy the most efficient and effective spectrum management possible, as soon as possible.

However, in this process it will be important to maintain the delicate balance of

competition that has developed in the wireless industry which holds prices down

and continues to drive technological innovation.

I would like to thank our distinguished panel for being here today to share their

perspectives and expertise on how to best govern the use of this scarce resource.

Thank you again Mr. Chairman for holding this hearing today.

I yield back.

PREPARED STATEMENT OF HON. TOM BLILEY, CHAIRMAN, COMMITTEE ON COMMERCE

Mr. Chairman, thank you for calling this important hearing today.

Before I begin, let me take a moment to acknowledge the work of the negotiators

for the U.S. Government and the U.S. wireless industry for their recent success at

the 2000 World Radiocommunication Conference—better known as WRC just held.

All reports seem to indicate that this process was fruitful. While not everything

went our way, it seems that the outcome was as a success.

The general subject matter for today’s hearing is not new to this Subcommittee.

We have wrestled with spectrum management issues a number of times since I have

been Chairman and many times before.

In all that time, the Committee has generally tried to defer to the FCC to provide

guidance and sound spectrum policy. In fact, it is often this Committee that is

forced to fight with other Congressional Committees to keep such policy on the right

track. We have not always succeeded at this task and certain poor policies are in

place because of others work.

Increasingly, however, it is the FCC’s spectrum policies, decisions and timing that

are coming under necessary scrutiny. At heart of this scrutiny is the fundamental

issue of whether the FCC is prepared to address spectrum needs for the foreseeable

future. This Committee must ask if the FCC’s spectrum policy is flexible enough to

deal with tomorrow’s issues, or if it looks back to yesterday.

Let me be plain. I believe that the wireless marketplace is about as competitive

as any other telecommunications market out there. Approximately 100 million

Americans now subscribe to one of the multiple wireless providers. The number of

wireless subscribers is increasing at a dramatic rate.

As more consumers turn to wireless services, providers are being forced to compete for consumers. And the consumer is reaping the benefits of this competition.

Low prices, low cost to obtain telephones, myriad of service options to pick from,

increasing services and options are just a short list of benefits from competition.

Fortunately, the future looks even brighter. Wireless technologies are improving

daily. Their capabilities are surpassing past achievements by leaps and bounds.

Wireless telephones once focused on voice communications are now being transformed into multimedia, multipath communication devices.

However, popularity tends to lead to new problems. For the wireless industry, this

can mean congestion, stalled innovation or delayed roll-outs. Success at WRC only

starts another process for additional fights for spectrum at the FCC.

Today’s legislative hearing is focused on my friend from Florida, Mr. Stearns’ bill.

While I need more time before commenting on the merits, I do think that it is headed in the right direction. The old rules of the FCC on spectrum caps need to be reexamined and if the FCC is not going to change them, we must give serious consideration to doing it ourselves. This is especially true given how the FCC has handled

spectrum caps for the 700 MHz auction.

14

In addition, today I hope to hear when the FCC and the NTIA plan to complete

studies necessary to allocate additional spectrum for so-called third generation wireless—or 3G. This should be a priority given the rest of the world’s movement on

3G issues. Perhaps the Committee needs to consider putting a statutory time limit

on these studies if answers are not sufficient or forthcoming.

I thank the witnesses in advance and look forward to the testimony. I yield back

my time.

Mr. TAUZIN. The Chair would ask that all of us take a moment

of silence to recognize and mourn the passing of our friend, Senator

Coverdell. While you are doing so, I would ask you also to think

and pray for the passing of our good friend, Mr. Markey’s father,

who he lost this weekend.

We will take a moment of silence.

(A moment of silence.)

Mr. TAUZIN. Now we will present our first panel. We are pleased

and honored to have two of our fellow Members of the House here

to testify on important issues regarding spectrum management.

From Washington State, the Honorable George Nethercutt, Jr.,

and from Minnesota, as was recognized by Mr. Luther, the Honorable Gil Gutknecht.

We are also pleased to recognize the Honorable Greg Rohde, the

Assistant Secretary of the Department of Commerce who survived

10 years on the Hill with Senator Byron Dorgan. A frequent contributor to our hearings, Tom Sugrue, the Chief of the Wireless

Telecommunications Bureau of the Federal Communications Commission, Mr. Malcolm Lee, the Assistant Deputy Secretary of the

Department of State, and also Mr. Dale N. Hatfield, Chief of the

Office of Engineering and Technology who is joining Tom Sugrue

here today.

So we want to welcome our first panel and we thank you for your

contributions. Under our rules your written statements are a part

of our record without objection, as are the written statements of

the members without objection part of the record.

We will ask the members of the panel as well as the members

of the committee to recognize the 5-minute rule. We have some

timers to kind of guide you guys. If you please, watch those timers.

When they hit yellow, kind of start wrapping up for me.

We will begin with a dear friend from Washington State, the

Honorable George Nethercutt, Jr.

STATEMENTS OF HON. GEORGE R. NETHERCUTT, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF WASHINGTON; HON. GIL GUTKNECHT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MINNESOTA; HON. GREGORY L. ROHDE, ASSISTANT SECRETARY, DEPARTMENT OF

COMMERCE; THOMAS J. SUGRUE, CHIEF, WIRELESS TELECOMMUNICATIONS BUREAU, FEDERAL COMMUNICATIONS

COMMISSION; ACCOMPANIED BY DALE N. HATFIELD, CHIEF,

OFFICE OF ENGINEERING AND TECHNOLOGY, FEDERAL

COMMUNICATIONS COMMISSION; AND HON. MALCOLM R.

LEE, ASSISTANT DEPUTY SECRETARY, DEPARTMENT OF

STATE

Mr. NETHERCUTT. Thank you, Mr. Chairman, and thanks to all

the members of the subcommittee for welcoming Congressman Gutknecht and me to talk about this important issue today.

15

Mr. Chairman, I believe Congress has the obligation to ensure

that spectrum allocation proceeds in a fashion that does not unfairly penalize incumbent users. Unfortunately in my experience,

recent FCC decisions have harmed small businesses that rely on

assured access to spectrum.

Little regard is given to licensed users that are wholly dependent

on spectrum and the committee should keep this in mind as it reviews this area. I represent a company called Itron from Spokane,

Washington, which manufactures equipment used by utility companies to remotely monitor individual meters.

Itron has key operations in Washington, Minnesota, North Carolina and customers throughout the United States. Many of Itron’s

products rely on ERTs, Encoder-Receiver-Transmitters, which link

a customer’s meter directly to the utility company through radio

signals.

These products greatly enhance the utility’s ability to monitor

power usage down to 15 minute intervals, if necessary, load profiles, outage information, meter tampering and a host of other important data points and allow dynamic decisionmaking on such

things as efficient asset utilization, energy distribution and energy

spot market purchases as customer needs change.

There are more than 16 million automatically read meters in the

United States today. As we consider legislation to deregulate electricity, these systems will be in even greater demand.

Obviously, this business in dependent on continued access to

spectrum to grow and thrive and the company has several licenses

in different frequencies which have allowed it to roll out widely

used products.

While Itron has been an industry leader, having invested over

$100 million in technology that uses the band, it has also encountered significant interference from the FCC in maintaining its access to licensed spectrum.

Last year Itron struggled with an FCC rule that suspended the

processing of all applications in the 928/952/956 MHz bands for applicants who did not provide subscriber services.

This multiple address system rulemaking essentially put a freeze

on Itron’s business. No utility was willing to make the large capital

expenditures associated with a system that was subject to this application freeze. This severely depressed business.

Similarly, utilities that had planned, budgeted for or even ordered automatic meter reading equipment faced a scenario in

which they would be unable to obtain licenses. After extensive consultation, this year the FCC lifted its freeze in the 900-MHz band,

only to insist on reallocating another band of spectrum that Itron

uses. As a result of the FCC June 8 report and order, Itron and

its customers are again struggling with the same uncertainties.

Itron uses the 1427 to 1432 MHz band under a 1994 nationwide

FCC license that enables power and water utilities, critical industry infrastructure users, to develop and deploy wide area networks

for telemetry communications to and from utility meters.

Itron is the only licensed commercial user of the spectrum and

two utility systems have already installed Itron equipment to use

this spectrum for fixed network monitoring.

16

In addition, Itron has pilot customers that use the spectrum in

Alabama, Illinois, New York, Maryland, California, Texas and

Michigan. Several other Itron customers have expressed an interest

in upgrading to their flagship product for large commercial and industrial users, which requires the 1427 to 1432 MHz band.

On June 8, 2000, the FCC allocated the 1429 to 1432 MHz band

and 11 other MHz as well on a primary basis to Wireless Medical

Telemetry Services, (WMTS), in ET Docket 99-255, effectively locking Itron out of an important part of the band.

The FCC report and order gives no indication of the likely outcome for the remaining two MHz, 1427 and 1428 in this band, creating significant uncertainties for Itron and an unfavorable business climate.

No utility is likely to buy systems that depend on this spectrum

unless they have assurance that it will continue to be available in

the future.

Other customers cannot be accommodated without Itron having

access to the upper three MHz of the band. Given last year’s action

on the 900-MHz band, potential customers are going to be shying

away from doing business with Itron. The FCC has created this

problem.

Energy providers and users would be the immediate losers as

they would be unable to distribute and use scarce energy resources

in the most efficient way possible and ultimately we would all be

the poorer for this outcome as increased inefficiencies were felt

throughout the economy.

The irony of this occurring against the daily backdrop of reports

about high energy prices, inefficient energy distribution, and looming brown-outs should not be lost on the FCC.

I see the red light is on, Mr. Chairman. I would just say my hope

is that this committee would act to take steps to protect incumbent

users and not effectively, by silence on the FCC’s part, put a company out of business or threaten its continued future.

I will submit a formal testimony for the record in full so that you

can have the benefit of my complete remarks.

Mr. TAUZIN. Thank you, Mr. Nethercutt.

The Chair is now pleased to welcome the Honorable Gil Gutknecht of the State of Minnesota.

STATEMENT OF HON. GIL GUTKNECHT

Mr. GUTKNECHT. Well, thank you, Mr. Chairman. I have a written statement that I will submit, but I just want to summarize for

the members what has happened here.

We have a small, little company with headquarters in George’s

district, but they employ 430 people in my district. Right now that

company is hanging on by its fingernails because of a ruling that

was made June 8 by the FCC.

In effect what we have here is a pioneer company that went out

and developed a very useful product for utilities, the reading of meters, whether it is gas or electric or water, to manually go around

to every house and attempt to read those meters is a very expensive and sometimes even dangerous proposition because of aggressive dogs and other things that they encounter trying to get those

meters read.

17

They came out and developed a very interesting technology using

wireless and using a very small section of band width. What we

have now is the FCC, by refusing to recognize an agreement that

Itron had worked out with a competitor in that same spectrum.

Now we have this company with over 1,000 employees, almost

half of them in my district, that basically is looking at an uncertain

future at best because many utilities will not go ahead and order

the equipment that it takes to install this if they are not certain

that they are going to have the spectrum.

All of this was very solvable. The parties to this had reached an

agreement, but the FCC refused to acknowledge that and on June

8 they really sent this company into a tailspin.

We are basically here today asking for some kind of relief from

this subcommittee and the Congress. But at the end of the day, I

have to say this, it really should not require an act of Congress to

get some common sense and fairness out of a Federal agency.

It is really almost an embarrassment that we have to come before this committee, but I want to thank you for the opportunity

because over 1,000 people in George’s district and in my district

are counting on us to provide some kind of relief and just basic

fairness in the allocation of the spectrum.

This is a pioneer. They homesteaded this particular chunk of the

spectrum and now our own government seems to be prepared to go

out and shoot them. I think there is something wrong with that

formula.

I yield back the balance of my time.

[The prepared statement of Hon. Gil Gutknecht follows:]

PREPARED STATEMENT OF HON. GIL GUTKNECHT, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MINNESOTA

Mr Chairman, Members of the Subcommittee, I want to thank you the opportunity to testify today. I want to thank my colleague Mr. Nethercutt for his testimony as well.

In Waseca, Minnesota, in my district 430 employees build utility meter reading

equipment for Itron. The June 8th decision by the FCC has needlessly put these

employees futures in jeopardy by casting a shadow over the future of Itron’s business. As Mr. Nethercutt has pointed out, this is not the first time the FCC’s carelessness has put Itron in jeopardy. By putting Itron’s spectrum in doubt utilities will

be extremely hesitant to make the large capital expenditures associated with a system that may or may not have spectrum available at a future date.

The biggest problem with the FCC’s actions is that they could easily been prevented by offering a win-win solution for Itron and Medical Telemetry. When Itron

first became aware that Medical Telemetry might possibly move to the spectrum

that Itron occupied, Itron went to Medical Telemetry and the two sides were able

to notify the FCC on May 31, 2000 that they were optimistic that a basis for spectrum sharing could be finalized very shortly. Both parties asked the FCC to issue

a Further Notice of Proposed Rulemaking in order to conclude the band sharing

agreement. Both sides recognized their technologies were compatible and that they

could share the spectrum.. Further, Itron through its band sharing agreement with

Medical Telemetry would facilitate development of Medical Telemetry’s own equipment by providing its engineering expertise to save Wireless Medical Telemetry

Services the costly R & D expense to bring their own equipment into service.

Instead of acting on this agreement, the FCC issued a Report and Order on June

8th which granted primary usage of the 1429-1432 band to the Wireless Medical Telemetry Service. These 3 megahertz were part of the 5 megahertz band that had

previously been used by Wireless Utility Telemetry. The Report and Order leaves

the future use of the remaining 2 megahertz in doubt, creating even more uncertainty for Itron’s products.

What did the FCC do wrong? The FCC rightly recognized the validity of Medical

Telemetry’s needs. But at the same time they did not recognize that Medical TelemVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00021 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
18

etry needs a compatible spectrum neighbor. The FCC should have recognized Itron,

especially in light of a spectrum sharing agreement, as a compatible neighbor to

Medical Telemetry. Further, the FCC should have recognized that Itron, as the only

commercial user of the spectrum, has an equally valid claim to the spectrum band

as Medical Telemetry.

As we have heard the FCC has a goal to encourage the most efficient use of spectrum. But, when offered a mutually beneficial arrangement between to competing

parties for spectrum, the FCC denied their arrangement in favor of one primary

user. Based on the proposed agreement submitted to the FCC by Medical Telemetry

and Itron, and willingness of Itron to even assist in the development of Medical

Telemetry’s technology, the FCC should have made Critical Industry Infrastructure

and Wireless Medical Telemetry Services co-primary users of the spectrum.

Mr. Chairman, Itron is a stark example of a federal agency having the opportunity to make the right decision and choosing the wrong one. They have put a company with over 1200 employees in serious jeopardy. When a mutually beneficial

agreement was proposed between the two interested parties, the FCC arbitrarily

and carelessly decided to ignore this agreement and offer the spectrum to just one

of the potential users. Itron has been left with a fraction of its former spectrum and

the knowledge that at a future date it could lose even that.

I thank you for the opportunity to testify today. I hope that Itron’s highlights a

problem with FCC’s spectrum allocation and I welcome the continued interest of the

Committee to ensure fair and equitable spectrum allocation practices.

Mr. TAUZIN. I thank the gentleman.

The Chair will do something in order to accommodate my friends.

If the gentlemen have to leave to go to other business, the Chair

will be happy to allow them to do so and to separate this panel at

this point.

Let me first ask if there are any questions of the members. I

would like to engage you just a little bit on the issue before you

do leave.

My understanding was that in 1992 Congress itself sought to

prioritize automatic meter reading technology development and

that then Chairman Dingell and Markey added a provision in the

House Bill 6191 which became Public Law 102-556 directing the

Departments of Commerce and Energy in fact to determine the application of automated utility meter reading technology, that it was

in the public interest and would be in fact good for energy, water

conservation, public safety and economic development.

It seems like Congress prioritized this. The Commission established spectrum for this company to go out and do it. The company

goes out and does it. There is a concern about sharing the spectrum

with other medical users I think. Are you saying that the telemetry

folks who wanted to share the spectrum were ignored?

Mr. NETHERCUTT. None whatsoever, to my knowledge, Mr. Chairman. That was what was so shocking; the expectation was that

there would be a mention of it, a confirmation of it, a recognition

of the fact that there is this agreement that would allow a sharing,

a fair sharing, an equitable sharing.

Mr. TAUZIN. And the licenses for Itron were renewed through August 15, 2004 by the Commission on May 12, 1999. Is that right?

Mr. NETHERCUTT. Indeed.

Mr. TAUZIN. So we have some real strange situations here. We

are going to want to get some answers from Mr. Sugrue at the appropriate time.

Do either one of you want to comment before I turn it over to

the other members?

Mr. GUTKNECHT. Well, Mr. Chairman, just one final point about

this. The people at Itron had also told the medical telemetry people

19

they would help them with some of the research and development.

So it was a win-win situation.

For some reason which we cannot explain the FCC decided not

to acknowledge that agreement.

Mr. TAUZIN. The Chair thanks the gentleman. Are there further

comments or questions by the members?

Mr. MARKEY. Not right now.

Mr. TAUZIN. Mr. Oxley.

Mr. OXLEY. Maybe it would be appropriate while the members

are here to ask Mr. Sugrue to give his side of the story and perhaps we can uncover something.

Mr. TAUZIN. The gentleman makes a good suggestion. Let me do

that. Mr. Sugrue, I know you have a written statement and you

have a lot to tell us about spectrum management. But if you will

take the mike, sir, and give us the Commission’s point of view on

this so that we can understand why this has occurred.

Mr. SUGRUE. I am going to use the first question to defer to my

colleague, Dale Hatfield, whose office did the allocation decision

and is familiar with this topic.

Mr. TAUZIN. Mr. Hatfield.

Mr. HATFIELD. Yes, thank you. I think this discussion we have

had here really illustrates the difficulty that we are facing in this

country in spectrum management.

You heard a very eloquent speech regarding the value of doing

automated meter reading and using radio waves to do so. You

know, I would support and understand that as well. But we also

have the high cost of medical care in this country that concerned

us greatly. Wireless medical telemetry systems are used in hospitals, for example, to allow patients to move around so that they

can be walking and so forth and you can monitor their vital signs

and so forth and see how well they are recovering. For example,

in a hospital one of the problems they have is they allocate certain

amount of their space for cardiac care and different types of care.

It is very difficult to know in advance how many patients you will

have of one category or another. By making the medical equipment

be able to be moved around, one can change your equipment assets,

move them around, and get better utilization of your hospital facilities because they are connected by wireless means.

You know, I am not real familiar with exactly what happened

here, but what I am very familiar with is that it is a very, very

difficult issue here trying to make the decision.

Mr. TAUZIN. Mr. Hatfield, we interrupt to try to get some answers. You are telling me you are not familiar with it. That is not

good. You represent the Commission here. The Commission made

the decision.

Mr. Sugrue, if you can help us, please do. Somebody made a decision that despite the fact that the medical telemetry people wrote

you a letter saying that they had no problem sharing the spectrum,

and Itron offered even to help them develop the technology to

share, that that was ignored.

I think we need to know why was it ignored. Why did the Commission in effect boot Itron out to give this spectrum to the telemetry folks?

20

Mr. HATFIELD. First, sir, in our order in June there is actually

a footnote in there that recognizes Itron’s desire to operate in the

band. So I don’t think it is correct that we ignored it.

Moreover, we are prepared and are very much encouraging the

sharing of this, trying to work out agreements where the spectrum

can be shared between these two vital interests. That is our whole

goal.

Mr. TAUZIN. Are you telling me that the Commission recognized

the sharing agreement or not? What does this footnote mean?

Mr. HATFIELD. I am doing this by memory. My recollection is

that they were asking to be a primary user in the spectrum and

that we recognize that in our dealing with them.

Mr. TAUZIN. I am still very confused. Mr. Sugrue, let me make

a complaint on it.

Mr. RUSH. Mr. Chairman, I am sitting here and I am trying to

get the—— Mr. TAUZIN. Mr. Rush, I am, too. I will recognize you in a second.

Let me just see if I can complete this.

You saw this panel. You knew that Mr. Nethercutt and Mr. Gutknecht were going to be here today. Mr. Oxley correctly asked to

give you a chance to respond. Why are you not prepared to respond? Why can’t you tell us what happened?

Mr. HATFIELD. I can only speak for myself. I had no indication

before I arrived here today that we would be asked a question on

this matter. Moreover, it is an open matter at the Commission now.

They have come in to us with a petition and we are dealing with

that petition.

Mr. TAUZIN. Mr. Sugrue, would you kindly respond, sir?

Mr. SUGRUE. I don’t know if there is a problem in communication, but we were not apprised that this was the topic or that the

two gentleman would be testifying. We would have certainly come

with a better answer. I apologize for that.

I will say, the last time I talked with anyone from Itron was last

fall about the MAS situation, the MAS spectrum that was referred

to in at least one of the statements.

This was a program in response to or an order the Commission

put out because Congress changed the law in 1997 to require us

to auction off spectrum, commercial spectrum, when there were

mutually exclusive applications.

The Commission put a freeze on the spectrum until it could write

rules on that. We thought Itron made a compelling case and we

lifted the freeze in December of that year.

I don’t think there is any attempt to certainly put anyone out of

business. You will see in my statement, if we get to it, that I sort

of reference utility reading as an innovative concept.

I guess I would just ask you permission to get back to you on

this.

Mr. TAUZIN. I think that is fair. I will recognize other members

in a minute.

Mr. Hatfield, you said there was a petition before the Commission. What is the timetable on that petition?

Mr. HATFIELD. That is my understanding.

Mr. TAUZIN. What is the timetable on it?

Mr. HATFIELD. We will do it as quickly as we can, sir.

21

Mr. TAUZIN. Let me ask that within the next 10 days you submit

to us in writing a response to the concerns expressed by our two

members here today. We particularly would like to know what happened to the letter confirming an agreement by the two users to

share and why was it ignored, if in fact it was ignored.

What does the footnote mean, if in fact it has meaning? Can

Itron continue to operate or not? What is exactly the situation of

the company? We are obviously interested in resolving this if we

can without the necessity of legislating.

I will ask my friend from Illinois to ask his question.

Mr. RUSH. Mr. Chairman, I just wanted to comment on this issue

and how it is being conducted. Mr. Chairman, I know you are a

very, very fair chairman and I know that you don’t want to put any

witness under any undue and surprising circumstances.

I just kind of believe that if we would take a step back and allow

the FCC to respond to the request of other members and also the

request of yourself, Mr. Chairman, we would probably get better

answers.

I am just kind of surprised, and I know that you don’t want to

bushwhack any witnesses here. That is not your style. But it seems

that that might be what is happening here and I would just respond that these witnesses should be allowed to go back to the

FCC and respond to both the Members of Congress and also to you,

Mr. Chairman.

Mr. TAUZIN. If the gentleman will yield, the Chair is not above

bushwhacking. I want you to know that.

Mr. RUSH. Mr. Chairman, I want to remind you that lat time

that I and other members from this side bushwhacked a witness,

you were very, very upset.

Mr. TAUZIN. I guess it depends on whose ox is being bushwhacked. I was certainly not trying to do it in this case. I thought

you were prepared to respond to the witnesses who were going to

be part of your panel.

If you are not, I am suggesting that within the next 10 days you

respond in writing and that you try to give us some very cogent

answers to what I think are some very serious questions raised by

both Mr. Nethercutt and Mr. Gutknecht.

The Chair recognizes my friend from Massachusetts.

Mr. MARKEY. Thank you, Mr. Chairman. You know, this is a perfect example of the spectrum management policy that we have had

in place and the ongoing need to revisit it. Here we have, obviously,

a very important wireless meter reading technology that saves consumers lives.

We have had an introduction over the last several years of wireless medical telemetry which doesn’t save people’s money, it saves

people’s lives; right?

So you have this kind of balance that you are trying to strike in

assuring that all the technologies are able to be deployed.

I think it would be important, especially in an era of continued

Medicare cutbacks, of trying to squeeze more efficiency out of the

existing medical system, to utilize the technology to make sure that

the medical centers are able to provide for families, especially in

these cardiac or other situations, with the maximum amount of inVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 E:\HEARINGS\65904 pfrm01 PsN: 65904
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formation that the medical personnel can gain access to while serving more and more patients.

So working out some kind of a compromise here seems to me to

be in the best interests of the American public. I think the FCC

should be give, you know, 10 days as you were saying, Mr. Chairman, to report back to us and give us their set of reasons for trying

to create a new balance.

Mr. TAUZIN. If the gentleman would yield to me, let me point out

that staff indicates to me that medical telemetry was given a total

of 14 MHz and there is a real question whether it needs additional

MHz. It has room to grow for the next 10 years already.

So kindly answer that inquiry. The information we have is that

they simply didn’t need to have priority spectrum allocated to

them; that they had enough to go for 10 years.

Second, they wouldn’t even have equipment that could operate in

the 14 to 32 bands in the next 2 years. So, you know, there are

some real questions as to why this action was taken as precipitously as it was. The gentleman is correct, it raises some real questions about the way spectrum is being managed.

So please take the time and respond thoroughly to us, if you can,

Mr. Sugrue. We would appreciate it.

Are there any further questions or comments for our two colleagues so that I might dismiss them?

I thank you both for your contributions. We will make available

to you whatever we find out from the Commission regarding the

current status of this dispute and hopefully get it resolved without

the need for us to legislate.

Mr. NETHERCUTT. Thank you, Mr. Chairman.

Mr. TAUZIN. Thank you very much.

Mr. SUGRUE. Mr. Chairman, we will respond in that timeframe.

Mr. TAUZIN. Thank you, Mr. Sugrue and Mr. Hatfield. I appreciate it.

The Chair is now pleased to recognize an old friend, the Honorable Greg Rohde, Assistant Secretary of the Department of Commerce, for his testimony. Mr. Rohde.

STATEMENT OF HON. GREGORY L. ROHDE

Mr. ROHDE. Thank you very much, Mr. Chairman. I really commend you and the members of this committee for holding this hearing.

I came here thinking I was going to begin my testimony with an

obviously stupid statement such as that spectrum management is

usually a topic that doesn’t get people to pound on the doors or pay

much attention to it.

Given the discussion we just had, it demonstrates that in Mr.

Markey’s usual eloquence, I think he has stated very well that we

are in a lot of challenges right now in spectrum management and

balancing interests.

Spectrum management is not simply a topic for engineers any

more. It is something that has very broad social implications. It is

not even an isolated telecommunications issue, as we can see with

this discussion as well as many others that we will discuss today

in the hearing. It has very broad social implications.

23

NTIA, as many of you know, has two primary functions. One is

that we are the policy shop for the administration in developing

telecommunications and information policy.

In addition, we have a very important spectrum management

function. In a sense we wear both of these hats. Within our spectrum management function at NTIA, we process allocations from

53 different Federal agencies at the rate of about 300 to 400 a day,

in other words, about 6,000 to 10,000 of these allocations per

month.

This is a very complex, manually intensive process. At NTIA we

are trying to change that process into an automated system. Currently, some of the allocations could take up to 15 days to go

through the process.

Our goal at NTIA is to turn that process, to move it from 15 days

into a matter of minutes, creating a great deal of efficiency in how

we conduct spectrum management.

In addition at NTIA, we assess the spectrum availability for

about 62 major new Federal rated communication systems each

year. This process for each one of these new rated communication

systems takes between 4 to 6 months, again on a manual basis.

We are also trying to automate this process as well to try to turn

that 4 to 6 months into about a 2-month period of time through automation.

We are hopeful that the Congress will support budget requests

in 2002 to provide us funding to continue on this process of automation which is going to result in a great deal of saving for taxpayers and promote a lot of spectrum efficiency.

In addition to these automation procedures at NTIA, we have a

couple of policies which we have in order to try to promote spectrum efficiency amongst the constituents that we have in the Federal agencies whose spectrum that we manage.

One of those policies is that we require every Federal agency, before they get a Federal allocation, to demonstrate that that need

cannot be met in the commercial private sector, before they can get

an allocation.

In addition, we have shown a great deal of leadership at NTIA,

prior to my coming to NTIA, of promoting efficient technology such

as narrow banding and digital modelization.

In addition, NTIA is engaged in a significant outreach program

for public safety purposes. Throughout this week and Monday I

hosted a round table on all-hazards warnings. We all know that we

have one of the best weather systems and weather prediction systems in the world. We have a very good forecasting system to alert

people to natural disasters and storms.

But, there are new technologies out there such as emergency email systems and reverse 911 systems that exist. The question is:

How do we integrate this into our hazard warning systems to provide better information to consumers and to promote public safety.

In addition, NTIA is looking at allocating Federal spectrum for

Federal, state, and local law enforcement agencies so that they can

communicate with each other in the case of an incident in order to

protect public safety.

24

Another area that NTIA is focusing on in our spectrum management responsibilities is we really want to be an agency of innovation.

One of the initiatives that I began when I first got to NTIA as

to start an initiative called the WICI, the Wireless Innovations and

Communications Initiative. The purpose of this is we think that we

need to transform the way in which we have conducted spectrum

management in the past.

The purpose of this initiative is to relook at how we conduct spectrum management and to do it in a fashion that promotes innovation of new technologies. The WICI is founded on two very special

principles. That is, we need to pull the Federal agencies which we

serve to the table and help them identify new technologies that can

help them meet their existing needs in a more efficient manner.

At the same time, we need to shoulder our responsibilities to the

general public for managing the scarce resource in a way that fosters innovation in the private sector.

As you all know, we are caught in a very tough dilemma of spectrum management and that is, we have conflicting Federal agencies and private sector. We are trying to bring that coordination together.

We also work hard to try to advance new technology such as

ultra-wide band. We are currently beginning some testing in ultrawide band devices in order to participate in the FCC’s rulemaking

process and provide some comments.

Also, IMT-2000 is a major priority for NTIA. We were very successful in the work this spring in Istanbul in getting the rest of the

world to agree to our position that we should have maximum flexibility in identifying multiple bands for IMT-2000.

NTIA believes that development of high speed mobile Internet

access is one of the most important public policy decisions we face

in our agency.

We believe it has very broad social implications and also goes a

long way to helping us achieve our other fundamental purpose at

NTIA which is to provide policy guidance to the administration in

achieving our goals of expanding Internet access to more and more

communities.

With that, I notice the stoplight is on. I will be happy to answer

any more of your questions or speak more to you about your interest in IMT-2000.

[The prepared statement of Hon. Gregory L. Rohde follows:]

PREPARED STATEMENT OF HON. GREGORY L. ROHDE, ASSISTANT SECRETARY FOR

COMMUNICATIONS AND INFORMATION, U.S. DEPARTMENT OF COMMERCE

Mr. Chairman, Ranking Member and other members of this subcommittee, I want

to thank you for inviting me to testify today on spectrum management policies and

the results of the World Radiocommunications Conference. I am Gregory Rohde, Assistant Secretary for Communications and Information and Administrator of the National Telecommunications and Information Administration (NTIA) within the Department of Commerce. I would like to begin my remarks today by giving a brief

overview of NTIA’s spectrum management responsibilities, accomplishments and

planned improvements; our spectrum outreach to the public safety community; the

promotion of new technologies including a new initiative; an assessment of the

World Radiocommunication Conference (WRC) which was recently held in Istanbul;

and the implementation of future third generation personnel communication systems.

25

I. SPECTRUM MANAGEMENT

One of NTIA’s responsibilities is to serve as the President’s primary advisor on

telecommunication information policies. The other primary responsibility on behalf

of the President is to manage the radio frequency spectrum used by Federal agencies in satisfying their legislatively assigned missions. In this role, NTIA processes

the Federal agencies’ request for frequency assignments; provides Executive Branch

leadership in coordinating both current and future spectrum requirements among

the Federal agencies and with the Federal Communications Commission (FCC); develops and promotes positions at Treaty Conferences and other technical and management fora of the International Telecommunication Union (ITU) regarding United

States spectrum management interests; and supports specialized administration initiatives that are designed to achieve specific improvements in areas such as air traffic safety, Federal spectrum management procedures, protection of critical infrastructures, and public safety.

A fundamental goal of spectrum management at NTIA, as it is worldwide, is to

ensure that there is compatible operation with other radiocommunication systems,

validate compliance with spectrum management rules and regulations, and to ensure that spectrum is available for future needs. NTIA’s spectrum coordination role

is therefore critical to the success of air traffic control, national defense, national

resource management, and other vital government functions. Another fundamental

goal is to manage this public resource in an efficient manner as to create an environment that encourages private sector innovation. To that end, NTIA’s spectrum

management function can help advance our broader policy goals to expand access

to telecommunications and Internet services to all Americans.

Satisfying Spectrum Needs

NTIA continues to coordinate the spectrum needs of the Federal Government by

processing frequency assignment requests by some 53 Federal agencies. NTIA processes approximately 300 to 400 such requests daily through an automated screening

process to correct errors in the data and ensure conformity of rules and regulations

and through a coordination process with Federal spectrum-using agencies via the

Interdepartment Radio Advisory Committee (IRAC) to ensure compatible operation

of radiocommunication systems. In addition, NTIA also certifies spectrum availability of approximately 60 to 70 new major radiocommunications annually.

NTIA also provides leadership for and manages the activities of the IRAC, a body

of representatives from twenty Federal agencies that are major users of the spectrum. The IRAC has provided valuable advice to the Executive Branch on numerous

spectrum policies and issues for the past 78 years. NTIA has maintained a constant

relationship with the FCC both through the IRAC and directly to ensure compatible

operations of our radiocommunication systems. This is especially important today

since the vast majority of the spectrum is no longer divided into exclusive privatesector and Federal-sector bands, but is shared by all users in the United States.

Spectrum Efficiency

The Federal Government constantly seeks to modernize its radiocommunications,

increase the amount of information transmitted per unit bandwidth, and expand the

use of more efficient digital technology and the use of private sector

radiocommunications. In order to improve Federal spectrum use, NTIA uses the following management tools. First, NTIA based on the Office of Management and

Budget (OMB) regulations requires that every Federal Government user requesting

a frequency assignment determine whether its need can be met by a private or commercially available service provider. This policy has helped encourage consideration

of commercial services by many Federal Government agencies, including the Department of Defense.

Second, we promote the use of new spectrum efficient technologies. The Federal

Government is a leader in developing new spectrum-efficient techniques such as

narrowbanding, digital modulation, and spectrum sharing as well as in the use of

the highest quality spectrum-efficient equipment. An example of using these techniques can be shown in the land mobile communications area.

The use of mobile communications is a critical and expanding need for most Federal agencies in the accomplishment of their missions. However, the needs of the

private sector for mobile communications in fee-for-service offerings, commercial

business uses and public safety operations, which are also expanding, have placed

great pressure on NTIA to allow wider access to the portions of the spectrum used

by the government mobile services. NTIA has taken the initiative to make sure that

all Federal uses are as efficient as possible so that Federal land mobile communications needs can continue to be met in the bands available. The agencies we regulate

generally agree with this effort, however, funding is difficult to obtain because it is

26

so costly to completely replace the current systems, which seem to work adequately.

Moreover, the agencies are very concerned about control security and emergency response issues when the most efficient solutions require several agencies to share one

network.

Government applications of mobile radios include communications for building security, law enforcement by Federal Bureau of Investigation, Drug Enforcement

Agency, Treasury, U.S. Coast Guard, U.S. Park Police and military police, and for

communications with vessels and aircraft. As the technology has advanced, the sophistication of services provided has advanced at the same time and the amount of

spectrum needed for each individual communication has decreased. However, since

mobile radios used in cars and by pedestrians are engineered for long life and durability, they are very expensive and funding for replacement radios are hard for government agencies to obtain; the FBI has asserted it will cost them approximately

$4-billion to replace their aging networks with modern technology.

To help solve this problem, NTIA has issued regulations halving the channel

widths of all Federal land mobile radios. All new systems are now expected to operate at the narrower 12.5 kHz bandwidth and all existing systems are expected to

transition to the narrower widths by 2005 or 2008 depending on the frequency band

being used. We picked long transition periods to allow the users to maximize the

service they could obtain from existing assets. NTIA has also restructured the way

in which the 406.1-420 MHz band will be used to allow for more efficient operations

maximizing user density. Although it has taken several years to complete planning

to do this, all Federal agencies support with the resultant assignment efficiencies

and are working on a plan to transition to this plan.

NTIA has authorized vendor-operated fee-for-service mobile systems in Boston,

New York, Philadelphia, Baltimore, Washington and Norfolk. These have been very

successful in Washington, moderately successful in New York and Philadelphia and

largely unsuccessful in Boston, Baltimore, and Norfolk. We intend to further encourage the use of these efficient shared networks by encouraging and supporting the

use of locally designed and controlled networks wherever possible.

II. SPECTRUM MANAGEMENT PROCESS IMPROVEMENTS

NTIA is also making progress to more efficiently conduct its management of Federal spectrum. To this end, we are increasing automation and reducing bureaucratic

red tape in spectrum management.

Spectrum Management Processes

Federal government spectrum management involves three essential, closely-linked

processes: (1) development of spectrum policy leading to rules and regulations that

govern the use of spectrum and resolve spectrum management issues; (2) certification that spectrum will be available for planned radiocommunications; and (3) authorization of frequencies to satisfy current Federal agency operational needs. These

are traditionally paper-intensive activities, and we are working hard to automate

our processes, to make information more readily available and to make our frequency assignments more quickly. We want to reduce the amount of time it takes

for a routine frequency assignment to mere minutes, and a complex assignment to

at most three days, for a process that now can take as long as 15 or more days.

Frequency Authorization Process

NTIA processes between 6,000 and 10,000 frequency assignment actions monthly.

These actions, applications from Federal agencies for new frequency assignments or

revisions of existing assignments, must be coordinated with other Federal agencies,

and in many cases with FCC and the Government of Canada, to ensure compatible

operations with other radiocommunication systems. In addition, these actions include several hundred new assignment proposals each month submitted by the FCC

on behalf of non-Federal activities, and by Canada, or coordination with Federal

agencies, again to assure compatible operation between radiocommunication systems. NTIA processes all of these action requests via its Frequency Management

Records System (FMRS) using computer workstations. This includes the use of over

720 automated procedures to process the actions, to validate information quality, to

ensure compliance with spectrum allocation and assignment rules and regulations,

and to verify international coordination requirements.

The processing of each day’s actions submitted by the various Federal agencies,

FCC and Canada, results in the compilation of an assignment action agenda which

is sent to the 21 Frequency Assignment Subcommittee (FAS) for their review and

coordination. Each member must provide their agency’s position on each action (acceptance or table for cause) to NTIA electronically within 15 working days (essenVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
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tially voting). NTIA tabulates all votes on each action, and approves it or keeps it

tabled depending on the tabulation of votes and NTIA’s position.

The complexity of, and time requirements for, this processing and coordination

procedure are increasing due to not only the constant growth in the number of stations authorized by NTIA (doubled since 1980), but also the number of non-Government stations in shared Government/non-Government bands being authorized by

the FCC, as well the number of new stations being authorized by Canada that must

be coordinated.

Records for NTIA-approved actions are placed in the NTIA-maintained Government Master File (GMF) of frequency assignments (or removed in the case of deletions). The updated GMF is provided to the Federal agencies monthly on CDROM.

The GMF data on the CDROM can be searched, selected, sorted, and printed on

paper or exported to files through the use of a desktop or laptop computer. There

are approximately 426,000 approved frequency authorizations in the GMF.

Within the last five years, NTIA, in partnership with the Department of Defense,

developed the Spectrum XXI software capability for Federal agencies to: (1) prepare

their applications for frequency assignment actions, (2) assess the action’s compliance with NTIA rules and regulations, and (3) determine if the action would result

in interference to other spectrum users. Over 250 persons within the Federal government have completed a one-week training course on Spectrum XXI. NTIA has

also overhauled its frequency management records system by developing and implementing new software on state of the art work stations.

NTIA’s goal for improvement is to provide a completely automated and electronically accessible (domestically and ultimately globally) central capability (E-commerce at the Federal level on a global basis) for the frequency management community to obtain approval of frequency assignment action requests within minutes for

routine requests, to a maximum of 3 days for more complex requests.

Spectrum Policy Development and Issue Resolution Process

Federal radiocommunication policy development and spectrum issue resolution

are largely based on the efforts of NTIA’s Office of Spectrum Management with a

very heavy reliance on the advice of the 20-member IRAC, which represents Federal

spectrum users. The IRAC meets more than 200 times each year, and its subcommittees involve the exchange, reproduction, and distribution of over 100,000

pages of documents relating to Federal spectrum management and assignment of

frequencies. We are working to reduce the massive paper load that accompanies

such activity, and we recently awarded a contract to transfer IRAC documents from

the past 78 years over to CD-ROM and onto computer servers.

Our goal in this area is to provide a completely computer automated and electronically-accessible capability (in essence, E-government) for the Federal spectrum

management community to obtain information from the official IRAC policy development and spectrum issue resolution documentation.

Spectrum Certification Process

Both OMB Circular A-11 and the NTIA Manual require that every Federal agency

developing a major radiocommunications system obtain NTIA certification that the

spectrum required by the system will be available when the system is ready to be

deployed. NTIA currently assesses spectrum availability for approximately 62 major,

new Federal radiocommunications systems each year. For the most part, these systems are reviewed manually using document-based information processing techniques. This process takes an average of approximately 4 to 6 months to complete

for each system.

NTIA’s goal in this area is to develop an automated, electronically-accessible (domestically and ultimately globally) capability for the spectrum certification community to obtain, use, and provide all the necessary information to obtain approval of

their system certification requests within the time frame of two months.

Overall Process Improvement Summary

If the Federal government can gain the efficiencies I described, it may be possible

for these same type of improvements to be made on a national basis with the result

of providing the needed spectrum for use by both the Federal government and private sector very quickly without bureaucratic delays of months and years and to

share more spectrum based on sound technical grounds. This could essentially enable management of spectrum largely through the use of E-commerce techniques

The President’s budget for FY 2001 requested $1 million ($200,000 via appropriations and $800,000 from reimbursement from the Federal agencies) for these improvements. This was the first leg of a four-year program to meet these goals. If

the United States is to maintain its competitiveness in the marketplace and to make

strides in closing the digital divide gap, the United States must improve its specVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
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trum management processes and cut out the red tape and bureaucratic road blocks

that inhibit timely distribution and sharing of spectrum for radiocommunications.

III. SPECTRUM OUTREACH

Now I would like to describe NTIA’s activities in extending a helping hand to the

public safety community.

All Hazards Roundtable

On July 17, 2000, NTIA, in cooperation with an inter-agency working group that

works on public safety issues, hosted the All-Hazard Warning Roundtable. Dr. Jim

Baker, administrator of the National Oceanic and Atmospheric Administration

(NOAA), was a co-host at the event. The purpose of the roundtable was to bring together representatives of existing systems, such as NOAA with its weather radio,

with representatives of new and emerging technologies, including the Internet and

wireless products, as well as reverse 9-1-1 systems, to see how our already excellent

warning system can be improved. I viewed the roundtable as the start of a process

that will bring government and industry together to talk about creating a more comprehensive warning network.

The event was an overwhelming success as all the panelists agreed that more

needs to be done in order to provide effective and immediate warnings. Follow-up

meetings will take place so that substantive and technical issues can be discussed

so that hazard warnings may be widely available to the public through various existing and emerging telecommunications technologies. The roundtable is the latest

activity of the informal inter-agency group that was organized last year until Vice

President Gore’s National Partnership for Reinventing Government. The working

group published a report, ‘‘Saving Lives With An All-Hazard Warning Network’’ that

found NOAA Weather Radios forms the backbone of an all-hazard system. However,

we found that we must improve access to warnings and make warnings themselves

better.

Federal & State Joint Project

One of the more pressing needs of all radio services in terms of radio spectrum

is for the public safety services. The inability of agencies from the Federal Government to talk to state and local counterparts in times of emergencies and natural

disasters is a paramount concern. NTIA has recently put forth plans to designate

certain federally allocated radio frequencies for use by Federal, state and local law

enforcement and incident response entities to improve their communications during

emergencies and help them to better respond to threats to public safety. This new

plan is the first step towards ensuring that sufficient radio spectrum is available

when and where an emergency or public safety need may arise. The plan was developed in cooperation with the IRAC and the Federal Law Enforcement Wireless

Users’ Group (FLEWUG). It provides a total of 40 radio frequencies, under the control of the Federal Government, to be used for intermittent law enforcement and incident response requirements during emergencies relating to public safety.

In another example of Federal-state cooperation, NTIA, working with the Department of Defense, authorized the state of Wisconsin to use Federal radio frequencies

to test a shared land mobile communications system that will greatly ease communication during emergencies as well as during day-to-day communications. There

are a number of land mobile systems currently operated by Federal agencies or by

State and local governments around the country that provide communications during emergency operations to all levels of government. To further promote this capability, the NTIA, working with the Departments of the Treasury and Justice jointly

sponsored Public Safety Wireless Network (PSWN) Program, have initiated a number of pilots throughout the country to test and evaluate various interoperable solutions among all levels of government. Although there are many emergency land mobile systems, the Wisconsin Pilot project is the first system providing shared services on a day-to-day basis. However, with the continued efforts of the NTIA and the

FCC, working with the PSWN Program, it is anticipated that future shared systems

and programs will be more readily available.

National Coordination Committee (NCC)

The National Coordination Committee (NCC) was established by the FCC to solicit input from the public safety community in the further development of rules governing the new 700 MHz public safety band, particularly in regard to interoperability. NTIA actively participates in the NCC by offering advise and subject matter

expertise on issues directly related to the NCC. NTIA, together with the U.S. Department of Justice (DOJ), the Federal Emergency Management Agency (FEMA)

and the U.S. Department of Treasury co-sponsor the NCC. Participation is vital to

29

ensure that interoperability between Federal, State and local responders is

achieved.

IV. PROMOTION OF NEW TECHNOLOGIES

The Federal government uses a minimum amount of spectrum as possible to perform its existing and planned mission needs. Every Federal agency must determine

if its radiocommunication requirements can be satisfied by the private sector before

they develop their own radiocommunications. It is critical that the Federal government have sufficient spectrum to meet all its obligations to the American people including national defense, law enforcement, resource management control, air traffic

control, and any other safety-of-life services. The Federal government has been very

successful in using new technology in developing its radiocommunications and conserving spectrum.

In my judgement, one of the most important things I can do in my capacity at

NTIA, is to get the Federal agencies and the private sector to engage in a constructive dialogue. It is imperative—as a nation as a whole and from the individual perspectives of Federal agencies and the private sector—that a cooperative relationship

exist between the government and private sectors be realized.

WICI

One initiative I started at NTIA earlier this year is to establish the ‘‘Wireless Innovations in Communications Initiative’’ to promote spectrum efficiency and innovation and to create a dialogue between the Federal government agencies and the private sector. The Federal agencies, considered collectively, are a large user of communication services in the United States. Although many of these services are provided

by commercial providers through government contracts, the Federal government

continues to own and operate significant communications facilities that perform certain mission-critical functions. Federal agencies use the radio spectrum to operate

the wireless portions of these Government-operated communications facilities. Because of the growing public and private sector requirements for spectrum, there is

an urgent need to ensure that this limited national resource is used effectively and

efficiently.

One of the objectives of the WICI is to promote innovative developments in communications technologies and facilitate their timely application to satisfy actual

communication needs by both the Federal agencies and the private sector. The scope

of this initiative extends across the full range of wireless communications technologies, including fixed, mobile, radar, navigation, and satellite communications.

The approach planned for conducting WICI was to establish a committee (WICI

Committee) within the Interdepartment Radio Advisory Committee (IRAC) comprised of senior experts in the Federal government who understand their agency’s

radiocommunication requirements and can envision the potential applicability of

new technologies. The WICI Committee has scheduled a series of meetings in which

representatives from Federal agencies discuss their communications requirements.

In addition, private sector developers of communication innovations present their

ideas on how to satisfy the Federal agencies’ requirements. WICI is intended to promote the development of innovations in wireless communications and systematically

examine their applicability to actual communications requirements.

Six meetings of the WICI have taken place since the initiative was begun in

March of this year. The focus of these first meetings have been on land mobile communications, specifically software defined radios and public safety communications.

Following the presentations by Federal agencies, 8 major private sector developers

have come forward and have explained their new technologies that address the requirements described in the Federal briefings. Other areas such as satellites and

radar will be addressed in the future. The spectrum management process will also

be discussed with the private sector as well.

I hope that over time, this initiative will foster better cooperation between government and private sector in spectrum management. I believe that we can do more

to assist Federal agencies to more efficiently meet their communications needs and

to promote continued innovation of wireless technologies. The purpose of the WICI

is to point us in a new direction with respect to spectrum management.

New Technologies

NTIA is very interested in helping advance the development of new wireless technologies that will create efficiency and opportunity. One example is ultrawide band

(UWB).

UWB transmits very low power radio signals with very short pulses, often in the

picosecond (1/1000th of a nanosecond) range using very wide signal bandwidths. Because of that combination of characteristics, UWB has shown promise for many comVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00033 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
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mercial applications, including wireless communications within buildings and the locations of objects on the other side of walls or other barriers. UWB will be using

the same spectrum that is presently being used by conventional radiocommunication

devices, including emergency services. As a result, it will be important to ensure

that there are no adverse effects from UWB to these critical services.

The FCC, in coordination with NTIA, has granted waivers for three UWB manufacturers. This has enabled limited production of these devices until more permanent rules can be established and appropriate measurements and analysis can be

made to determine the technical feasibility of sharing spectrum.

NTIA has begin a comprehensive test and analysis program that will be carried

out jointly by NTIA’s Office of Spectrum Management in Washington and our Institute for Telecommunication Sciences in Boulder, Colorado. This program will determine from a technical and engineering point of view, the conditions under which

UWB technology can be integrated in the spectrum environment ensure compatible

operation with existing safety-of-life systems including those used or planned for air

traffic control with special attention to the Global Positioning System (GPS). NTIA

will be spending approximately $1 million for this effort which is to be completed

in the fall of this year. This testing program will also help the FCC, which recently

proposed new rules allowing UWB systems on an unlicenced basis.

V. WRC-2000

The WRC—General

I would like discuss briefly the results of the World Radiocommunication Conference 2000 (WRC-2000) which was held in May in Instanbul, Turkey. The National Telecommunications and Information Administration (NTIA), along with the

Federal Communications Commission (FCC) and other Federal agencies provide the

main technical support for the United States delegation at World

Radiocommunication Conferences. Given the gravity of the issues involved at WRC2000, NTIA considered this year’s conference among the top priorities of the agency

this year. The outcome of this past conference, as with previous conferences, affect

significantly on spectrum management and the development of wireless communications services in the United States, and the competitive position of U.S. manufacturers. Therefore, conference preparation and follow-up is a responsibility that NTIA

takes very seriously.

I spent a week and a half in Istanbul with the 157 member U.S. delegation (including 59 representatives from companies) to the WRC-2000. There were over 2000

delegates from over 150 countries—each working to ensure that their existing uses

of the spectrum for their radiocommunications would be protected and that their future requirements for the spectrum would be satisfied. Countries were also attempting to agree on new rules or modifications to existing regulations and procedures

required to ensure compatible operation. I had the opportunity to talk to members

of many delegations to promote the U.S. views and to listen to their views on the

many issues being addressed at the WRC. It was apparent that both developed and

developing countries had definite views on: (1) obtaining additional spectrum for implementing International Mobile Telecommunications 2000 (IMT-2000) and future

generations of advance communications; (2) allocating sufficient spectrum for GPS

and the European Galileo satellite-based worldwide navigation systems; and (3) ensuring appropriate distribution of spectrum for broadcast satellite services.

Developing countries were particularly interested in obtaining guaranteed future

access to satellite spectrum which the developed countries have almost fully occupied over the last 30 years. The developing countries were very concerned that as

technology opened the doors for broadband communications, they would fall in the

shadows of this economic boom and communications expansion—exacerbating the

economic and digital divide that currently exists between developing and developed

countries. They expressed concern that both the economic gap and the digital divide

would continue to grow. Moreover, they feared being forced to set aside spectrum

for new broadband systems and to transition equipment infrastructure when their

first generation cellular was still developing. Many developing countries still appear

to be slow to adopt regulatory reform needed to facilitate communications investment. Developing countries are also as concerned as we are in the Administration

about the digital divide. It is safe to say, that wireless communications technologies

are taking on a greater importance in most nations, including our own, and are

viewed as a critical means to expanding economic opportunity.

It was a privilege and an honor to work with Ambassador Gail Schoettler and

members of the U.S. delegation. Her outstanding leadership, along with the outstanding effort by the delegation members, was paramount to the success of the

United States. I would also like to express my admiration for the cooperation beVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
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tween NTIA, FCC, State Department, and the industry members of the delegation.

In my estimation and based on discussions with others that attended previous conferences, this was one of the most productive. I would also like to bring to the attention of the subcommittee, Ambassador Schoettler’s report, in which a number of recommendations were made to improve future conferences. Among other things, she

points to the importance of WRC preparations starting early and maintaining continuity of leadership and organization from conference to conference and that communications between industry and government and within the delegation, with the

press and with Congress, should be open and timely. Finally, she recommends that

a strong and continuous international outreach program should be undertaken— something that Ambassador Schoettler did well prior to the WRC and which we

need to be certain to follow up on. As a nation, the United States needs to take

these conferences very seriously in order to continue the United States’ leadership

role in the ITU and subsequent WRCs, and maintain an open and free market place.

WRC—Major Issues for Federal Government

The major issues at the WRC included: (1) Broadcasting Satellite Service (BSS)

re-planning, technical and procedural matters; (2) International Mobile Telecommunications 2000 (IMT-2000); (3) Non-Geostationary Orbit and Geostationary

Orbit (NGSO/GSO) spectrum sharing; (4) Radionavigation Satellite Service (RNSS)

issues including GPS sharing with Mobile-Satellite Service (MSS); and (5) high density fixed systems (HDFS). The United States met all its objectives in these major

areas including sufficient spectrum for IMT-2000, protection of U.S. communication

and radionavigation systems, agreement that mobile satellite service cannot share

with GPS, and sufficient spectrum for GPS and other planned satellite navigation

systems.

I would like to focus my remarks with respect to WRC-2000 on implementation

of IMT-2000 since NTIA will be playing a pivotal role in this process. And, I would

say at the outset that, in my judgement, the development of advanced wireless services is one of the most important communications policy issues facing our nation.

The Internet revolution will take yet another dramatic leap when we, hopefully,

have widespread availability to mobile Internet access. I consider the development

of wireless Internet critical to achieving important policy goals such as closing the

digital divide.

VI. DEVELOPMENT OF WIRELESS TECHNOLOGIES AND SERVICES

Transition to IMT-2000

Over the past decade, there has been enormous worldwide growth in the use of

cellular-type wireless communications systems. Many countries initially introduced

analog systems and have now transitioned to digital systems. Studies in the International Telecommunication Union (ITU) and elsewhere indicate that this growth

in personal communications is likely to continue. Third generation (3G) wireless

communications systems will provide mobile and satellite-based broadband capabilities, and represent a path for the evolution of existing cellular and personal communications services (PCS). Annual service and infrastructure revenue for 3G is estimated to approach $100 billion by 2007, of which two-thirds is predicted to come

from data and other non-voice services. It has also been estimated that wireless subscribers are projected to grow from 469 million in 1999, $1 billion in 2002, and 1.26

billion in 2005 or an average penetration rate of nearly 20 percent. The United

States cannot afford to get left behind in this technological leap forward.

The member administrations of the ITU have identified the technical characteristics of a third generation system, and have termed it International Mobile Telecommunications-2000 (IMT-2000). Key features include a high degree of commonality of design world-wide; compatibility of services within IMT-2000 and other

fixed networks; and high-quality world-wide use and roaming capability for multimedia applications (e.g. video-teleconferencing and high-speed Internet access). The

ITU established an agenda item for WRC-2000 which considered the review of spectrum and regulatory issues for advanced mobile applications in the context of IMT2000, noting that there is an urgent need to provide more spectrum, particularly

for the terrestrial component of such applications and to make adjustments to the

Table of Frequency Allocations as necessary.

Let me briefly review the IMT-2000 WRC-2000 results.

IMT-2000—U.S. WRC Results

In accordance with U.S. goals and the concerns of the developing world, the outcome of the conference provides direction to facilitate technology development but

also emphasizes flexibility for administrations. The conference adopted various types

of regulatory text for implementation of IMT-2000 in a number of bands. These inVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
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clude bands for the terrestrial component of IMT-2000: 806-960 MHz (some countries noted that spectrum was available in their countries as low as 698 MHz, but

most felt uneasy about including existing broadcast bands), 1710-1885 and 2500-

2690 MHz. For the satellite component the bands included 1525-1544, 1545-1559,

1610-1626.5, 1626.5-1645.5, 1646.5-1660.5, 2483.5-2500, 2500-2520, and 2670-2690

MHz. The Conference also approved High Altitude Platform Stations (HAPS) operations in portions of the bands 1885-2025 and 2110-2200 MHz. The language in the

various regulatory texts is different, however the meaning is the same, maximum

flexibility for implementation. This regulatory identification for IMT-2000 does not

preclude the use of these bands for any applications of the services to which they

are allocated and does not establish priority in the Radio Regulations. For the new

bands above 1 GHz, a significant amount of language was accepted by the Conference that makes it clear that administrations can implement any of the bands

in any time frame, for any service or technology, and may use any portion of the

bands that they deem appropriate based on national requirements.

In summary, the WRC-2000 identified 519 MHz of additional spectrum for terrestrial (plus 230 MHz from WARC-92), totaling 749 MHz of spectrum for IMT-2000.

It should be noted that the International Telecommunication Union (ITU)

Radiocommunications Bureau only forecasted a need of 160 MHz of additional global spectrum for terrestrial by 2010, exclusive of frequency bands already used for

first and second generation systems. It is up to each nation to decide which bands

will be adopted for IMT-2000 in their country. Administrations can implement any

bands in any time frame, for any service or technology, and may use any portion

of the bands that they deem appropriate based on national requirements.

The United States won a very significant victory at WRC-2000 in that the conference adopted our plan to utilize a multi-band approach and provide administrations with flexibility to develop 3G technology. This approach provides enough guidance with respect to which band will be 3-G bands while permitting market-place

flexibility.

IMT-2000—The Domestic Scene

The real work is about to begin domestically. The United States must now decide

what bands or portions thereof will be allocated or reallocated for IMT-2000 use domestically. The possibilities for terrestrial include 698-960, 1710-2025, 2110-2200,

and 2500-2690 MHz. NTIA and the FCC agreed before the WRC-2000 to perform

studies for the 1755-1850 MHz band (NTIA) and for the 2500-2690 MHz band

(FCC). The studies are to examine, among other things: existing spectrum allocations; existing use; existing investment; future use; potential availability of alternate spectrum for potentially displaced users, changes in the domestic allocation

table, cost and time frame to move existing users; sharing potential of existing users

with IMT-2000 services and the possibility of existing users in 2500-2690 MHz band

providing IMT-2000 services. The satellite component possibilities include the use

of 1525-1559, 1610-1660.5, 2483.5-2500, 2500-2520 and 2670-2690 MHz bands.

Bands are not as congested in most other countries. Most European countries and

Japan are licensing 3G operators now, who will begin services in 2002.

The 1755-1850 MHz band supports four main Federal functions: space telemetry,

tracking and control (TT&C); medium capacity fixed microwave; tactical radio relay

training; and aeronautical mobile applications such as telemetry, video and target

scoring systems. This band is allocated on an exclusive basis to the Federal Government for fixed and mobile, space operation (Earth-to-space) and space research

(Earth-to-space) services, and in the 1761-1842 MHz portion, used for space tracking, telemetry and command. Fixed links are operated by Federal agencies for voice,

data, and/or video communications where commercial service is unavailable, excessively expensive, or unable to meet required reliability. Applications include law enforcement, emergency preparedness, support for the National air space system, military command and control networks, and control links for various power, land,

water, and electric-power management systems. Other specified fixed links include

video relay, data relay, and timing distribution signals. Probably the most critical

system in the band is the USAF Space Ground Link Subsystem (SGLS). This system, via Earth-to-space uplinks in the 1761-1842 MHz band, controls the U.S. military satellites, including telecommunications satellites, intelligence gathering satellites, the Global Positioning System (GPS) satellite constellation, and satellites of

other Federal government agencies and U.S. allies.

The two major services in the 2500-2690 MHz band are the Multichannel

Multipoint Distribution System (MMDS), and the Instructional Television Fixed

Service (ITFS).

MMDS is a public radio service transmitting from one or more fixed stations, and

received by multiple receivers at various locations. There are over 2500 licenses for

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MMDS in the band, nation-wide. Licenses are granted on the basis of Basic Trading

Areas (BTAs). MMDS is a technology for delivering fixed wireless high-speed access.

Until recently, the incumbent local telephone companies and local cable systems— both wired services—have offered the only options for mass market high-speed access. The MMDS frequencies, located in the 2.1 and 2.5-2.7 GHz bands, are suited

for the delivery of broadband access to data, voice and Internet service. The channels allocated to MMDS have traditionally been used to provide a multichannel

video programming service, so-called ‘‘wireless cable,’’ that is similar to cable television. Rather than being hardwired, MMDS uses microwave frequencies. Like

broadcast television, MMDS is transmitted from a broadcast tower, usually located

on a mountain or tall building, to special antennas on residences or businesses

throughout a local market. The technology is, however, undergoing rapid changes.

In September 1998, the FCC announced new rules which allow two-way service via

MMDS frequencies. When MMDS can be used for two-way service, it will become

a viable broadband service delivery option. The two-way capability allows a return

channel, so MMDS can be effectively used as a wireless option for interactive applications and two-way data service. The new rules still contemplate fixed service, even

for two-way operations.

The other major service in the band is the ITFS, and is regulated under Part 74,

Subpart I of the Commission’s Rules. ITFS is used for television transmission of

academic subject matter to remote classrooms, or other locations. ITFS channels are

from 2500 to 2596 MHz, and interleaved with MDS channels above 2644 MHz. Of

the 31, six-megahertz channels in the MMDS/ITFS spectrum band, the FCC licenses

twenty of these channels to non-profit educational entities. The channels are used

by educators for instructional programming, and unused channels may be leased to

MMDS operators, and can be used for the same kind of broadband services discussed above. Partnerships have developed between ITFS spectrum holders and

MMDS companies that provide expertise, revenue, and access to hardware and software to ITFS partners, to better enable them to build their distance learning programs.

All of the above bands are used at present. Incumbent users in these bands have

objected to having their operations moved, because of cost, effects on mission/business plans, and the interruption of day-to-day activities. However, if the United

States is to be competitive in the marketplace for succeeding generations of wireless

communications, the United States will have to make the appropriate decisions that

will make the necessary spectrum available while minimizing the effects and costs

to those who may have to be displaced. For those who may be required to relocate,

additional spectrum may have to be found or other accommodations will have to be

made to continue their operations.

Addressing all the issues in selecting a band or bands and potential relocation of

those displaced will require cooperation and collaboration between the Federal government agencies, the NTIA, industry, and the FCC. To this end, the Administration believes it imperative that the U.S. spectrum regulators (FCC and NTIA) and

major stakeholders agree to a schedule of events that will result in spectrum for

IMT-2000 being designated for use by September 30, 2002, which coincides with

Congressional direction that the FCC auction the 1710-1755 and 2110-2160 MHz.

The major ingredients to meet this goal will be completion of the spectrum studies

by the FCC and NTIA as discussed above, timely coordination between the FCC and

NTIA including the Federal agencies and industry stakeholders affected, and the expediency of the FCC rule-making process.

The United States also has to focus on of what other countries are doing. For example, most PCS users in the United States cannot take their phones to Europe and

use them since PCS systems in the United States use incompatible technologies.

U.S. GSM users can roam to Europe. Therefore, other countries planned use of spectrum for IMT-2000 could have an effect on frequency bands the United States may

choose or on the need for manufacturers to expand the use of multi-band, multitechnology equipment. However, industry is very concerned about the impact this

will have on the affordability, features, and size of equipment, particularly if the

United States is unable to harmonize frequencies with the rest of the world. The

United States has stood firmly behind the concept of technology innovation and

flexibility in the past, while Europe has been very successful in promoting single

bands and single technologies.

Another aspect of this decision, is the impact the spectrum selection will have on

the digital divide, the gap between those individuals and communities that have access to these Information Age tools and those who don’t. NTIA’s ‘‘Falling Through

The Net’’ report in July 1999 indicated that better-educated Americans are more

likely to be connected to the Internet, whites are more likely to be connected than

African-Americans and Hispanics, wealthier schools are more likely to be connected

34

than poorer schools, and people with disabilities are less likely to have access to

technology. The United States will have to evaluate the impact of decision options

on the gap and hopefully make decisions that will close the gap.

The Administration intends to engage in a serious inter-agency process, working

cooperatively with the private sector, to identify aggressively particular spectrum

and develop 3G wireless services. NTIA will lead this process on behalf of the Administration and we will regularly inform the Congress on the progress of our efforts.

CONCLUSION

Thank you for this opportunity. I will be happy to answer your questions.

Mr. TAUZIN. Thank you, Mr. Rohde.

The Chair is now pleased to welcome Mr. Tom Sugrue for your

prepared testimony.

STATEMENT OF THOMAS J. SUGRUE

Mr. SUGRUE. Thank you, Mr. Chairman, Congressman Markey,

members of the panel. It is a pleasure to be here today. I appreciate your invitation to talk about spectrum management matters

at the FCC.

I would also like to introduce Dale Hatfield who has already had

a opportunity to speak. I am sure I speak for Dale in saying we

are honored to appear on this distinguished panel.

We didn’t realize how distinguished it was going to be at the

time, but with Assistant Secretary Rohde and U.S. Coordinator

Lee, both Dale and I at earlier stages of what are now somewhat

extended careers, served at deputy administrators at NTIA.

I know we continue to have a great deal of respect and admiration for those organizations and their current leaders here today.

Mr. Chairman, it should be obviously to all that wireless services

play an increasingly important role in the lives of all Americans.

For example, I would bet that most people in this hearing room

are carrying a wireless device, although I hope they have turned

them off so as not to detract us during this fine testimony.

Mr. TAUZIN. Me, too.

Mr. SUGRUE. But wireless services are truly ubiquitous. They are

really everywhere. Mr. Chairman, with your indulgence, permit me

to tell you briefly about my experiences just this morning to illustrate this point.

Let’s call it the eight encounters or a wireless kind. First, I woke

up this morning to music coming from my clock radio which was

sent to me by an FM broadcasting spectrum.

As I got up I turned on the television to catch one of the morning

talk shows. FCC rules prevent me from telling you which one. But

that was broadcast using VHF television broadcast spectrum.

Third, on that show they were conducting an interview with

someone in a foreign country being carried live over a satellite feed,

using international satellite spectrum.

Fourth, the TV show switched to a weather report showing digital Doppler images from the National Weather Service using federally allocated spectrum.

Fifth, as I drove out of my house I used my remote garage opener

to close the garage door, using Part 15 Unlicensed radio spectrum.

Sixth, while driving away, I passed the utility company employee

who was engaging in remote meter reading, no doubt using Itron

35

technology, fortunately, not out of business yet, using possibly private allocated spectrum in the MAS band.

Mr. TAUZIN. Did it interfere with your heart monitor?

Mr. SUGRUE. My pacemaker has been racing all morning.

Seventh, while driving to work I used my own cell phone. I want

to make a point that I used it very carefully, with its speed dial,

hands-free operation, on the way to work to speak with my secretary, using 800 MHz cellular spectrum.

Eighth, the taxicab driver on the way here was using his radio

to speak with his dispatcher to confirm the pickup and get assigned

his next fare using SMR or private mobile radio spectrum.

Eight wireless experiences, and all before 10 o’clock in the morning. The point of this is not only to illustrate how prevalent these

services are in ordinary life, but also to emphasize that these are

wonderful technologies that are so valuable because they serve real

human needs.

We who work in the field can sometimes get so involved in our

discussions about MHz and GHz, about TDMA and CDMA or whatever, it is easy to lose sight of the fact that real people use these

services.

Wireless technologies and services have a direct impact on people’s ability to do their jobs efficiently, on the flow of information,

on the provision of safety services, and on the overall quality of life

of our citizens.

Mr. Chairman, spectrum management is a major regulatory

function of the FCC. Our written statement outlines our activities

in that regard. But I would like to just turn the balance of my oral

statement to address our spectrum cap policies which are the subject of a bill that Congressman Stearns and others on this committee have introduced.

This bill would eliminate the caps, spectrum cap for CMRS spectrum auctioned in the future and for any licenses transferred

thereafter.

By my reading, the goal of this bill is to preserve a fully competitive market for CMRS services while at the same time assuring

that carriers have access to enough spectrum to deploy innovative

advance services. On that goal, I can assure you, Congressman

Stearns, we are in vehement agreement.

The FCC’s cap applies to CMRS spectrum and provides that no

carrier can have more than 45 MHz in any single market, thus ensuring at least four competitors in each market. The purpose is to

promote competition. I think the growth of competition in this industry has been a great success story for consumers.

I have a couple of charts to illustrate that. This first one looks,

I am sure, like a picture of nothing. But what it is is a picture of

the state of competition in CMRS services just 5 years ago at the

end of 1994.

I asked the staff to develop a map that showed the areas that

had markets with more than two providers as of that date. It came

back with nothing on them. There was nothing. This was a tight,

government-sanctioned duopoly from sea to shining sea.

Two years later Congress and the FCC working together had

taken action to auction new spectrum for CMRS services and we

36

1The comments and views expressed in this Statement are offered in our respective capacities

as Chief of the Office of Engineering and Technology and as the Chief of the Wireless Telecommunications Bureau and may not necessarily represent the views of the Commission or the

individual FCC Commissioners.

were beginning to see the first signs of competition but still in a

very few areas. This is the end of 1996.

Three short years later, now the map of competition has converted to this rainbow of colors. There are many markets with six

and seven providers and more than two-thirds of subscribers have

access to five competitors that can provide them service.

The benefits of this outbreak of competition in such a short period of time are sort of summarized in the last chart. We call this

our up and down chart. All the things in this industry that you

would like to see going up are going up, subscribership up 400 percent, jobs 300 percent, investment 400 percent in 6 years. Bills and

prices going down and the wait for licenses has been cut by a third.

Mr. Chairman, I see the light is on. I just want to end up and

say we think our spectrum cap policy has contributed to this. We

are interested in working with you and Congressman Stearns on

ensuring that our goals of competition in the future and a robust

industry are realized. Thank you.

[The prepared statement of Thomas J. Sugrue follows:]

PREPARED STATEMENT OF DALE N. HATFIELD, CHIEF, OFFICE OF ENGINEERING AND

TECHNOLOGY & THOMAS J. SUGRUE, CHIEF, WIRELESS TELECOMMUNICATIONS BU- REAU, FEDERAL COMMUNICATIONS COMMISSION

Spectrum management is a core responsibility of the FCC, which has taken on

heightened importance under Chairman Kennard’s leadership. Spectrum is a finite

and valuable national resource. Management of this scarce resource has become increasingly complicated over recent years. Explosive growth in new wireless services

has stimulated demand. We are pleased to discuss spectrum management with the

subcommittee today.1

Rapid advancements in radio technologies in recent years, particularly in the

areas of integrated circuitry, signal processing and digital systems, have led to the

development of a wide range of new radio communications technologies. The advent

of these new technologies has been accompanied by increased demand for spectrum

to permit the operation and growth of new radio services. These new services have

included, for example, the personal communications services (PCS), advanced paging

systems, intelligent transportation services (ITS), mobile satellite services (MSS)

and two-way multichannel distribution service (MMDS) operation.

Today, we simply do not have enough spectrum to give everyone all that they

want. This increasing demand is being propelled by a host of developments including the growing shift of our economy towards the service sector, the increasing mobility of our workforce, and the convenience and increased efficiency produced by

mobile/portable communications combined with improved performance and falling

cost of wireless devices. Increasing requirements for public safety and for national

defense systems, satellite services, private users, amateur radio, and the dramatically growing interest in accessing the Internet are compounding the shortages of

spectrum.

In today’s highly competitive environment, our biggest job as spectrum managers

is to find ways to avoid a spectrum drought that constrains the development of new

technologies. The challenge we face is how to balance competing demands for scarce

spectrum while striving to promote competition through the deployment of new

technologies and services while ensuring that the public interest is best served.

Competition in the Wireless Marketplace

The FCC, consistent with the direction of Congress, is responding to the explosion

of wireless demand by managing the spectrum, to the highest extent possible with

a market-oriented approach. When Congress created the Commercial Mobile Radio

Services (CMRS) in the 1993 Balanced Budget Act, it was with the mandate that

the Commission should facilitate regulatory flexibility and promote market entry

when writing its rules. This was based upon the belief that, in such an environment,

37

the commercial wireless industry would develop into a vibrant marketplace known

for innovation and intense competition.

In order to remain abreast of how commercial operators’ business plans were unfolding, Congress has required the Commission to provide annual updates on the

status of competition in the CMRS industry. This coming report, the fifth such one,

will show that significant progress continues to be made towards Congress’ goals.

Competition continues to develop in the mobile telephone industry. Just five years

ago, consumers could choose from only two cellular carriers, which generally offered

service on a local or regional basis and engaged in very limited, if any, competition

for price, service packages, or quality. Today, nearly three-quarters of the U.S. population lives in areas where five or more mobile phone carriers are competing to offer

service. More people are subscribing to mobile phone service every year, prices are

falling, and subscribers are using their phones more often. In addition, six carriers

have acquired extensive footprints and are offering their customers service packages

that allow them to make calls from almost anywhere in the country without incurring roaming charges. Moreover, not only is mobile telephone service an emerging

competitive alternative to wireline telephone service, it is an extremely valuable

service in its own right, as more wireless subscribers choose their mobile telephone

as their only telephone.

The past year has also seen significant developments in the emerging mobile data

sector. Mobile telephone and other wireless carriers have begun to offer mobile data

services such as Internet access. Many have also announced their plans to migrate

to third generation (3G) networks so that they can offer these services at faster

speeds. The paging industry is positioning itself as a competitor in the mobile data

market by offering two-way, advanced services such as email and Web content updates. In addition, new protocols and technologies are being developed that will facilitate the growth of mobile data in the years to come.

3G and the WRC

Today, the next generation of mobile wireless services will likely include capabilities for multimedia applications and a wide range of services, in addition to voice,

such as video-teleconferencing, high speed Internet, and high data rate offerings.

A major step forward for the next generation of wireless services was taken recently at the World Radio Conference (WRC) sponsored by the ITU in Istanbul in

late spring 2000. The nations of the ITU have agreed to the identification of additional spectrum bands for possible use by IMT-2000. WRC-2000 adopted an approach based significantly on the multi-band, flexible approach to identifying spectrum for wireless services originally nurtured and fostered in the U.S. In the wake

of the recent identification of multiple bands for IMT-2000 by the international community, the U.S. is evaluating whether additional spectrum could, or should, be

made available for 3G services and other advanced mobile communications services

in the United States. This task presents a major challenge to the FCC and the other

parts of our government involved in these studies since all of the additional spectrum identified at WRC for 3G services is heavily encumbered in the United States.

We hope that our efforts to make spectrum use more efficient and to make more

spectrum available for new services will ensure that consumers needs are met both

inside and outside the government.

Overview of Spectrum Management Principles

Spectrum is a valuable and finite public resource that must be allocated and assigned in a manner that will provide the greatest possible benefit to the American

public. Consistent with the FCC’s statutory obligations, we view our mission as ensuring that the radio spectrum is used efficiently and effectively. One of our principal jobs is to help to define policies that maximize the efficient use of the spectrum

and promote the introduction of new services and technologies.

There are four major functions in spectrum management: allocation, service rules,

assignment, and compliance/enforcement. The allocation of spectrum for particular

uses and the development of specific technical and service rules governing those allocations is a crucial determinant of industry structure and performance. The means

by which we assign spectrum is a critical factor in stimulating competition. Finally,

our rules are only effective if we have a means to enforce compliance.

Over time, technological advances, growth in user demand, and the finite nature

of spectrum have made our spectrum management responsibilities increasingly complex. To address the continuing growth of demand for radio services, we have focused our approach to spectrum management on allowing spectrum markets to

make more efficient use of frequency bands through new technologies and on increasing the amount of spectrum available for use. In addition, we have sought to

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nologies that will increase the amount of information that can be transmitted in a

given amount of bandwidth and to allow greater use of the spectrum occupied by

existing services wherever possible.

We would like to briefly highlight the four major spectrum management initiatives currently underway at the commission.

(1) First, flexibility is increasing. We are seeking to promote flexibility in our spectrum allocations, i.e., less restrictive service rules and harmonized rules for like

services, in order to allow licensees to respond better to demand from customers.

(2) Second, is the development of new technologies. We are fostering the development of new spectrum efficient technologies such as Ultra-wideband (UWB) and

Software-Defined Radios (SDR). This spring, we issued an NPRM on UWB and an

NOI on SDR. Ultra-wideband (UWB) technology may offer us a wonderful opportunity to use spectrum more efficiently. This technology appears to be able to operate on spectrum already occupied by existing radio services without causing interference. SDR is a new generation of radio equipment under development that can

be quickly reprogrammed to transmit and receive on any frequency within a wide

range using virtually any transmission format. This new technology could change

the way users can communicate across traditional services.

(3) Third, is promoting the use of higher frequencies. We are stepping up our efforts to explore the use of higher frequency spectrum. Just last week we convened

a public forum to explore opportunities at the 90 GHz band. Until recently, the commercial viability of equipment at this high a level was not feasible. Use of higher

frequency spectrum may mitigate the congestion in high demand bands under 3

GHz.

(4) And fourth, is the development of secondary markets. We are exploring ways

that the Commission can encourage more active secondary market trading in spectrum similar to what currently occurs in wireline bandwidth. Available capacity

could be ‘‘leased’’ on a temporary basis to meet short or medium term demand for

particular services. Such arrangements have tremendous potential for all of the parties involved. The lessor could gain revenues while maintaining control of spectrum

that they feel is needed to meet their long-term strategic objectives. The leasee

would be able to make a profit by providing services to otherwise under-served customers. Consumers would benefit from the availability of the service and manufacturers would benefit by the sale of more products. We, as regulators representing

the public, would benefit from the greater and more efficient use of the spectrum

resource that we have been charged with managing in the public interest. We convened a public forum in May with a broad range of representatives from industry

and academia to gain insight into why there has not been active secondary trading

and how the FCC could facilitate such activity. We are currently reviewing the results of the forum and gathering additional information and ideas. We hope to follow this effort with a more formal proceeding.

These initiatives represent a balanced approach that will help the Commission to

meet the demand of new users. We cannot allow spectrum to constrain competition

in new mobile services. We must be innovative and aggressive in using spectrum

more efficiently and making more spectrum available.

Auctions as an Efficient Assignment Tool—two examples

The primary tool used by the FCC to assign spectrum is our highly successful

competitive bidding program. Since Congress gave the FCC the authority to conduct

auctions late in 1993, we have seen wireless competition explode. Our experience

with auctions has shown that Congress’ decision to authorize this approach to assigning licenses was a sound one. The FCC auctions thousands of licenses each year

with great success. Assignment through auctions has also proven to be the quickest

method the Commission has used in putting licenses into the hands of those who

value them most. Auctions have promoted the entry of new companies into telecommunications markets and stimulated the development of innovative wireless

services. We have led the world in demonstrating that an efficient, transparent

spectrum auctions process can work. The FCC has won awards and recognition

worldwide for its innovative computerized simultaneous multiple round auction design, which allows large numbers of licenses to be auctioned at one time. In the

United States, we have a number of major auctions planned in the coming months.

700 MHz

First, we have scheduled an auction of 36 MHz in the 700 MHz band for this fall.

This is the television Channel 60-69 analog spectrum that Congress mandated the

broadcasters return, after a transition period, in exchange for being given new spectrum for digital television. Our approach to this band illustrates the FCC’s thinking

39

in the spectrum management area, and also demonstrates how difficult it can be

to translate theory into consumer benefit.

The bandwidth available is highly valuable ‘‘beach front’’ property. It is well suited for a number of highly valuable uses, including high speed fixed Internet access

that could compete with DSL and cable modems in the residential market, as well

as high-bandwidth mobile services. We are all well aware that our decisions on the

service rules for a new band like this affect who bids in the auction. We try to make

our rules as technology-neutral as we can, and to let the market decide how licenses

should be aggregated and which services will be the highest valued uses.

In response to the record, we created two licenses each in six different regions.

We also allowed licensees to aggregate their licenses within a region. So, we might

see aggregation within a region to provide fixed wireless, i.e., Internet access, or geographic aggregation to provide mobile wireless. We recognize that even an auction

which offers this much flexibility might still present challenges to potential bidders

to obtain the spectrum they need to fulfill their business plan. So we are continuing

to explore improved auction designs that would allow for bidding on packages of licenses, e.g., combinatorial bidding. With package bidding, bidders would not be restricted to placing bids on individual licenses, but would also be allowed to place

all-or-nothing bids on packages of licenses. This approach would allow bidders to

better express the value of any synergies that might exist among licenses and to

avoid the risks bidders face in trying to acquire efficient packages of licenses. The

FCC was instructed by the Congress in the 1997 Balanced Budget Act to test this

licensing approach.

Also, with six megahertz of this spectrum we are testing a new concept called

‘‘guard band managers.’’ Guard band managers will manage spectrum that buffers

and protects adjacent public safety spectrum in the 700 MHz band. At the same

time, they will serve as a useful market experiment because they will need no additional license authority to lease the spectrum to third parties, and will be able to

respond to the ebb and flow of the market.

C/F Block

Another major upcoming auction involves some significant C and F block PCS licenses. These licenses were reserved for so-called ‘‘designated entities’’ or ‘‘entrepreneurs’’ when they were originally auctioned. Not surprisingly, the interest in this

auction is intense because the available licenses, which can be readily used to provide cellular-like mobile telephone service, will include many major markets.

Many large service providers have asked us to conduct an ‘‘open auction’’ for this

spectrum by lifting the ‘‘designated entity’’ classification for this spectrum, which restricted eligibility to bid in the original C and F block auction to smaller companies—specifically entrepreneurs with gross revenues of less than $125 million and

total assets under $500 million. Needless to say, those providers who are eligible

to bid under the original DE rules are arguing strenuously that we keep the rules

in place for this auction. Both sides of the debate have also proposed various compromise approaches, by which the DE restrictions would be kept in place for some

subset of the licenses and lifted for others. At the same time, some of these DE providers are also urging that we lift the current transfer restrictions which prevent

them from selling licenses they won in earlier C or F block auctions to entities who

would have been ineligible to bid in those auctions. The FCC has released a Notice

of Proposed Rulemaking in which it tentatively concluded that it should amend its

rules to change the eligibility restriction for some but not all of the licenses and that

it should address the transfer and assignment rules. A decision on this is expected

early next month.

Spectrum Cap

Having discussed overall spectrum policy let me now turn my remarks to Congressman Stearns’ bill on the CMRS spectrum cap. By my reading, this bill would

eliminate the cap for spectrum auctioned after January 1, 2000, and for any of those

licenses transferred or assigned thereafter.

The Commission in 1994 instituted the CMRS spectrum cap when the it was finalizing the service rules for broadband PCS. The cap applies to the 180 MHz of

CMRS spectrum used by cellular, PCS and digital Specialized Mobile Radio (SMR)

services predominantly to provide mobile voice, but increasingly to provide mobile

data services and, in some cases, fixed services as well. It governs the amount of

CMRS spectrum that can be licensed to a single entity within a particular geographic area. Under the cap, a single entity may acquire attributable interests in

the licenses of cellular, broadband PCS, and digital SMR services that cumulatively

do not exceed 45 MHz of spectrum within the same urban geographic area, or 55

MHz within the same rural geographic area. The goal has been to prevent excessive

40

concentration and promote active competition within each CMRS market by limiting

the amount of this critical resource any one entity could control. In urban areas,

for instance, no one entity can control more than 25% of the available CMRS spectrum; thus the cap ensures that there are at least four competitors licensed in each

area. The spectrum cap has played a vital role in ensuring the development of competition in the market, with all the benefits this brings to consumers. There remain significant reasons to be concerned about the effects of undue concentration of CMRS

spectrum. For example, even in major metropolitan markets, where numerous competitors are offering mobile voice and data services, the two cellular carriers still

have in excess of 70% of the customers in most markets. We recognize that this situation is changing as new entrants into these markets begin offering services and

competing for customers. Nevertheless, many firms that have been awarded licenses

are still in the early stages of their network build-out.

Last fall the Commission completed a review of the CMRS spectrum cap. It concluded that eliminating the spectrum cap at this time could lead to a reduction in

competition through market consolidation. Specifically, following extensive review— which included analysis of the state of competition in CMRS markets—the Commission concluded that the public interest was best served by retaining the prime aspects of the spectrum cap. It found that the spectrum cap continued to serve several

important purposes: promoting competition, preventing excessive concentration of licenses, providing incentives for licensees to make more efficient use of their spectrum, encouraging innovation, and promoting dissemination of licenses among a

wide variety of applicants.

In last fall’s review, the FCC also recognized that adjustments to the spectrum

cap rule were necessary to reflect market conditions. For instance, it revised the

cap’s attribution rules with respect to passive investors. These changes make it easier for carriers, especially small carriers, to raise capital. In addition, the FCC raised

the spectrum cap to 55 MHz for rural areas. The FCC found that the economics of

serving rural areas are different than are urban areas. In rural areas, there are

fewer problems to permitting the spectrum to be held by a smaller number of players. We are not likely to have five, six, or seven carriers all offering competing services in rural markets, the way we do in urban markets and, as a result, the risks

of anticompetitive conduct by foreclosing entry by permitting some greater degree

of consolidation of spectrum are lower. A 55 MHz aggregation limit in rural areas

will permit carriers serving these areas to achieve economies of scope and scale and

will allow greater partnering between PCS and cellular in those areas, thereby helping to make competition in rural areas more vigorous. Such partnering might also

further the deployment of PCS and other broadband services to rural areas.

The ‘‘bright line’’ aspect of the spectrum cap also promotes regulatory certainty

and promotes regulatory efficiency. For instance, the cap greatly expedites the assignment of spectrum using auctions because it eliminates the need for case-by-case

analysis of whether a carrier’s bidding for, and acquisition of, spectrum in particular

markets would result in undue spectrum concentration. The cap also speeds the

processing of transfers of control or assignment of licenses; in that context also, it

provides clear guidance to parties involved in what the FCC is likely to find acceptable and what licenses they will likely have to spin-off. Thus, it enhances regulatory

certainty and transparency for licensees and improves regulatory efficiency for the

FCC.

Much has been said about the impact of the spectrum cap on the ability of CMRS

carriers to provide advanced broadband mobile services. We all support and want

to encourage the efficient and timely deployment of advanced mobile technologies.

But we must also be cognizant of the risks of undue market consolidation if we

allow CMRS carriers to aggregate spectrum in excess of the cap. In a system like

ours that relies principally on market forces, not government mandates, to ensure

the development and deployment of new wireless services and technologies, one

must proceed cautiously before permitting substantial consolidation and reduced

competition in wireless markets. Such consolidation would likely lead not only to

higher prices, but also to reduced incentives for investment and innovation. Thus,

we could well see a slower, not faster, rollout of advanced wireless services if we

permit this to become a more concentrated, less competitive marketplace.

CMRS markets are rapidly changing. PCS is becoming available in more and

more areas, PCS and digital SMR are attracting more and more subscribers, and

market share differences between cellular and these new competitors are narrowing.

Technology also is rapidly evolving. Current digital technologies are up to 20-25

times more efficient than analog technologies, and even the early implementation

of 3G technologies promises to double or triple that efficiency. While new services

rapidly increase demand, new technologies help respond on the supply side. The

41

FCC will continue to track these changes and report on the evolving level of competition in CMRS markets as part of its annual report on the state of CMRS competition. In the meantime, we will attempt to ensure that our policies are current

and reflect the best interests of the American public in this rapidly changing environment.

Since issuing our most recent spectrum cap order last fall, we have sought additional ways of ensuring that broadband CMRS carriers could obtain needed spectrum for advanced services. For example, the FCC has stated that as it makes new

spectrum available, it will consider whether to exempt that spectrum from the cap

or otherwise adjust the cap. Certainly, additional spectrum provides a basis for liberalizing the application of the cap. As we make more spectrum available for 3G

services, including by using some of the bands identified in the WRC, we will certainly consider how, if at all, to apply the spectrum cap to those new allocations.

The first application of this approach came in January of this year when the FCC

determined that the 30 MHz of spectrum to be auctioned this fall in the 700 MHz

range would not be subject to a spectrum cap. But it made this decision in large

measure because the CMRS spectrum cap helped ensure that a competitive structure in the CMRS marketplace was being maintained.

Also, with regard to the upcoming PCS C and F block auction, the Commission

currently is considering allowing large carriers—many of whom argue for additional

spectrum in the near future—the opportunity to bid for some of these licenses. Further, we are considering whether to divide the 30 MHz C blocks into three blocks

of 10 MHz, which would allow virtually all carriers to bid for at least some of these

licenses in virtually all markets in order to gain additional spectrum and do so without any need to exceed the CMRS spectrum cap.

Where the spectrum cap truly interferes with a carrier’s provision of advanced

services, the Commission has endeavored to be flexible. In our 1999 spectrum cap

order, we expressly invited carriers to submit waiver requests if they could credibly

demonstrate that in a particular geographic area the spectrum cap was having a

significant adverse effect on their provision of 3G or other advanced services. Carriers were asked to identify what additional services they would provide if the spectrum cap were waived, why such services cannot be provided without exceeding the

cap, and any potential adverse effects of such a waiver, such as on competition in

the relevant geographic market. While some carriers have requested general waivers of the cap, no carrier has submitted a specific request demonstrating the need

for such a waiver in any particular market. But we stand ready to consider such

waivers as we pursue the long-term solution of making spectrum available. Finally,

even though our most recent review of the spectrum cap was completed just ten

months ago, the FCC has committed to reviewing the cap before year’s end.

Conclusion

All around the world, the growth in demand for wireless services has been unprecedented; and estimates are that by the year 2002 wireless users will number toward

one billion. An important part of this demand will come from anticipated new multimedia services and the Internet.

The nature of the wireless services is highly dynamic; and the mobile communications services of today, and certainly of those expected in the future, are a far cry

from the first mobile telephony offerings of two decades ago. Wireless services have

significantly progressed from early analog techniques, through major changes resulting from digital processing of the signals and advancements in miniaturization and

portability of equipment.

The FCC must now attend to several different aspects of spectrum management

to assure that next-generation mobile services are brought to the American public

on a competitive basis, in a manner to permit efficient and orderly transition from

earlier generation services, and with sufficient flexibility to permit operational and

technological efficiencies. How all us involved in this dynamic field—including the

Congress, the Executive Branch agencies, the FCC, and the industry—respond to

these challenges will determine how quickly we as a nation make progress to the

next generation of mobile communications. We are confident that we can all meet

this challenge.

Mr. TAUZIN. The Chair thanks the gentleman.

The Chair will recognize the final witness on this panel, Mr. Malcolm Lee, Assistant Deputy Secretary, Department of State.

We will place Mr. Stearns, the author of the legislation in the

Chair. I have to make another vote in another committee right

now. So Mr. Stearns will take over the Chair.

42

Mr. Lee, you are recognized for your 5 minutes.

STATEMENT OF HON. MALCOLM R. LEE

Mr. LEE. Thank you, Mr. Chairman. It is a great pleasure to appear before this committee to address the important issues of spectrum management and the 2000 World Radio Telecommunication

Conference as they relate to Third Generation wireless in the 21st

Century.

I will make three points today.

First, that information technology is transforming the U.S. economy and wireless communications is at the cutting edge of this new

economy.

Second, that the U.S. delegation to the World Radio Conference

succeeded in our objectives of identifying multiple bands for possible 3-G deployment and in doing so we established a sound

framework for the deployment of Third Generation wireless services while protecting incumbent users.

Third, as we look ahead I would like to assure you that the Department of State will work closely with other agencies, Congress

and the private sector to aggressively carry forward domestic decisions and policies with respect to Third Generation and international fora.

The World Radio Conference is convened every 2 or 3 years

under the auspices of the International Telecommunications Union.

It met most recently from May 8 to June 2.

These conferences attempt to establish an orderly framework for

use of the radio spectrum without which chaos would reign and

radio communications would be impaired by interference by competing signals and transmissions. Third Generation wireless services are a major part of the agenda for the last conference. The

U.S. position on IMT-2000, as 3-G is known in the ITU world, is

guided by three basic principles.

The first, to take into account incumbent users of the bands

being considered for possible IMT-2000 implementation.

Second, to establish a strong forward-looking framework for the

development and deployment of new technologies.

Third, to preserve flexibility in the domestic implementation of

conference results in IMT-2000. In recognition of existing systems

in the bands being considered internationally for IMT-2000 and the

need to lay a framework for development and deployment of new

technologies such as 3-G, the U.S. developed the proposal for the

conference that identified multiple bands for possible IMT-2000

use.

This proposal was developed with the full participation of the

U.S. private sector and interested U.S. Government agencies, and

in the end, the World Radio Conference adopted the essence of the

U.S. proposals and identified spectrum in several bands or portions

of bands as being available for IMT-2000 or other uses.

The results provide us the necessary flexibility to decide what is

best for the U.S. in the development of IMT-2000 service offerings

while giving full consideration to the incumbent users of the identified bands involving market forces and other domestic and international considerations.

43

I would like to recognize the truly outstanding performance of

Ambassador Gail Shettler in leading the U.S. delegation. Against

difficult odds, she delivered a truly magnificent result. We have

much to learn from her success.

I would also like to give special recognition to all members of the

U.S. delegation for their tireless efforts.

The road ahead: The results of the World Radio Conference will

be implemented in the United States through processes undertaken

and managed by relevant domestic agencies, principal among them,

the FCC and the Department of Commerce.

The Department of State, in cooperation with other agencies, will

present the results of these domestic processes before a variety of

international fora. There will be several international meetings in

the near future during which we will have the opportunity to engage other countries in order to advocate U.S. interests with regard

to 3-G wireless services.

Among our objectives at these meetings will be to secure leadership positions and relevant activities and to shape the discussions

and agendas in a way that will advance U.S. spectrum policies.

Several of these meetings will tackle tough, technology work necessary to evaluate the implications of IMT-2000 implementation in

the specific bands identified by the World Radio Conference.

Among other things this work includes technical evaluation of

the ability of IMT-2000 systems to share common spectrum with

incumbent systems without causing interference.

In conclusion, Mr. Chairman, we are pleased to report that the

World Radio Conference 2000 results with respect to IMT-2000 met

U.S. objectives. We maintained the flexibility necessary to pursue

our national prerogatives with the best possible implementation of

IMT-2000 and the several bands identified at the World Radio Conference.

The U.S. process for assessing the feasibility of implementing 3-

G in these bands has already begun through the initiatives of the

relevant government agencies.

The Department of State is a partner in these initiatives as we

carry forward the results of these U.S. processes to a growing number of international fora.

Mr. Chairman, I look forward to working with you and this committee as we carry that agenda forward.

[The prepared statement of Hon. Malcolm R. Lee follows:]

PREPARED STATEMENT OF MALCOLM R. LEE, DEPUTY ASSISTANT SECRETARY OF

STATE

Introduction

Thank you Mr. Chairman. My name is Malcolm R. Lee. I am Deputy Assistant

Secretary of State for Economic and Business Affairs and the United States Coordinator for International Communications and Information Policy at the Department

of State. Working with the Secretary and Assistant Secretary for Economic Affairs,

I am responsible for the formulation, coordination, and oversight of foreign policy

related to international communications and information policy, including determination of U.S. positions and the conduct of United States participation in negotiations with foreign governments and international bodies.

Before coming to the Department of State in June, I served as Special Assistant

to the President and Senior Director for International Trade and Economic Policy

within the National Economic Council of the White House. There, I worked on a

broad range of economic and trade matters, including the 1997 World Trade Organization (WTO) Basic Telecommunications Service Agreement, the U.S.-China BilatVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
44

1See U.S. Department of Commerce Digital Economy 2000.

eral WTO Accession Agreement, and legislation recently passed by the House of

Representatives to extend Permanent Normal Trade Relations status to China.

It is a great pleasure to appear before this Committee to address the important

issues of spectrum management and the 2000 World Radiocommunication Conference as they relate to Third Generation wireless service and the 21st Century.

I look forward to working closely with you Mr. Chairman, Congressman Markey,

and other members of this Committee as I fulfill my responsibilities.

Economic and Technological Context

Mr. Chairman, I compliment you for convening this hearing. Information and

communications technology is transforming the U.S. economy, fueling record growth,

higher wages, higher productivity, and fundamental changes in the way we conduct

business and our daily lives. Information technology (IT) accounts for only 8% of

total jobs, but has been responsible for nearly one-third of U.S. economic growth

from 1995 to 1999. Declining information technology prices have lowered the overall

inflation rate by one half of a percentage point from 1994 to 1998. And the production and use of IT was responsible for more than half of the acceleration in U.S.

productivity growth in the second half of the 1990s.1

An integral component of this new economy is the wireless telecommunications industry. Use of the airwaves—the radio spectrum—is the lifeblood of this industry,

as well as that of other commercial and governmental users. The next generation

of wireless telecommunication services promises to expand further and revolutionize

this new IT-driven global economy with innovative new services and capabilities for

businesses and consumers.

The 2000 World Radiocommunication Conference

In my former capacity, I was able to attend, for a brief period in May, the International Telecommunication Union’s (ITU’s) World Radiocommunication Conference

(WRC). I am pleased to have this opportunity to describe to the Committee the results of that Conference as they relate to third generation wireless.

The WRC is convened every two to three years under the auspices of the ITU with

the most recent WRC being held in Istanbul from May 8 to June 2, 2000. These

conferences establish the frequency allocations and regulatory procedures and regulations necessary for the harmonious operation of global radiocommunication services. The WRC attempts to establish an orderly global framework for the use of the

radio spectrum. Without that framework, and without coordination, chaos would

reign and radiocommunications would be impaired by interference of competing signals and transmissions. The Final Acts of these conferences are submitted to the

Senate for advice and consent to ratification.

I would like to recognize, at the outset, the truly outstanding performance of Ambassador Gail Schoettler, former Lieutenant Governor of Colorado, in leading the

U.S. delegation in its preparation of U.S. positions before the Conference, and in the

presentation of those positions at the Conference. Against difficult odds, Ambassador Schoettler and her team delivered a magnificent result that preserved and advanced U.S. interests. We can all be proud of the contribution she made to this

country in this capacity. I would also like to give special recognition to all members

of the U.S. delegation for their tireless efforts before and during the Conference that

resulted in the solid achievements that we will review, in part, today.

We have much to learn from Ambassador Schoettler’ssuccess and I am committed

to taking whatever steps are necessary, in coordination with the Commerce Department, the Federal Communications Commission (FCC), and other interested agencies, to ensure we are effectively advancing U.S. interests internationally. We must

remain vigilant that we have organized ourselves as effectively as possible, that the

private sector and government agencies are working as a team, and that we begin

our preparations early enough to ensure the best possible U.S. proposals for the

Conference. We must maintain high level attention and reach out to our international partners. In that spirit, I have consulted with the leadership of the Department of State, and will be calling a meeting of relevant agencies to review our preparations for WRC 2003. A careful review of Ambassador Schoettler’s personal specific recommendations will be part of that process. Both my interagency colleagues

and I will continue consultations with the private sector so that their views can be

integrated into the planning for WRC 2003.

The United States successfully addressed several important issues at the WRC.

These included:

• Protecting existing radionavigation satellite bands from allocation to other services and allocating a new band for this service;

45

2For example Telemetry, Tracking and Command (TT&C), which is used to monitor and control space launches.

• Adopting technical provisions for sharing between geostationary and non-geostationary satellite systems;

• Fighting off restrictions on the free flow of information by making sure that content based restrictions were not written into the Radio Regulations; and

• Ensuring new broadcasting-satellite channeling plans protected an acceptable

number of U.S. systems and imposed no unacceptable technical or operational

constraints for our region.

Third Generation (3G) wireless communications, collectively referred to in the

ITU as IMT-2000, was another prominent issue on the WRC-2000 agenda. The U.S.

position on IMT-2000 was guided by three principles:

1. To take into account incumbent users of the bands being considered for possible

IMT-2000 implementation;

2. To establish a strong, forward-looking framework for the development of new

technologies; and,

3. To preserve flexibility in the domestic implementation of the Conference results

on IMT-2000.

In other words, Mr. Chairman, the goal of the United States, often in the face

of strong opposition, was tomaintain our national prerogatives for management of

potential 3G spectrum. That required ensuring a result that would allow and encourage the development of new advanced communications applications while taking

into account incumbent U.S. users of these bands. Maintaining U.S. flexibility for

upcoming national spectrum management decisions was essential to the United

States given important incumbent government and U.S. commercial users in the

bands that a number of prominent international players sought for IMT-2000 use.

Results of the WRC 2000

At the Conference, the United States faced a strong push by the European Conference of Posts and Telecommunications (CEPT), many Asia-Pacific states, and several countries in our region, for globally harmonized bands for 3G wireless services.

These proposals were for the use of bands with either existing heavy U.S. government use or with existing heavy U.S. commercial and educational users. I refer here

to the bands 1710-1885 MHz and 2500-2690 MHz, respectfully. The 1710-1885 MHz

band is heavily used by Federal agencies, particularly the Department of Defense,

for uses such as point-to-point tactical microwave relay transmissions and space operations.2 A portion of this band, 1710-1755 MHz, has already been reallocated in

1999 for non-Government use as of January 2004 under the 1993 Omnibus Budget

Reconciliation Act (OBRA 93). The 2500-2690 MHz band is extensively used by commercial and educational entities, such as colleges and universities that are licensed

to operate Instructional Fixed Television Service (ITFS) stations for distance learning applications as well as for commercial purposes such as the Multi-point, Multichannel Distribution Service (MMDS).

In recognition of existing systems in these bands, and the need to lay a framework

for development and deployment of new technologies such as 3G, the United States

developed a proposal for the WRC that identified multiple bands for possible IMT2000 use. This proposal was developed with the full participation of the U.S. private

sector and interested U.S. government agencies. In the end, the WRC adopted the

essence of the U.S. proposals and identified spectrum in several bands, or portions

of those bands, as being available for IMT-2000 or for other services. The result allows for U.S. domestic processes to evaluate and study future deployment of 3G

services.

The WRC decisions on IMT-2000 were consistent with the principles I stated earlier and with the proposal of the United States entering the Conference. The results

provide us the necessary flexibility to decide what is best for the United States in

the development of IMT-2000 service offerings, while giving full consideration to the

incumbent users of the identified bands, evolving markets forces, and other domestic

and international considerations. The WRC resolution relating to IMT-2000 and the

new spectrum allocation stated:

‘‘. . . due consideration should be given to the benefits of harmonized utilization

of the spectrum for the terrestrial component of IMT-2000, taking into account

the use and planned use of these bands by all services to which these bands

are allocated.’’

The WRC did not assign any priority to the implementation of one band over another, thus maintaining the implementation flexibility sought by the United States.

46

The Road Ahead

The Department of State will work closely with other interested agencies to ensure that the results of the WRC relating to 3G are translated into benefits for the

U.S. Government, the private sector, and U.S. citizens. The results of WRC 2000

will be implemented in the United States through processes undertaken and managed by the relevant domestic agencies, principal among them being the FCC and

the National Telecommunications and Information Administration (NTIA) at the

Department of Commerce. Assistant Secretary Rohde of the Department of Commerce and FCC Wireless Bureau Chief Sugrue have outlined their plans in this regard.

The Department of State, in cooperation with the other agencies, will present the

results of these domestic processes before a variety of international fora. This requires developing international positions and strategies—at bilateral, regional and

multilateral levels—to advance U.S. policies and interests. Timely domestic decisions by the relevant technical agencies on 3G related spectrum will put the United

States in the best position to engage other countries as they formulate their own

domestic policies and requirements with respect to 3G services.

Mr. Chairman, allow me to note a few of the activities that the Department of

State has already undertaken, or will undertake, to ensure that the results of WRC

2000 are implemented in a manner consistent with U.S. principles and global economic goals.

There will be several international meetings in the near future during which we

will have the opportunity to engage other countries in order to advocate U.S. interests with regard to 3G wireless services. Among these meetings will be an August

meeting of the Organization of American States Consultative Committee on

Radiocommunication Matters (CITEL) and an international meeting in August of

ITU Working Party 8F which has been assigned the work relating to IMT-2000 and

future advanced mobile telecommunications applications.

Among our objectives at these meetings will be to secure leadership positions in

relevant activities and to shape discussion and agendas in a way that will advance

U.S. spectrum policies. Several of these meetings will tackle technical work necessary to evaluate the implications of IMT-2000 implementation in the specific

bands identified at WRC-2000. Among other things, this work includes technical

evaluation of the ability of IMT-2000 systems to share common spectrum with incumbent systems without interfering with each other’s operations.

Conclusion

Mr. Chairman, in conclusion, we are pleased to report that the WRC 2000 results

with respect to IMT-2000 met U.S. objectives. We maintained the flexibility necessary to pursue our national prerogatives for the possible implementation of IMT2000 in several bands identified at WRC. The U.S. process for assessing the feasibility of implementing IMT-2000 in these bands has already begun through the initiatives of the relevant government agencies. The Department of State is a partner

in these initiatives as we carry forward the results of the U.S. domestic process into

a growing number of international fora.

Thank you, Mr. Chairman and to the Subcommittee for this opportunity to share

with you some of the results of WRC 2000, and to report on our ongoing activities

to promote the full benefits of the emerging information and communications technology based economy.

I look forward to working with you Mr. Chairman, with this Committee, with my

colleagues at other government agencies, and with the private sector to ensure that

the Department of State, and the U.S. Government as a whole, are doing everything

we can to advance U.S. interests internationally.

Mr. STEARNS [presiding]. Thank you, Mr. Lee.

Mr. Sugrue, when I saw your charts over there, it looked like

even after all time has gone by, and this appears to be one of the

most competitive areas of telecommunications because those charts

were pretty dramatic.

If possible, I think the committee would like to have copies of

those. Were they in your testimony?

Mr. SUGRUE. I don’t know whether they are in the testimony. Are

they? If not, we will certainly supply them.

Mr. STEARNS. We would like for you to supply those.

[The charts follow:]

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48

49

Mr. STEARNS. It seemed like you had rural areas where you still,

even at this date, you don’t have them. Now, I understand from the

staff in those rural areas that you have raised the caps to 55 MHz.

Mr. SUGRUE. Yes, right.

Mr. STEARNS. I guess the idea is there is less competition there

so we will raise the caps. So following that argument, I would like

to say that in Boston, for example, they have AT&T, Cellular One,

Sprint, PCS, Verizon Wireless and Omnipoint and who knows

about tomorrow?

Here in Washington we can choose from AT&T, Cellular One,

Sprint, PCS, Voicestream and Verizon Wireless.

Mr. SUGRUE. And Nextel.

Mr. STEARNS. So if in the rural areas you are increasing the

MHz, why in the areas where it is very competitive, why aren’t you

doing it?

Mr. SUGRUE. We get a lot of questions on that because it looks

backwards, just the way you put it, that is, there is less spectrum

congestion in rural areas, so why lift the cap there?

There are two sides to the arguments about the spectrum cap.

One is the congestion point, but the other is what are the

downsides from lifting the cap which is basically market consolidation and less competition.

When we looked at rural areas, it seems we were not going to

have, as a practical matter, 6 or 7 competitors in rural areas. We

will be lucky in some of these to have 3 or 4.

As you pointed out, those areas that still had white space on

them were almost all rural areas. The map that had some yellow

in it with only three competitors was also rural areas. There

seemed to be no need to keep a cap on. Remember, the goal is to

ensure competitive market structure.

We want to ensure in Boston and in Washington that we have

an opportunity to have at least 4 and more desirably 5 or 6, there

are six competitors in Washington right now.

The only effect of lifting the spectrum cap in a town like Washington would be to allow one of the six to acquire the other. Lifting

the cap itself doesn’t create one more MHz of spectrum for the industry as a whole. The pie doesn’t get any bigger. It just means it

is divided into fewer slices.

So instead of 6 carriers, we will have 4.

Mr. STEARNS. By lifting the caps that would happen?

Mr. SUGRUE. By lifting the cap on the present 180 MHz, that is

what would happen. Where I think we are in agreement, as we go

forward and make new spectrum available, I think that is a good

occasion to consider lifting the cap.

Mr. STEARNS. So for the auctions that you are talking about, September or next year, you agree to lift the cap? Are you saying this

afternoon that you agree to lift the caps?

Mr. SUGRUE. Well, the Commission did decide that for the 700

MHz auction. I would certainly anticipate that Assistant Secretary

Rohde referred to and Coordinator Lee referred to that is coming

out of the international process, when we identify that as commercial mobile radio spectrum for 3-G type services, I can’t commit

what a future Commission will do in a year or two, but I think that

50

is a very fair question to say, ‘‘Hey, let’s say we put 100 MHz more

on the table. How are we going to treat that under the cap?’’

One concern I would have with the approach under the bill, Congressman, is that it just says ‘‘don’t apply the cap at all to it, no

spectrum aggregation limits.’’

That would let a single carrier or one or two, but literally a single carrier, acquire all the spectrum in that auction.

I think it might be more appropriate and what I think I would

recommend to the Commission at the time, if I am still there,

would be to consider adjusting the cap, you know, if it is 45, raise

it to 55 or something suitable.

Mr. STEARNS. Let me, if I could, have staff put up the chart that

I brought with me for my opening statement. I don’t know if you

saw that chart.

Mr. SUGRUE. I was just looking at it during your statement.

Mr. STEARNS. You know, the U.S. is dwarfed internationally as

compared to Japan, Britain, or even Argentina in allowing spectrum allocations. In fact, many countries including Australia,

Brazil, Korea, the Philippines, Singapore, Taiwan, and Venezuela

don’t even have a spectrum cap.

Now, how do you explain that in those countries they don’t even

have a spectrum cap, yet you are saying here this morning, you are

conditionally, and isn’t it true that Bell South was denied a spectrum cap waiver for going one MHz over the spectrum cap?

Mr. SUGRUE. No. It was actually for half a MHz, but who is

counting? That is correct, actually.

Mr. STEARNS. Don’t you think that that is absurd, for you to deny

because of a half a MHz?

Mr. SUGRUE. Well, I think the Commission’s reasoning at the

time, the argument Bell South made was because they were using

it for data services it shouldn’t count against the cap. That was the

principal policy argument.

I think the Commission found no way data services are going to

be part of what CMRS is all about. Certainly as we move Internet

services we wouldn’t want a policy that said data doesn’t count for

some reason or——

Mr. STEARNS. So it was the wrong decision?

Mr. SUGRUE. No, I didn’t say that. I said that the policy argument for not applying the cap was it shouldn’t apply to data services. The cap should only be focused on voice services.

Mr. STEARNS. Wasn’t it just for that purpose?

Mr. SUGRUE. Wasn’t it just for what purpose?

Mr. STEARNS. When they want this extra half a MHz?

Mr. SUGRUE. They acquired a mobile data network which counted under our cap. It was used exclusively for data. But as we

evolved, the same spectrum will be used for data and voice interchange. It is now.

Mr. STEARNS. But to answer my question——

Mr. SUGRUE. Yes. I would like to get back to that if I could.

Mr. STEARNS. All these countries are dwarfing us and you see

some countries that don’t have any spectrum cap. Do you think we

are just losing the possibility of innovation in our wireless industry

if we continue to have this cap?

51

Mr. SUGRUE. I don’t think so. Dwarfing us maybe in terms of the

amount of aggregation they permit. Let me take the U.K. because

I am most familiar with that. They just did a 3-G auction. It got

a lot of attention because of the amount of money it raised.

They had the functional equivalent of a spectrum cap, only they

apply it as a one license to a company rule. They had 140 MHz of

so-called 3-G spectrum. They divided it up into five licenses. One

was reserved for a new entrant, 35 MHz. The other 4, 1 was 30

MHz and the other 3 were 25. If you add that up, that is 140.

No one company could get two licenses. In other words, there

was a very clear and very strict limit on spectrum aggregation in

that market.

The U.K. has four 2-G providers. It made the spectrum management decision that it wants five 3-G providers and carved the spectrum up accordingly. It could have taken that 140 and made bigger

hunks of it in effect by dividing it only into four licenses. But it

made it smaller because it wanted more competition.

You can look across Europe and across Asia. No country that I

am aware of is using the transition to 3-G as an occasion to allow

their industry to consolidate down, in other words, to have a reduction in competition. They are all going from their so-called second

generation base and moving up.

In Europe, at least in almost all the EU markets, there are going

to be 4 to 6 3-G competitors. All we are trying to do is preserve

that same competitive market structure that we think has served

us well here, and will serve us well in the future.

The answer may be that we need to get more spectrum on the

table.

Mr. STEARNS. Okay. Thank you. My time has expired. The gentleman from Massachusetts, the ranking member, Mr. Markey.

Mr. MARKEY. Thank you, Mr. Chairman, very much. Again, you

know, it has from our perspective, historically, not been how much

spectrum any one company may have, but how many competitors

are in each market, because the essence of our telecommunications

policy in the United States is that we are trying to induce paranoia

in all of the other companies.

The more there are, the more paranoia is induced. We saw from

1980 to 1992 in a duopoly there isn’t a lot of progress. There just

isn’t. You are sitting on half a market, you know, and no one feels

they have to innovate and have to lower the price of the service to

consumers.

So we believe that we are in the lead because we really have

done this great job of creating this incredibly paranoia-driven marketplace that has served us so well and I think it continues. That

is the essence of our policy.

Many of these countries that we are look at over here, they just

don’t have a lot of competition inside of their countries. In fact, the

country itself is part of the company and has less of a stake in ensuring that there is paranoia, because the government doesn’t like

to be paranoid, since they have a piece of the action.

So, necessarily, you have to factor that in as you look at the rest

of the world. They are following us. They are trying to catch up to

our policy, introducing more competition.

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So I would like you to start off, Mr. Sugrue, if I could, by telling

us whether or not, depending on the company, if they have 30 or

40 or 45 MHz right now, generally speaking it has been utilized

fully.

How much is left over? What else can be run out of the existing

spectrum that most of these companies already have in terms of

their capacity to continue to expand?

In the same way we were talking about in the medical telemetry

area, perhaps there is another 5 or 10 years some people are contending. I guess the meter reading industry is saying they have so

much spectrum right now they are not even going to use it, the

medical telemetry industry. They don’t need any more.

How do you view that issue generally in terms of the industry

incumbents that already have a piece of this spectrum?

Mr. SUGRUE. Well, right now, one interesting thing is that very

few carriers, very few carriers have 45 MHz, that is; they are not

cap constrained, at least that is a regulatory matter. They could acquire more spectrum. We looked pretty carefully at that with respect to the C- and F-block auction we have scheduled for November.

Since Mr. Dingell is not here, I guess I can mentioned that. I was

going to avoid raising it.

Mr. MARKEY. The question now is raised, should we apply the

cap to that spectrum?

Mr. SUGRUE. There was an initial question as to whether to keep

it as a set aside or not for designated entities. The Commission has

proposed, it hasn’t got to the order stage, but proposed splitting the

baby, lifting it for some and not for others.

But when we looked at it, it was clear that the Commission also

thought that dividing those 30 MHz licenses into 10 MHz slices

would allow virtually all carriers in virtually all markets to acquire

additional spectrum, that is, incumbent carriers in the market.

As I said, almost no one is at 45 right now. I should note that

as a practical matter, too, in some of these major transactions the

Department of Justice in its anti-trust review is more conservative

than we are.

In the Verizon-GTE-Vodaphone family of transactions, they insisted on divestiture of licenses down to 35 MHz in most markets,

whereas we would have allowed them to go up to 45.

On the technology point, Congressman Markey, new technologies

not only will provide a lot of advanced data services, but are much

more efficient in terms of delivering voice services as well.

Current CDMA technologies deliver about 20 to 25 times over

spectral efficiency in terms of the number of voice channels. The

next generation will double that.

Mr. MARKEY. So if a PCS company today has 30 MHz, are they

using 10 of that right now, 20 of that right now, 26 of that right

now, on average?

Mr. SUGRUE. Sprint, which is the fastest growing carrier in the

country, that they are using ten or less in all their markets.

Mr. MARKEY. Of their 30, right now?

Mr. SUGRUE. Yes.

Mr. MARKEY. Mr. Hatfield, can you give us an idea of the new

technologies that are out there that might make it more possible

53

for the incumbent companies to wring more efficiencies out of the

existing spectrum?

Mr. HATFIELD. There are a number of techniques. One is called

compression, where essentially you reduce by using computer

power, reduce the number of bits that you have to transmit to convey a particular conversation or whatever, and there is also more

efficient, what we call more efficient modulation techniques that

essentially enable you to send more bits per second per unit of

bandwidth.

Then, of course, the whole nature of the cellular idea is rather

than having a single conversation being broadcast covering a very

wide area, you shrink the size of the coverage area down so that

you can use the same frequency over and over and over again in

the same area.

So a conversation here, somebody standing out in the corridor

using a cellular phone, that same frequency can be used in northwest Washington very easily for another conversation.

So by shrinking the size of the cells down, you can get additional

use.

Mr. MARKEY. These two ideas that you just mentioned, do they

wring out an extra 5 percent efficiency or 10 percent or is it more

like 50 percent?

Mr. HATFIELD. No. As Tom was saying, they can be very significant. There are technologies like using very highly directive antennas so if you and I were having a conversation the antenna would

be pointing at you.

Let me state clearly that these additional technologies cost some

money. So what the public policy tradeoff is is what is the cost of

that additional technology versus the cost of taking spectrum away

because this is all encumbered spectrum we are talking about now.

So to provide new spectrum for somebody you almost invariably

have to take it away from somebody else and there is an opportunity cost associated, being an economist for a moment, there is

an opportunity cost associated with that.

So there is a balancing here between the new technology and the

cost of the spectrum because you can make that tradeoff.

Mr. STEARNS. The gentleman’s time has expired. The gentleman

from Oklahoma, Mr. Largent, is recognized for 5 minutes.

Mr. LARGENT. Thank you, Mr. Chairman. I just have one comment and one question. It is interesting talking about the spectrum

because it is a very unique commodity. I can’t think of another resource, call it a natural resource or commodity that the government

essentially owns, operates, controls, delegates and distributes.

So it really makes it kind of a nuanced subjected to talk about

when you think about it. My question is really pretty simple and

follows along the same lines as Mr. Markey’s.

That is, one of the witnesses that will testify on the next panel

made an ominous prediction. Mr. Kelley of Leap Wireless said that,

let’s see, I have a quote here, he said ‘‘Leap Wireless loves its lawyers, it just does not want to pay more of them to contest the market concentration that is sure to come if H.R. 4758 is adopted.’’

Mr. Sugrue, I would just like you to maybe make a comment

about Mr. Kelley’s prediction that market concentration—that

frankly we are seeing it in pharmaceuticals. We are seeing it in

54

telecommunications. We are seeing it in food services. We are seeing it in just about every industry.

Do you agree that if H.R. 4758 is adopted, the caps are lifted,

that we would see a market concentration and do you also agree

that it would result in limiting competition in the wireless industry

as opposed to encouraging competition?

Mr. SUGRUE. I would agree that before we are able to allocate

and make more spectrum available for these services, lifting the

caps would be a mistake, I think. It would allow consolidation and

that would have, I think, negative impacts on the industry.

I will acknowledge though, that the bill is forward looking.

Again, it applies to future auctions. Now, we have one sort of funny

twist there in that we have some of the old spectrum that is in a

future auction. That is the C- and F-block that has been discussed

a bit. I would continue to apply the caps to that spectrum because

I think we would see the consolidation there.

But as I said, the 700 MHz spectrum which was the first new

spectrum we had to apply the cap to, we said, no, that is new spectrum. We will take that off cap. We are not trying to constrain people from growing. But I think it is vital to preserve a competitive

market. As I say, when I look overseas I see them moving to more

competition, not less.

Whatever the answer is, and we can talk about what it is, it is

not to permit our competitive market structure, as I said, to reconsolidate down.

Mr. LARGENT. When the FCC is considering an application for

spectrum, I guess there is a process that you go through in the auction where you are applying to participate in the auction and you

have to have some sort of reason for needing the spectrum.

I assume the FCC would require that. In other words, you

wouldn’t just allow a participant in an auction who just wants to

hoard spectrum. Is that true?

Mr. SUGRUE. Well, we addressed that in two ways. One, an auction puts a price on spectrum. We think when you could just come

in and get spectrum for free by pleading your case effectively and

lining up support, we were concerned that was more of a risk. That

is the first step.

Second, we also have service requirements in some of our services where you have to, for example, PCS and Cellular, the first of

what we call ‘‘build-out’’ requirements for our PCS services have

just come due. Those carriers have to file reports showing they are

providing service to a certain percentage of the customers in their

license area.

Then, the third thing is the spectrum cap which prevents the

hoarding. That is, we say up to a certain limit, you can go up to

45, but not beyond that.

Mr. LARGENT. Is that within a given market?

Mr. SUGRUE. Yes, within a geographic market. We have been

fairly receptive to aggregations across the country. There does seem

to be a trend toward nationwide footprints that seems to be efficient, that seems to be what customers are looking for. So we have

allowed carriers to coble that together area by area by area.

We are just very concerned. For example, in Washington we don’t

want AT&T and Sprint merging or any of the other major carriers

55

because we think that would be bad for competition here or Boston

or wherever.

Mr. LARGENT. Thank you, Mr. Chairman. I yield back.

Mr. STEARNS. I thank the gentleman. The gentleman from Ohio,

Mr. Sawyer, is recognized for 5 minutes.

Mr. SAWYER. Thank you very much, Mr. Chairman. Mr. Rohde,

you mentioned that you were looking forward to a time when the

allocation process could be automated to go from weeks or days to

a matter of seconds. Could you tell us how you plan to go about

doing that?

Mr. ROHDE. We are in that process right now. As I stated, we

have in the budget request for 2000, seeking money from Congress

to help us further along that process. It is fairly complicated. It involves us automating the process within NTIA, but also, since we

work with these 53 different Federal agencies, they need to automate their process as well as they connect into our agency.

Also keep in mind, a great deal of this allocation work that we

do is classified. So these communication systems have to be

encrypted and they have to be protected because several of these

communications need to be classified.

Mr. SAWYER. Is the success of what you are seeking to do dependent on concomitant efforts at each of those 50 or so other Federal agencies?

Mr. ROHDE. It is dependent because we have to be on the same

communication network. We have to have the same or similar automation processes that communicate with each other and NTIA

could have the greatest automated system within our agency, but

if the other agencies do not have that it won’t work.

Mr. SAWYER. Does your budget request anticipate that need? Is

it reflected within yours?

Mr. ROHDE. It does request that. In fact, it is consistent with the

80-20 rule that Congress has established in spectrum management.

What that means is that the request is for $1 million, but

$200,000 would come as a direct appropriation to NTIA which then

would be matched by $800,000 through the agencies because it is

a service to all the other agencies.

Mr. SAWYER. Mr. Sugrue, when can we in the United States expect to have 3-G technologies available such that, for example, the

single hand set be compatible across a number of national frontiers?

Mr. SUGRUE. I have two answers to that, Mr. Sawyer. One is at

the first level it really is a carrier choice. We in this country do it

somewhat different than they do in other countries where they allocate spectrum, specify a standard, say it has to be used for 3-G

services, define what 3-G is and so forth.

We make spectrum available on a more flexible property-like

basis. The current spectrum that the carriers have, they are free

to deploy 3-G services or 3-G type services in it right now.

Indeed, many of them are in the process of going to what in the

parlance of the industry now is called 21⁄2 G which is a little short

of full 3-G, but much faster in terms of bandwidth than what we

have now.

56

We will see those types of things, at least according to some of

the carriers, starting the first half of next year. We are already seeing data services and Internet access.

Again, pick up the Washington Post and, you know, you can’t

avoid, every other page you see an ad, ‘‘Here, buy this phone.’’ The

phone prices are falling through the floor as they almost always do

in a competitive market.

So full 3-G, that is probably more 2002, 2003. But here it will

be a more, I think, evolutionary path than sort of Europe has said

3-G shall occur beginning in 2002. Everyone has to be there. I

think we will evolve over time to it.

Mr. SAWYER. Mr. Lee, and perhaps Mr. Sugrue as well, could you

talk about and develop a little more fully the negotiations with the

Europeans in their rules to allow different 3-G technologies to compete in their markets and their harmonization with what we are

seeking to do?

Mr. LEE. Certainly. In 1998 the European Commission issued a

directive that there would be one standard for UMTS which is the

EU version of 3-G as it was approved by their Standards Institute.

This was the government mandating a single standard. We

viewed it as unacceptable and being contrary to long-standing U.S.

policy of standard neutrality. Through a series of very senior Cabinet level interventions, the Europeans agreed to technology neutralizing for 3-G open to all standards, but they saved one standard. They said that their standard had to be one use throughout

Europe, but they would allow one other standard in each member

state.

We prefer non-discriminatory standards, letting the marketplace

decide. We have made our views known to the Europeans. We will

continue to make our views known that we do not favor a regime

which favors any standard. So we are still engaged with them on

this matter.

Mr. STEARNS. The gentleman’s time has expired. The gentleman

from Illinois, Mr. Shimkus is recognized for 5 minutes.

Mr. SHIMKUS. Thank you, Mr. Chairman. Let me first correct for

the record something Mr. Hatfield said. He pointed to me and said

I was to the left of Ed Markey. I don’t think I have ever been to

the left of Ed Markey, with all due respect to my friend. I am not

sure any of us have been to the left of Ed Markey.

Mr. MARKEY. Where is Paul Wellstone when you need him?

Mr. SHIMKUS. Since I have been here we have gone from the

spectrum is worth a lot of money to the spectrum is worth nothing

to the spectrum is now worth a lot of money again. And I have only

been here 4 years. So I am waiting to see what happens in the next

iterations.

But it does speak to the issue of not making budget prognoses

on spectrum because we are never really sure what technology will

do and how it may be in the future, looking ahead.

I also do some work with the Army War College in preparing

some of these General-wannabes to come before committees. One

thing I tell them is ‘‘Always be prepared to be bushwhacked and

know your enemy.’’ This question is not an attempt to do the bushwhacking, but it

is a question that is directed very similar, not the same companies,

57

but it has to deal with the private auction of radio spectrum and

the alarm industry.

As I understand in the Balanced Budget Act of 1997 it instructs

the FCC to exempt from spectrum auctions those private radio operations used to protect the safety, life, health or property. Alarms

can easily qualify for this exemption. I am interested to hear the

FCC’s perspective.

The concern is the auction of the large versus the small, what

some think is an exemption for the smaller, regional type operations and the fear of the crowding out inability then to expand the

business.

Can you give me some of your thoughts, Mr. Sugrue, of the Commission?

Mr. SUGRUE. Yes. Congress, in 1997, did create this new category

of public safety radio services. We have always had a category of

public safety services but it was clear from the statutory definition

that public safety services were really government agencies, police,

fire, et cetera.

This new category though is clear that it is broader than that.

It includes some private types of users that are using the spectrum

in a public safety related manner and to deliver public safety-related type services.

We have a notice outstanding, that is how we initiate a proceeding, to address just that and to come up with a definition. We

have a full record on that. We should have an order on that this

fall. I would say October, maybe September, but October is probably safer, to address what that definition is and how to apply it.

Congress in a sense took away the exemption from auctions for

private services generally, but then put this one back in for public

safety related private services. That is what we are wrestling with,

how to apply those two provisions.

Mr. SHIMKUS. And that is why there is a bit of fear in the industry because they are not sure how the resolution of that will be.

So I throw that out, as you know, as a concern.

Let me also talk about an issue that I have heard on spectrum

auctions and when you go to the auction process, if there is a high

demand for a limited commodity, the price and the revenues to the

government could be at this point in time pretty high as we saw

in the initial auction which then for some went belly up for a while.

How does the mid to smaller companies, how do we reconcile and

allow them to be somewhat competitive in this market? I am

speaking kind of as a person who believes in supply and demand,

believes in the markets, and believes in competition. But how do

the mid-sized to small or medium-sized companies get involved in

the game?

Mr. SUGRUE. In a couple of fashions. First of all, in what we call

our band plan, that is, how many licenses there will be in terms

of the size of the geographic areas and the size of the spectrum

blocks. We try to be sensitive to the needs of small businesses.

We also have to be sensitive to the other factors Congress identified including the roll out of services and efficient and so forth. But

certainly we look at that.

We also provide bidding credits for small businesses. We consistently do that in just about every auction so that a small business,

58

and there is some head room in that in terms of how small you

have to be, can participate and get like a 25 percent bidding credit.

So if you bid a dollar, you only have to pay 75 cents.

We also permit licenses to be what we call partitioned and what

we call disaggregated, that is divided up so if a big carrier doesn’t

want to serve, we hear this a lot from the rural areas, they don’t

want to come in to the rural areas, they can divide their license

and essentially transfer it to the rural areas.

Finally, under Dale Hatfield’s leadership, we are looking at spectrum leasing as an option, whether we can promote that, which is

another way small companies can either acquire licenses and lease

them to others or vice versa, that is, they can lease from a major

carrier spectrum in the areas that major carriers are using.

Mr. SHIMKUS. Thank you. Mr. Chairman, my time has expired.

Mr. STEARNS. The gentleman’s time has expired. The gentleman

from Michigan, the ranking member of the full committee, Mr. Dingell, is recognized for 5 minutes.

Mr. DINGELL. Mr. Chairman, I thank you. I have these questions

for Mr. Sugrue. Mr. Sugrue, this is a question which will require

a simple yes or no answer.

I understand the majority of C-block licenses the FCC intends to

re-auction in November were originally assigned to NextWave

Communications and that NextWave has offered to pay the government the full amount of the bid which is nearly $5 billion in one

lump sum payment. Is that correct?

Mr. SUGRUE. I should——

Mr. DINGELL. Just yes or no.

Mr. SUGRUE. I am recused on the NextWave matter, unfortunately, because of my prior firm. But I think I can answer that. I

think the answer is yes. Yes, I think I can answer yes.

Mr. DINGELL. The answer is yes?

Mr. SUGRUE. I believe so.

Mr. DINGELL. Is that true, Mr. Hatfield?

Mr. HATFIELD. As far as I know, sir.

Mr. DINGELL. Mr. Rohde?

Mr. ROHDE. I don’t know.

Mr. DINGELL. You don’t know.

Now, Mr. Sugrue, has the FCC refused to accept this payment

which would resolve all legal questions of title and allow NextWave

to roll out services immediately to the public? I understand again

you are recused, but this is simply a factual question.

Mr. SUGRUE. Well, they have certainly not accepted the payment.

That is true.

Mr. DINGELL. Do you agree with that, Mr. Hatfield?

Mr. HATFIELD. You are getting beyond my personal knowledge,

but that is my understanding.

Mr. DINGELL. There is no one, I think, who would quarrel with

that.

Now, the FCC believes that it has authority to cancel the

NextWave licenses and to reauction them in November. Is this a

judgment which is bottomed on settled law or is it an open question before the courts?

Mr. SUGRUE. The FCC——

59

Mr. DINGELL. Is this a matter which is in litigation before the

courts at this time?

Mr. SUGRUE. NextWave has sought Supreme Court review of the

Second Circuit decision that upheld the Commission’s decision.

That is correct.

Mr. DINGELL. So there is a substantial legal controversy on this

matter, is that not true?

Mr. SUGRUE. There is an appeal taken, yes.

Mr. DINGELL. The FCC has not agreed with the matter and it

has not been concluded before the courts?

Mr. SUGRUE. There are still appeals pending, yes, sir.

Mr. DINGELL. Do you agree with that, Mr. Hatfield?

Mr. HATFIELD. I am an engineer.

Mr. DINGELL. You might give a better answer than the lawyers.

This matter is also before the DC Circuit Court; is it not?

Mr. SUGRUE. Is has been dismissed, but I presume it will be back

there soon, I would guess.

Mr. DINGELL. Let’s talk here about the value of the bids. Now,

if these bids are under a legal cloud when the auction commences

in November, doesn’t that mean that the licenses will probably be

sold for a lower price?

Mr. SUGRUE. Risk about ownership could very well affect price,

although the potential bidders we talked to seemed fairly confident

and very enthusiastic about bidding on them.

Mr. DINGELL. Of course, that is what you would expect a bidder

to tell you; isn’t it?

Mr. SUGRUE. Some of them come in and wring their hands about

‘‘Oh, we can’t bid now, we can’t,’’ whatever. You would be surprised

at how many stories we hear about the problems with the licenses

we are trying to auction.

Mr. DINGELL. Are you going to sit there then and tell me that

this will produce the highest possible return for the government on

the sale, when it is under a cloud?

If you were advising a client to buy a property under a cloud,

would you tell them ‘‘bid the top’’ or would you tell them ‘‘bid the

lowest?’’

Mr. SUGRUE. In these circumstances people seem fairly competent in the Commission’s legal position and the competitive market seems to be driving the price up. I think it will produce a lot

of money, to the extent that is the concern.

Mr. DINGELL. But it is a legitimate concern?

Mr. SUGRUE. It is a legitimate concern, Mr. Dingell, yes.

Mr. DINGELL. Now, I assume the licenses could not be immediately issued after the auction; is that correct? There are a lot of

questions that will have to be resolved, including waiting the outcome of the lawsuit because the court may very well stay the sale

until the rights of the parties are concluded. Isn’t that right?

Mr. SUGRUE. Well, I shouldn’t speculate on NextWave’s legal

strategy. People do seek stays of auctions pretty regularly, every

auction.

Mr. DINGELL. Young lady, why don’t you come up to the table?

Mr. Sugrue is looking very uncomfortable. He is in part recused

and I am just trying to get some factual answers from him.

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Mr. SUGRUE. Come on up to the table, Kathleen. This is

Kathleen—— Mr. STEARNS. Just give us your name for the record.

Ms. HAM. My name is Kathleen O’Brien Ham. I am Deputy Chief

of the Wireless Telecommunication Bureau.

Mr. DINGELL. Now, could you tell us, Ms. O’Brien, that given the

uncertainties involved, why does the FCC insist on canceling these

licenses rather than simply settling the litigation for one and all,

accepting $5 billion for the U.S. Treasury, and letting the licensees

go to work immediately for the benefit of American consumer?

Mr. STEARNS. The gentleman’s time has expired. We are going to

have a second round.

Mr. DINGELL. Can she just answer my question?

Mr. STEARNS. Oh, yes. I am just saying that we are going to have

a second round here and so—— Mr. DINGELL. I will be happy to wait for my turn on the second

round, but I sure would like to hear the answer.

Mr. STEARNS. Absolutely, absolutely.

Ms. HAM. I should say that there is a pending petition for reconsideration that NextWave has before the Commission. So the commissioners themselves will very soon have the opportunity to address the questions that you are indicating.

Mr. DINGELL. How long has that been pending?

Ms. HAM. It has been pending, I believe, since February. Don’t

quote me on that, but I believe since February.

Mr. DINGELL. My $40 Casio watch says this is July. It has been

pending 6 months and nothing has been done on this during that

time?

Ms. HAM. Well, at the same time that that was filed with the

Commission, NextWave filed a petition for review in the DC Circuit

which was just recently dismissed. The Commission addressed the

petition for review in the DC Circuit.

Mr. DINGELL. Which matter has now been dismissed?

Ms. HAM. The appeal that NextWave sought in the DC Circuit

simultaneously with filing a petition for reconsideration before the

Commission was dismissed by the DC Circuit.

Mr. STEARNS. The gentleman’s time has expired.

Mr. DINGELL. Could I just get an answer as to what has happened to this petition?

Mr. STEARNS. Madam, can you just tell him what has happened?

Ms. HAM. Yes. The matter is pending before the Commission.

The Commission will very shortly address the merits of the question that you raise about cancellation.

Can I make one point? That is that on the face of all the licenses

that were auctioned, including NextWave, the licenses were conditioned on full and timely payment. A payment was due on October

29, 1998.

Other C-block licensees lost their licenses when they failed to

make that payment. That was my only point.

Mr. DINGELL. I appreciate your assistance, but it goes beyond

what I want.

Ms. HAM. Okay. Sorry, I am sorry.

Mr. STEARNS. The gentleman from New York, Mr. Fossella, is

recognized for 5 minutes.

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Mr. FOSSELLA. Thank you, Mr. Chairman. I would yield my time

to Mr. Dingell, but I am afraid his pacemaker would explode at this

point.

Just simply, in your opinion, over the next decade what is the

demand or how much spectrum will be needed over the next decade, Mr. Sugrue?

Mr. SUGRUE. Over the next decade for commercial mobile radio

services? That is hard to tell because there is a race between the

increasing demand and the increasing capacity of the technology to

essentially derive more efficiency out of the current allocations.

Mr. FOSSELLA. Can you give me a rough estimate? I am sure

there are industry estimates as to what is going to be needed.

Mr. SUGRUE. Well, we have at the FCC, tentatively, and maybe

I should let Dale answer this because in part it is a technology

question, but in a policy statement the Commission adopted last

fall, they tentatively identified an extra 85 MHz that could be allocated for these services.

We have 30 MHz that was referred to at the UHF spectrum that

we are allocating that can be used for this. We have 48 more MHz,

that is Channels 52 to 59, another part of the digital transition.

So we have some spectrum coming down the line that will be

available for these services.

Mr. FOSSELLA. I am just curious to hear over the next decade

what you believe is going to be needed and I am just curious if you

have an assessment.

Mr. HATFIELD. If I could ask for a clarification of your question,

are you asking the demand for all uses of the spectrum or just for

advanced mobile services?

Mr. FOSSELLA. Actually, both, if you can. If you don’t have that

now, you can provide that. That would be great.

Mr. HATFIELD. I shouldn’t have asked the question. The only

thing that we can really say is that there is just an explosive demand that is being driven by the fact we are an increasingly mobile

society. The devices are getting smaller, cheaper, and more functional and all that sort of thing.

There is efficiency that you can gain in transportation. So all the

forces are working, I think, in the direction of continued increases

in demand, offset, as Tom said, by the fact that we are getting

some help on the technology side as well.

Let me just say specifically regarding mobile, one of the difficult

issues is that it depends upon, for example, if you believe people

on their Palm Pilots will be getting actually delivered video pictures, for example, that consumes an awful lot of spectrum. If that

market doesn’t develop then there would be correspondingly less.

So it is very difficult for us in government trying to forecast with

any degree of certainty what the market is going to do even a couple of years from now.

That is the reason the Commission in general has gone to this

more flexible approach where we give the providers the opportunity

to adjust the technology they are using and so forth to meet the

changes in demand.

That is about the only thing you can hope to do, to give licensees

flexibility.

62

Mr. FOSSELLA. So at this point, it is safe to say you haven’t been

able to quantify how much is going to be needed?

Mr. HATFIELD. No. Just because the fundamental changes here,

the technology is changing so fast that what we are seeing is—— Mr. FOSSELLA. If I might, I mean presumably private industry is

assessing their needs right now and planning for the future. I assume that industry has an assessment of what the needs are over

the next decade.

Mr. HATFIELD. Yes. In part of our allocation proceedings, the industry typically will file reports with us in which they estimate future demand. As I said, the difficult is that a lot of those are dependent upon, you know, consumers willingness to buy certain new

features and functions.

It seems like those things are difficult to forecast.

Mr. FOSSELLA. Let me shift gears for a second. I assume my time

is probably running out. I think what Mr. Stearns was getting at

before in terms of the global nature of this industry and whether

the United States is going to be at an economic or competitive disadvantage, do you believe that the other nations have allocated and

licensed sufficient amounts of spectrum to meet the needs of their

wireless industries.

If yes, do you think the United States has meet that obligation,

and if not, what should we be doing to do so?

Mr. SUGRUE. Well, I will take a crack at that. Let me just comment on industry studies as to their needs. It is important they do

that, but I have never seen such a study that indicated any industry needed less spectrum than they have.

It is always ‘‘the sky is the limit.’’ One virtue, again, of the auctions program, not to tout that, is that it makes people sort of put

up or shut up in terms of what their needs are.

I think this industry, in fairness to them, is willing to put up.

They are looking for an opportunity to buy additional spectrum. I

think all the countries in the world are working toward providing

enough spectrum for this next generation of mobile services, we

and Europe, Japan and everyone else.

I think we have some special challenges here. For a variety of

reasons, the spectrum, I think, is even more intensively used for

a variety of uses, both non-government and government uses in the

U.S. than anywhere around the globe. That creates special challenges and problems in terms of spectrum management.

For example, we have more broadcast stations than practically

every other country. We had the U.K. up there. For years they had

four national networks. That four channels was all they needed.

They have licensed more broadcast stations since then. That is just

one example. No one has quite the operations we have.

So I think it is especially challenging to the U.S. to carve out,

particularly in the bands that can be used for mobile services

which are down below three GHz, but I mean where it is the most

crowded.

Mr. STEARNS. The gentleman’s time has expired.

The gentleman from Virginia, Mr. Boucher, is recognized for 5

minutes.

Mr. BOUCHER. Thank you very much, Mr. Chairman. Mr. Sugrue,

I also have some questions for you. I am concerned about the upVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00066 Fmt 6633 Sfmt 6602 E:\HEARINGS\65904 pfrm01 PsN: 65904
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coming auction of the 700 MHz spectrum which you now have

scheduled for September 6.

That space, as I am sure you know, is now occupied by television

broadcasters residing in Channel 60 to 69 and it is to be auctioned

notwithstanding the fact that the broadcasters are not required to

vacate that spectrum for many years into the future.

Even the date upon which the vacation of the spectrum will be

required is somewhat uncertain. That uncertainty has dramatically

depressed the anticipated price that this spectrum will receive at

auction.

In the United Kingdom, a spectrum which I am told has propagation qualities that are somewhat inferior to our 700 MHz spectrum,

recently sold at public auction for $30 billion.

Now the budget estimate that we have for the sale of our more

robust and better 700 MHz spectrum is $2.6 billion. So you have

$30 billion in the United Kingdom versus $2.6 billion for a better

spectrum in the United States.

That discrepancy is caused by the uncertainty that exists about

when this asset could be delivered to the purchaser. Now, it seems

to me that we are perhaps squandering a budget opportunity. Here

is an example of where budget policy is driving spectrum decisions

and not even doing so in a way that is wise from a budgetary

standpoint.

I would like to ask you if you first of all share these concerns,

and second, if you do share these concerns, if you would agree that

it would be in our national interest to postpone this auction and

to have this auction at a time when we have some measure of certainty about when the spectrum is going to be vacated by broadcasters and be made available to the purchasers, an event which

would dramatically increase the price that would be paid.

I would also like to ask you what would have to happen for this

impending auction to be delayed.

The final question I would ask you, and you can answer these

in any order that you like, is what in your opinion is the latest

date, given current circumstances, by which broadcasters would be

required to vacate Channel 60 to 69?

I remember when we were having the discussion about allocating

spectrum to broadcasters for the digital transition that we made an

agreement that they would not have to surrender spectrum back to

the government until such point in time as the digital transition

was complete. By that we meant that the consumer premises

equipment, the TV sets in homes, would have to be digital compatible.

I think the figure we set was something like 80 percent of television sets being digital compatible. I can just about assure you

that the last analog TV set in America will be in my Congressional

district. It is going to be a long time before we get 80 percent digital compatibility with TV sets where I live.

So with that the standard, when do you think we are going to

get to that point, if that is the standard. If it is not, when do we

get to the point where we have some certainty about when the

spectrum is going to be vacated and be made available to the purchaser?

64

So with that group of questions I would be very interested to

hear what you have to say.

Mr. SUGRUE. Well, I think I will take them in random order. I

would just like to note initially that the schedule for this auction

wasn’t our idea in the first instance. It was mandated by an act

of Congress, I gather for budgetary reasons. There is still on the

books in the Communications Act, a date that says ‘‘you shall auction it by such and such a date.’’

I know we did move this auction a little bit. We had scheduled

it for May originally, and move it to September, which did place in

jeopardy getting the money in the treasury by the time specified

in the legislation. That made everyone a little uncomfortable, but

we thought it was appropriate to do so.

But there was at least some feeling that if we held the auction

within the timeframe Congress had specified that we would at least

come close.

I know at least one of the Commissioners, and this will be a decision they will make, has already said he would be uncomfortable,

indeed I think he has said ‘‘opposed’’ to moving the auction without

a change in the law.

Now, others may feel differently about it, but I just wanted to

put that sort of framework on it. I will certainly report back, Mr.

Boucher, that you, and I heard the Chairman’s opening remarks,

have expressed these views and I think quite well.

I think it is a problem when you are auctioning off spectrum that

is encumbered. Usually when we do this we have a plan in place

that has a voluntary relocation negotiation and so forth that is followed eventually by a mandatory relocation.

So that a year or 2 years, at least 3 years out or something you

can see at some point the Commission will step in and force people

to move.

Mr. BOUCHER. Well, Mr. Sugrue, let me just say that no matter

what happens, the money that is realized from this auction is not

going to inure to the fiscal year 2000 budget. Now you are trying

to auction this in fiscal year 2000.

What is the harm in delaying this even a year? You could then

account for that money in the next fiscal year, which is when it

would be received anyway. Is there any harm in doing that?

Mr. SUGRUE. I am not a budget expert. As you put it, I wouldn’t

see any harm, but the law——

Mr. BOUCHER. I am going to yield to Mr. Dingell who has a question on this.

Mr. DINGELL. The FCC has said that they don’t have to vacate

these channels until 2006. The gentleman here is asking a very important question. There is a voluntary relocation they might make.

Now ‘‘voluntary’’ means just that. It means if they really want

to they can, but they don’t have to. So all this time they are going

to be waiting while it is decided whether or not they are going to

pay, how much they are going to pay, and when they are going to

get off.

They are essentially going to be buying a depreciated asset because they are buying something which is valued at being realized

at some conjectural time in the future.

65

Now, how do you defend that? How does the Commission defend

that?

Mr. SUGRUE. Well, again, in the first instance, we moved on this

at the direction of Congress that required us to auction it off. If I

could just lay out, perhaps, a somewhat different scenario, just to

argue the other side.

Mr. DINGELL. Defend it, if you will.

Mr. SUGRUE. One way to help facilitate the transition of digital

television is, if we get the new licensees out there they will have

an incentive. This is very valuable spectrum, I agree with you 100

percent. This is beach-front property.

They will have the incentive to negotiate with the broadcasters.

It will be a pretty penny, Mr. Dingell, I agree.

Mr. DINGELL. It is going to cost the taxpayers a lot because of

the way you are proceeding. You are going to get a lot less for this

than you would have gotten if you had handled the matter better.

Mr. STEARNS. I would remind the gentleman that we are going

to have a second round of questioning here. Mr. Sugrue, why don’t

you finish up if you have your answer and then we will go to the

second round so that all members can pursue this?

Mr. SUGRUE. Congress changed the law last year to require the

accelerated auction, i.e., required us to auction off this spectrum

sooner than 2006. I think the thought was it has some value in the

commercial marketplace.

If you look at a map of the country, and I have one but not with

me, of where these stations are, Channel 60 to 69 of the broadcast

band are the least occupied channels. There are parts of this country where this spectrum is free and clear and usable.

Within some cities, parts of it are occupied but other parts are

available for use.

Mr. STEARNS. The gentleman’s time has expired.

The Chair recognizes himself for 5 minutes. We will pursue this

a little bit. You have the public interest standard and then you

have the Appropriations Committee. Under the public interest

standards, can’t you decide to delay this because you have your

comment period coming. The dates of your comment period are like

the end of September.

Yet, you have designated September 6 as the date you are going

to do the auction on the 700 MHz. I think the first question is,

can’t you, on the public interest side, decide to delay this? I think

that is what you are hearing from the committee. You seem reluctant to want to do anything.

Mr. SUGRUE. We moved the auction one time and all. I can tell

you the Commissioners are reluctant to move it dramatically again

because there is a specific deadline in the law.

As I said, I will report back the in of the members of this committee in seeing that auction moved, despite the provision of the

law specifying a date.

While I am a lawyer, I haven’t practiced in a while. I would have

to check whether the public interest standard can overrule explicit

directions in the Communications Act. But if it does, we will have

a little fun with it.

Mr. STEARNS. We are told we don’t want you to go down that

road. I mean I don’t want to kill a dead horse. But you have a comVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 E:\HEARINGS\65904 pfrm01 PsN: 65904
66

ment period from August 16 to September 15, yet you have given

notice that September 6 is when you are going to do that auction.

What can the Justice Department or the FTC do to prevent a

company from buying all the spectrum?

Mr. SUGRUE. Very little. Well, buying the spectrum, it depends

whether it is at auction or through a merger. At an auction there

is no particular Justice Department review at that time.

That is strictly a licensing matter under the exclusive jurisdiction of the FCC. So decisions as to how many licenses one company

can acquire in an auction are a matter under the Communications

Act for the Commission.

The Department of Justice and the FCC share jurisdiction.

Under Hart-Scott-Rodino, the Department of Justice reviews certain types of mergers and the FCC reviews transfer of licenses and

sometimes those involve the same transactions.

Mr. STEARNS. Is there any type of auction rule that you can do

to prevent folks from buying all the spectrum? Is that a technical

feasibility or is that a possibility to do the auction rules in such a

way?

Mr. SUGRUE. Sure, we could——

Mr. STEARNS. Would that solve your problem?

Mr. SUGRUE. We do limit sometimes. For example, we have a restriction that we just sunset for what we call LMDS spectrum.

That is spectrum that can be used for wireless local loop services,

broadband services, fixed services, that prohibited telephone companies and cable companies from bidding on that spectrum in their

operating areas to promote competition.

We could limit the number of licenses a carrier can acquire, any

single carrier can acquire in an auction. The spectrum cap is just

another way of doing that. Frankly, it is a more flexible way of

doing that.

Mr. STEARNS. Following what Mr. Boucher mentioned about with

the broadcasters vacating the channel, what private and public procedures are you folks doing? I mean this is not something that has

just come to your attention today. What procedures and plans have

you put in place and can you tell us what they are?

Mr. SUGRUE. The procedures and plans, the recent order the

Commission adopted established certain guidelines and presumptions for voluntary transactions. By the way, we read the act as not

permitting us to have mandatory relocation.

I think Congress was fairly clear that the broadcasters don’t

have to move out of that spectrum and we can’t order them to move

out of it until 2006 and even then only under the conditions that

Mr. Boucher referred to which was 85 percent DTV penetration

and certain other conditions.

If we could read it to have a mandatory relocation, say, you

know, we think it is better for you to move in 2004, at least we

in the Wireless Bureau, my friends in the mass media may feel differently, but we in the Wireless Bureau, I think, would welcome

the ability to do such a reading.

What we said in the most recent order was, ‘‘You come to us with

a deal where a broadcaster agrees to move early and the conditions

in the local market are 1, 2, 3 and 4, there will be a presumption,

67

a rebuttable presumption, but a presumption that that transaction

will be approved.’’

We are trying to provide some certainty, albeit within the voluntary negotiation framework, for band clearing to take place.

Mr. STEARNS. My time has expired. I just want to tell all members, on this second round what we intend to do is finish this and

then adjourn for lunch and then come back with the second panel.

So at this point, Mr. Markey, the gentleman from Massachusetts,

is recognized for 5 minutes.

Mr. MARKEY. Thank you. I just have one question and that is

again for Mr. Sugrue. I would like Mr. Rohde to answer it as well.

Can you give us an update on progress on implementation of the

enhanced 911 service? As you know, Mr. Tauzin and I and other

members on the committee worked together on a bill signed into

law last year on Wireless 911 services.

We have a strong interest in seeing wireless help save lives.

What is the status of the FCC’s implementation of that accurate

location technology and, Mr. Rohde, what is the position of the administration on that issue?

Mr. SUGRUE. The date we established for the beginning of the

rollout of E911, and it will be a transition because it is like all

these things are, is October 1, 2001.

Last year we required all the carriers to file reports with us by

this October 1, a year ahead of time, on their plans to implement.

This was to get sort of a head start as to where people stood, how

they were going to implement, what problems were going to occur,

so we didn’t walk up to October 1, 2001 and then the sky is falling,

it can’t be done or whatever.

So we are trying to get ahead of the curve on that. We have been

talking with carrier, technology vendors, manufacturers and the

public safety community. All four of those groups have to be involved to have this be a functional system as to where things stand

and where things need to be done or improved.

Mr. MARKEY. Mr. Rohde?

Mr. ROHDE. The administration obviously supported that legislation. At this time, as you know, this is really a matter where they

are proceeding in implementing that. We have not, the administration has not seen anything that has caused us to feel we need to

comment at this point. So we are just waiting and watching the

FCC’s proceedings.

Mr. MARKEY. Believe it or not, there are now 100,000 911 calls

made everyday on wireless technology. So, obviously, it is critical

that those safety issues, those emergency calls, are protected because it is going to increase and the public safety must be given

the highest priority as we are working through this issue.

Mr. STEARNS. I thank the gentleman. Mr. Dingell is recognized

for 5 minutes.

Mr. DINGELL. Mr. Chairman, thank you. For Mr. Hatfield, Mr.

Hatfield, do you agree or disagree with the statement that digital

service can provide 20 to 25 times as much capacity as analog?

Mr. HATFIELD. It depends upon the base of what the analog you

are talking about——

Mr. DINGELL. Now you are sounding like a lawyer.

68

Mr. HATFIELD. I am trying not to. That sounds aggressive, but

technology has been changing the rate. You look at the original

analog systems that we installed in this country—— Mr. DINGELL. At this time it can provide 20 to 25 times—— Mr. HATFIELD. That is aggressive.

Mr. DINGELL. That is aggressive? But we would assume that the

FCC would aggressively manage this, could we not?

Mr. HATFIELD. Yes, I think those sort of numbers would come

from the—— Mr. DINGELL. Let us go to the next question. I don’t mean to be

rude, but my time is very limited here.

Do you know how much spectrum is used by the incumbent carrier such as Bell Atlantic and SBC, that is currently devoted to

analog use? I believe in the case of Bell Atlantic it is 51 percent

analog and in the case of SBC it is 59 percent analog. Is that right?

Mr. HATFIELD. I have no reason to doubt that.

Mr. DINGELL. Mr. Rohde, do you agree or disagree?

Mr. ROHDE. I do not know.

Mr. DINGELL. You don’t know.

Mr. Sugrue?

Mr. SUGRUE. All the cellular carriers are still providing substantial amounts of analog service.

Mr. DINGELL. We could pick up a huge amount of spectrum by

simply requiring them to move at an early time from where they

are with analog to digital; is that not so? Yes or no?

Mr. SUGRUE. Moving to digital, yes, creates more spectrum.

Mr. DINGELL. It would create a lot more spectrum. Now, if we

leave this situation go on in the course that it is, we open new

spectrum to them, give them a opportunity to bid on it. They then

can bid on it, get that new spectrum and then convert from analog

to digital and have a whole lot more spectrum; isn’t that right?

Mr. SUGRUE. I didn’t follow every step in that process, but I

think generally I agree with that.

Mr. DINGELL. Okay. And that would tend again further to diminish competition in terms of providing public service; would it not?

Mr. SUGRUE. Consolidation of providers in this market would diminish service in my view.

Mr. DINGELL. That is right. Now, does the FCC have a rule requiring these companies to maintain analog service?

Mr. SUGRUE. The two cellular carriers we do, yes.

Mr. DINGELL. You could repeal that, could you not?

Mr. SUGRUE. Yes, we could.

Mr. DINGELL. When does the FCC plan to look at the wisdom of

this rule and consider repealing it so that these companies can take

advantage of additional capacity?

Mr. SUGRUE. We are going to be looking at that the second half

of this year.

Mr. DINGELL. The second half of this year? Is this going to proceed as speedily as the other matter we discussed earlier?

Mr. SUGRUE. At least.

Mr. DINGELL. You have not comforted me. Now, given the uncertainties involved, why does the FCC insist on canceling the

NextWave licenses rather than simply settling the litigation once

and for all, accepting $5 billion on behalf of the U.S. Treasury and

69

letting the licenses go to work immediately for the benefit of U.S.

consumers?

There must be a good reason for this. Could somebody come forward and tell me?

Mr. SUGRUE. Could Ms. Ham respond?

Mr. DINGELL. Ms. Ham, without obfuscation, could you please

give me an answer to that question and not to other questions?

Why?

Ms. HAM. Again, I don’t want to evade your question, but you

have to understand the matter is pending.

Mr. DINGELL. All I want is an answer to my question, not to

someone else’s.

Ms. HAM. Fairness to all and process. The auctions program assigns thousands of licenses.

Mr. DINGELL. The answer here, I think, simply is that there is

no reason. Isn’t it?

Ms. HAM. No. I think the answer is that we set out rules. We

condition the licenses on full and timely payment and we want to

enforce that as to everybody. So from the Commission’s perspective,

it is just following our rules and our process.

Mr. DINGELL. When did the company not make a full and timely

payment?

Ms. HAM. The Commission had suspended the payments for the

C-block while it underwent a proceeding. All the C-block licensees

were apprised of what the schedule for the payments would be. A

payment was due on October 19, 1998.

Four C-block licensees came in and asked for a waiver of that

payment deadline. NextWave was not one of them. The Commission denied that waiver, not once but twice.

Mr. DINGELL. NextWave had already filed for bankruptcy protection at this point.

Ms. HAM. NextWave had already filed for bankruptcy protection

at that point, yes.

Mr. DINGELL. So now NextWave did not have to make that payment because they had filed for bankruptcy protection; isn’t that

right?

Ms. HAM. Again, the government is in litigation. You are putting

me in a very awkward situation given that the government is in

litigation on this very issue, which I think is what we are on appeal for.

Mr. DINGELL. Are you prepared to sit there and tell me that FCC

is not required to wait for the courts to settle this matter?

Ms. HAM. I will tell you that I have been involved in the auctions

program almost from the start. Every auction is contested. We deal

with litigation. There is an 800 MHz auction that is going to start

very shortly. A stay petition has been filed on that auction. My

only point is that it is not unusual to have litigation associated

with an auction.

If we caved every time somebody filed a litigation against us we

would never conduct an auction. So I think we have to proceed.

Our ruling from the Second Circuit was a very strong one because

it goes to the question of our authority over the licenses.

From the Commission’s standpoint, this is an issue of jurisdiction, of who gets to decide issues of assignment of licenses, bankVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00073 Fmt 6633 Sfmt 6602 E:\HEARINGS\65904 pfrm01 PsN: 65904
70

ruptcy judges or in the instance of the Second Circuit, they said

that these matters have got to be reviewed by the Commission and

then by the DC Circuit which has exclusive jurisdiction over licensing matters emanating from the FCC.

Mr. STEARNS. The gentleman’s time has expired.

The gentleman from Ohio, Mr. Sawyer, is recognized for 5 minutes.

Mr. SAWYER. Thank you, Mr. Chairman.

Just to follow up on that question, is the question of efficiency

of current use of spectrum a factor in granting additional spectrum

to current licensees?

Mr. SUGRUE. I hesitate only because if you are under the spectrum cap right now, we don’t look at whether you are using your

spectrum efficiently or not.

Mr. SAWYER. Should you be?

Mr. SUGRUE. I don’t think so. I think one virtue of the spectrum

cap we haven’t gotten to is that it provides clarity, transparency,

people understand it.

I was in private practice for almost 4 years between my various

government stints and there were a lot of transactions we dealt

with.

One nice thing in dealing with the wireless side as compared

with some other types of transactions where you knew if you could

structure your deal so that you came within the spectrum cap you

would have no trouble at the FCC on the wireless side. You would

go through.

On the other hand, if you were over that particular market, you

had to come up with a divestiture plan, a spin-off plan.

Mr. SAWYER. Is it possible to drive measures of comparative efficiency that would be beneficial to the efficient use of available spectrum?

Mr. SUGRUE. It conceivably would be possible. I should say this,

actually, in services that we do not auction we have rules like that.

Mr. SAWYER. How do you plan to deal with the allocation of spectrum to departments like DOD that don’t want to give up current

spectrum allocations?

Mr. SUGRUE. Very carefully.

Mr. SAWYER. Mr. Lee, I hope you are listening carefully because

I am going to ask you to respond from a point of view of our dealings with the Europeans in particular.

Mr. ROHDE. My friend, Mr. Sugrue, is asking for relief, so maybe

I will provide it. Your question, actually, is more appropriate to

NTIA because we deal with them about the Federal Government

spectrum.

One of the topics we are discussing at this hearing is IMT-2000,

which, among the spectrum bands that were identified at the

World Radio Conference for the development of IMT-2000, it identified three basic bands.

A couple of those bands involve government incumbents such as

the Department of Defense.

Mr. SAWYER. You now stipulated to the basis of my question. It

is the answer I am looking for.

Mr. ROHDE. Right. The question is how we move forward?

Mr. SAWYER. Yes.

71

Mr. ROHDE. We have to move forward in a very conscientious collaborative manner in which we are getting the Federal agencies

and also the private sector, who also has incumbent interest in

other bands that have been identified, to look at what is exactly

the best process for us to proceed to identify additional spectrum,

if indeed additional spectrum, wherever it is found, whether it is

Department of Defense incumbent spectrum or private sector or

whatever, part of that process has to involve a look at how do you

compensate the incumbent use.

One of the challenges we have in this country is that we don’t

have spectrum reserves. All of it is being used.

Mr. SAWYER. Should efficiency in use of that spectrum be a factor

as you measure further allocation of spectrum?

Mr. ROHDE. It certainly should and also, as I said in my testimony, we at NTIA, as the managers of the Federal spectrum with

these Federal agencies, we are pushing upon them technologies and

procedures in which they can more efficiently use the spectrum

they have.

Mr. SAWYER. Mr. Lee, when we ran out of time the last time we

were talking you were talking about the pathway for future negotiations with other jurisdictions.

Could you comment on Mr. Rohde’s and Mr. Sugrue’s comments

on agency allocation from that point of view?

Mr. LEE. Right. As Assistant Secretary Rohde said, the work result was we identified several bands. The next step is to decide

where we in the United States, where Third Generation wireless

can go in the spectrum. That is being studied.

The international is fluid. Countries are making their national

decisions. Assistant Secretary Rohde is committed to try to move

the process quickly. But timely domestic decisions on these questions of spectrum and 3-G related issues, well, timely decisions will

put the U.S. in the best position to take our national policies internationally as other countries make their decisions.

Mr. SAWYER. Mr. Rohde, Mr. Lee, how would you counsel us to

press our European colleagues as we try to reconcile the decisions

they make with the ones that we foresee as important to us?

Mr. ROHDE. Well, I think the short answer to that is to work

closely with us as we engage with the Europeans on this. I mean,

I was at the World Radio Conference and saw firsthand the challenges that we have in this international fora.

Part of that is that we have a philosophically different approach

to spectrum policy and telecommunications policy than a lot of our

European partners do. We have a more government-mandated approach and we have more private sector approach.

It is very important that the Congress work closely with the

State Department and NTIA, the FCC, as we go into these international fora so that we can represent the interests of the U.S. industry and the U.S. consumers in the best way possible.

Mr. SAWYER. Thank you very much.

Mr. STEARNS. The gentleman’s time has expired. The gentleman

from Virginia is recognized for the final series of questions for 5

minutes.

Mr. BOUCHER. Thank you very much, Mr. Chairman. Mr. Sugrue,

I want to return to the 700 MHz issues for a few moments and just

72

respond to a couple of the things that you said in response, I think,

to Mr. Stearns’ questions a few moments ago.

You were stating as a possible justification for going ahead with

this auction in September the potential that if you had actual wireless license holders trying to get into the spectrum at a time when

broadcasters were already there, that it might promote negotiations between those license holders and the broadcasters on a way

to encourage the broadcasters to vacate at an early date.

What I am told about those negotiations, to the extent that they

have already begun, is that they are going pretty badly. The broadcasters are asking for tremendous compensation.

For example, in some cases they want to share revenues with the

wireless potential license holders. They want half of revenues in

some cases. In other cases they are asking that the potential wireless license holders pay the entire cost for the transition to digital

as a way to encourage them to get out early.

So it would appear to me that in these cases the negotiations are

not going to fare very well. That probability is going to depress

even further the amount of money that the wireless companies are

willing to bid in this auction.

You know, our budget estimate is $2.6 billion. I am told that we

may not even get that much. Let me stress again that this is for

a set of frequencies that are more robust than what brought $30

billion in the United Kingdom. And we may not get $2.6 billion.

I think these facts underscore the need for the Commission to do

whatever you can to exercise whatever discretionary authorities

you have to delay this auction.

I think you have heard a clear statement from this committee

today that it needs to be delayed. It is not even good budget policy

to auction at this time, much less good spectrum management policy.

I would encourage you to do what you can. Take the message

back. Let us try to get this delayed. Bluntly speaking, we don’t

have time in this legislative year to pass a bill. We have 5 weeks

of Session left. You have observed the Congress long enough to

know how long it takes to pass anything around here. We, bluntly

speaking, don’t have the time to pass a bill to delay this auction.

But it needs to be delayed. The government is foregoing a tremendous amount of budget opportunity here is we force this auction now. So I just hope you will take that message back. I would

welcome anything you have to say. That is all I have to say Mr.

SUGRUE. I will just assure you, I will take this message back. I am

meeting with the Chairman at 2:30 this afternoon on a spectrumrelated matter, but I assure you that this will be No. 1 before we

get to that. I will express your views and those of the other members of the committee on it.

Mr. BOUCHER. All right. Thank you, Mr. Sugrue.

Mr. STEARNS. I thank the members and I thank the witnesses for

their participation. The subcommittee will be in recess until 1:30.

[Brief recess.]

Mr. TAUZIN. The committee will please come to order. The Chair

obviously wishes to apologize for his absence. I understand you had

a little fireworks while I was gone.

73

We are going to try to calm things down now. We will get to the

second panel. With my apologies, we have had both committee

votes and floor votes that have taken us away.

The second panel will consist of Mr. Craig Smith, Vice President,

Strategic Planning, SBC Wireless; Mr. Dennis Strigl, President and

Chief Executive Officer of Verizon; Rudy Baca, Global Strategist of

the Precursor Group; and Mark Kelley, Chief Technology Officer of

Leap Communications International.

Gentleman, thank you so much for your patience and for waiting

so long to testify. Other members will be arriving as this vote finishes on the floor. I apologize for the lack of their presence as well.

This is a long day already. Thank you.

Before I introduce you and get you talking, I just thought of one

feature of the wireless communication industry which is most disturbing to me. I take my phones off in the office when I have

guests come in to visit with me. But they come in with their phones

on. There ought to be some rule that the phones go off when-if anybody has a phone on, take it off right now so we can have a quiet

hearing.

Mr. Craig Smith is Vice President of Strategic Planning, SBC

Wireless.

STATEMENTS OF CRAIG M. SMITH, VICE PRESIDENT, STRATEGIC PLANNING, SBC WIRELESS; DENNIS F. STRIGL, PRESIDENT AND CHIEF EXECUTIVE OFFICER, VERIZON WIRELESS;

RUDY L. BACA, GLOBAL STRATEGIST, PRECURSOR GROUP;

AND MARK KELLEY, CHIEF TECHNOLOGY OFFICER, LEAP

COMMUNICATIONS INTERNATIONAL

Mr. SMITH. Thank you, Mr. Chairman. My name is Craig Smith

and I am Vice President, Strategic Planning, for SBC Communications.

Spectrum planning for our wireless affiliate, SBC Wireless is one

of my principle responsibilities. Let me begin by thanking you and

the members of your committee for providing me the opportunity

to speak with you today on this vital issue to the United States and

to its many current and future wireless customers.

SBC Wireless serves customers in 26 States, in Washington, DC

and in two U.S. territories, with subscribers in 9 of the top 10 markets and 31 of the top 51 markets in the United States.

Mr. Chairman, radio spectrum is a scarce resource critical to the

operation of all wireless systems. In most cases the acquisition of

new spectrum is not as simple as buying additional switching or

transmission equipment from a vendor or deploying new fiber systems in the ground to meet growing broadband service needs and

terrestrial wire line networks.

By contrast, wireless operators, in order to serve the growing

needs for new services through the use of limited spectrum resources, must have a firm vision of their future spectrum needs

and a strategy for obtaining the right spectrum in the right quantity and the right place and at the right time.

Of vital interest to wireless carriers, spectrum allocation decisions involve the identification of available of potentially available

spectrum for various uses.

74

Since domestic spectrum allocation decisions are in part tied to

the international spectrum allocation process, any decisions in this

area must address not only domestic concerns, but also international proceedings as was just observed at the World Radio Conference in Turkey.

These allocation decisions are important to domestic carriers because they impact the global compatibility of services with the U.S.

and the rest of the world and ultimate pricing of wireless equipment due to scale worldwide production volumes.

That being realized, domestic regulatory decisions become vitally

important. Ultimately the market value of spectrum is determined

by the potential of the spectrum to satisfy business plan objectives.

Toward that end, however, the way the spectrum is licensed, for

example, the particulars of the spectrum band, the build-out requirements, the restrictions on services that may be offered and

whether the spectrum is currently encumbered with other users all

impact how effectively that spectrum will be able to actually realize

that potential.

All of these things ultimately have a tremendous impact on its

value. Therefore, merely identifying the spectrum represents only

one-half of the equation. Regulatory policies that follow these allocations will have dramatic impacts on the efficiency with which the

allocated spectrum is ultimately deployed for service.

As a further example, decision concerning the amount of spectrum an operator may obtain, for example, the spectrum caps that

we have talked about, stifle the marketplace’s ability to solve spectrum shortages and have the effect of distorting the actual demand

for additional spectrum.

That being said, Mr. Chairman, I will now offer the members of

the subcommittee a brief review of specific issues facing current

wireless operators today. Pursuant to the FCC rules, a single entity

may currently acquire attributable interest in the licenses of

broadband PCS, cellular and SMR services that cumulatively do

not exceed 45 MHz of spectrum within the same geographic area.

The CMRS spectrum cap was originally adopted in 1994 to ensure no one carrier could completely control a single market, thus

impeding the development of competition.

While this may have been a laudable goal during the industry’s

infancy and served the purposes for which it was intended, as was

pointed out very graphically by Mr. Sugrue, the state of competition for wireless services has long rendered such a requirement

moot.

Today’s wireless markets feature from three to seven viable service providers offering various alternatives to both niche and general

customers alike.

The growth in demand for wireless service is far exceeding every

early prediction. The industry now faces limitations in network capacity caused by an increase in both the number of subscribers utilizing these services and the amount of air time each subscriber

consumes.

I would like to address in my brief time remaining this issue that

was brought up earlier regarding the bands in the 700 MHz range,

which is the Channel 60 to 69 bands that have been designated by

the Commission for potential fixed and mobile services.

75

For consumers to fully extract the benefit of this truly exceptional spectrum opportunity for next generation services, service

providers need clear access to the spectrum.

The Commission’s efforts to expedite the 700 MHz proceeding to

meet the congressionally imposed mandates are laudable. The FCC

has worked diligently to auction the 700 MHz band in full compliance with the Congress’s objectives.

However, the required auction and service rules are very complex

and may contain conflicts and ambiguities that require further

clarification from the FCC.

So in summary on this point, we would like to say we concur totally with the remarks of Congressman Boucher that this auction

should be delayed for all the reasons he so eloquently stated earlier

today.

So in summary, Mr. Chairman, some wireless carriers, including

SBC Wireless are already experiencing spectrum shortages simply

trying to cope with increased demand for current services.

New opportunities and the anticipated demand for new higher

bandwidth services promise increased spectrum shortages in the

future. The spectrum for these services will likely exceed the increased capacity achieved through the operational improvements

and technology innovations in major metropolitan areas, still leaving consumers without full access to the services they desire.

As noted, other countries have already committed significant

blocks of spectrum to future services. It is in the public interest

that the United States not fall behind the rest of the world in making spectrum available for new services.

Today, wireless operators are beginning to offer wireless data

services. While these services are not yet at the byte rates envisioned over the IMT-2000 compliant network the fact remains that

wireless data services will grow steadily over the next 10 years.

In the interest of consumers, service providers need to be prepared to accommodate that growth through the judicious implementation of sound spectrum policy that promotes the most efficient use of available spectrum.

Thank you.

[The prepared statement of Craig M. Smith follows:]

PREPARED STATEMENT OF CRAIG M. SMITH, VICE PRESIDENT—STRATEGIC PLANNING,

SBC COMMUNICATIONS, INC.

Good morning, Mr. Chairman, my name is Craig Smith and I am the Vice President for Strategic Planning for SBC Communications and spectrum planning for our

wireless affiliate, SBC Wireless, is one of my principal responsibilities. Let me begin

by thanking you and the members of your committee for providing me the opportunity to speak with you today on this vital issue to the United States and to its

many current and future wireless consumers.

SBC Wireless has enjoyed customer growth of over 130% during the past 3 years,

closing 1999 with 11.2 million customers. Already in 2000, that number has grown

to nearly 12.4 million. We serve those customers in 26 states, Washington, D.C., and

two U.S. territories—with a total of 117 million potential subscribers in nine of the

top 10 U.S. markets and 31 of the top 50 markets in the United States.

INTRODUCTION

Mr. Chairman, there are many types of wireless services resident in a variety of

radio spectra. For the purposes of this hearing, I will confine my remarks to the

collection of services commonly referred to as Commercial Mobile Radio Services, or

76

CMRS. The services that make up CMRS are cellular, broadband personal communications services (PCS), and specialized mobile radio.

Radio spectrum is a scarce resource critical to the operation of all wireless systems. In most cases, the acquisition of new spectrum is not as simple as buying additional switching or transmission equipment from a vendor or deploying new fiber

systems to meet the growing needs of broadband services in our terrestrial wireline

networks. By contrast, wireless operators in order to serve the growing needs for

new services through the use of limited spectrum resources must have a firm vision

of their future spectrum needs and a strategy for obtaining the night spectrum in

the night quantity in the right place at the night time.

Having developed this vision and a complementary business plan to support its

implementation, wireless operators must be concerned with two related but separate

processes: spectrum allocation and spectrum licensing. Spectrum allocation decisions

involve the identification of available or potentially available spectrum for various

uses. Since domestic spectrum allocation decisions are in part tied to the international spectrum allocation process, these any decisions in this area must address

not only domestic concerns but also international proceedings as was just observed

at the World Radio Conference in Turkey. These allocation decisions are important

to domestic carriers because they impact global compatibility of services, and the ultimate pricing of wireless equipment due to scaled worldwide production volumes.

That being realized, domestic regulatory decisions become vitally important. Ultimately, the market value of spectrum is determined by the potential of that spectrum to satisfy business plan objectives. Toward that end, however, the way spectrum is licensed, for example, the particulars of the spectrum band, build-out requirements, restrictions on services that may be offered, and whether the spectrum

is currently encumbered with other users, impact how effectively that spectrum will

be able to actually realize that potential. All of these things ultimately have a tremendous impact on its value. (For a discussion of ‘‘clearance’’ issues, see also, ‘‘Future Spectrum Allocations’’ below.)

Therefore, merely identifying the spectrum represents only one half of the equation. Regulatory policies that follow those allocations will have dramatic impacts on

the efficiency with which the allocated spectrum is ultimately employed for service.

As a further example, decisions concerning the amount of spectrum an operator may

obtain (i.e. spectrum caps) stifle the marketplace’s ability to solve spectrum shortages and have the effect of distorting the actual demand for additional spectrum.

That being said, Mr. Chairman, I will now offer the Members of the Subcommittee

a brief review of specific allocation and licensing issues facing U.S. wireless operators currently.

SPECTRUM ALLOCATION IN THE UNITED STATES

The nations of the world, through the International Telecommunications Union

(ITU), allocate spectrum to radio services in the form of an International Table of

Allocations. Each nation also establishes a domestic table of allocations based to

some extent on the International table. The US actually maintains two Tables of

Allocation relative to the use of the spectrum, one at the FCC and one at the NTIA.

Congress chartered the Federal Communications Commission (FCC) with regulating non-federal use of radio with Congress providing guidance from time to time

through federal acts and laws. The National Telecommunications and Information

Agency (NTIA), on behalf of the President, exercises authority over federal government use of spectrum. Any ‘‘new spectrum’’ which the FCC may make available to

commercial interests usually represents federal spectrum that has been reallocated

for non-federal use.

CURRENT US SPECTRUM ALLOCATIONS

Cellular

Cellular Radiotelephone Service is licensed in the 824 to 849 MHz and 869 to 894

MHz bands in 306 Metropolitan Statistical Areas (MSA) and 428 Rural Service

Areas (RSA). This 50 MHz of spectrum is divided evenly between the ‘‘A’’ and ‘‘B’’

carrier, 25 MHz apiece.

PCs

The FCC reallocated the 1850 to 1990 MHz band to Emerging Technologies and

then specifically to digital Personal Communications Services (PCS). This is sometimes referred to as Broadband PCS because the FCC also established Narrowband

PCS for paging and messaging at 901 to 902 MHz.

The Broadband PCS band plan provides for three 30-MHz licenses (blocks A, B,

and C) and three 10-MHz licenses (blocks D, E, and F). The A and B blocks are

77

licensed in 51 Major Trading Areas (MTAs). The C, D, E, and F blocks are licensed

in 493 smaller Basic Trading Areas (BTAs). Licenses for the A through F blocks

were determined by auction. The A, B, D and E blocks were open to all bidders.

The C and F blocks were set aside for entrepreneur or ‘‘small business’’ companies

with restrictions against leasing or selling out to ‘‘bigger’’ companies within five

years.

SPECTRUM CAPS

Pursuant to Section 20.6 of the FCC rules, a single entity may currently acquire

attributable interests in the licenses of broadband PCS, cellular and SMR services

that cumulatively do not exceed 45 MHz of spectrum within the same geographic

area. This CMRS spectrum cap was originally adopted in 1994 to ensure no one carrier could completely control a single market, thus impeding the development of

competition.

While this may have been a laudable goal during the industry’s infancy, the state

of competition for wireless services has long rendered such a requirement moot. Today’s wireless markets feature from three to seven viable service providers offering

various alternatives to both niche and general customers alike. With the growth in

demand for wireless services far exceeding every early prediction, the industry now

faces limitations in network capacity caused by an increase in both the number of

subscribers utilizing these services and the amount of airtime each subscriber consumes. By comparison, Japan’s leading wireless carrier, DoCoMo, has 86 MHz of available spectrum throughout the country. In Britain, most companies operate with a

90 MHz allocation. Furthermore, both Europe and Japan are on schedule to deploy

next generation, high-speed, wireless data services by the first half of 2001. To accomplish this, the Europeans have allocated 355 MHz while the United States— even after upcoming auctions—will have only 210 MHz available for the same services.

Ironically, as the industry matures, the goal of the Commission to ensure competition by limiting acquirable spectrum has evolved into a de facto barrier to innovation due to the near exhaustion of network capacity in many markets. This example

of the ‘‘Law of Unintended Consequences’’ leaves viable carriers scrambling for alternatives to relieve upward pressures imposed by the marketplace for new and expanded feature sets.

Furthermore, as the volume of demand for airtime approaches full capacity in

some systems, even the quality of basic voice services becomes impacted. Subscribers face situations wherein they cannot make calls for lack of an available

channel. This, in turn, has the effect of damaging subscribers’ perception of the carrier’s quality of service despite the fact the system may be operating in optimal

fashion given the spectrum available by law.

At the end of 1998, the FCC issued a Notice of Proposed Rulemaking (NPRM)

asking for industry comment as to whether the cap should be repealed, modified or

retained, or alternatively, whether the FCC should simply forebear from enforcement of the cap. In that proceeding, SBC urged the Commission to eliminate the

spectrum cap.

IS THERE A NEED FOR MORE SJ2ECTRUM?

If forecasts of future demand for non-voice services such as data, digital music,

and video prove accurate, demand for spectrum will exceed even the increased capacity achieved through technical innovation in major metropolitan markets.

The primary drivers of increased spectrum demand will likely be continued

growth in mobile subscribers and the degree to which they will continue to depend

on wireless to serve their communications needs, combined with the increase in the

number of mobile voice customers who will also want access to non-voice applications. Specifically:

• As competition increases penetration of cellular and PCS mobile services will also

increase, along with usage, further reducing the opportunity for current licensees to develop next-generation IMT-2000 type services in their currently licensed spectrum. Current operators should not be precluded from offering advanced services where possible. However, it is unlikely that under the current

cap on spectrum licensing, there will be sufficient spectrum to support all of the

services envisioned in the future.

• As ‘‘wireless follows wired,’’ users will demand mobile access to the applications

they use most on a wired basis, such as e-mail, e-commerce and internet/

intranet browsing. These new wireless data applications promise to compound

the capacity problems associated with continued growth in voice subscribers.

78

It will be very difficult to set aside sufficient spectrum to evolve to these next generation services while continuing to meet the growing needs of existing customers.

With the 45 MHz cap, both 25 MHz cellular and 30 MHz PCS licensees have a single option for adding capacity: obtaining a 10 MHz PCS license. However, most of

these licenses, particularly in major markets, have already been acquired by operators for the purpose of extending their coverage or to provide other competitive services. Clearly, additional spectrum will be required and lifting the caps will create

opportunities for current providers to utilize existing spectrum, either by acquisition

or through partnering with other licensees.

3RD GENERATION WIRELESS SERVICES

Worldwide attention has turned increasingly towards the development of Third

Generation (3G) wireless systems. These systems fall under the IMT-2000 standards

umbrella, as defined by the International Telecommunications Union (ITU). The vision for 3G services addresses both fixed and mobile wireless services, and for the

latter the ability to move seamlessly through the home, office, and outdoor environments with a single device while maintaining access to a wide variety of multimedia

services.

A clear implication of fully implementing 3G will be the need for new spectrum

on par with and potentially surpassing the bandwidth secured for today’s first and

second generation systems.

At the recently completed WRC-2000, in recognition of growing consumer demand

for multimedia applications and a wide range of services (e.g. video-teleconferencing,

high speed Internet, speech and high rate data), the ITU adopted IMT-2000 standards that are inclusive of varying technologies and platforms, best enabling existing

systems to operate with the next generation of wireless standards. Commonly referred to as 3G, these standards have become the worldwide vision of a global advanced mobile communications service for the 21st century containing the following

key features:

• high degree of commonality of design worldwide; • compatibility of services within IMT-2000 and with the fixed network; • toll quality voice service; • data speeds up to 2 Megabits per second (‘‘Mbps’’); • small terminals for worldwide use; • worldwide roaming capability.

In its Petition recently filed with the FCC, the Cellular Telecommunications Industry Association (CTIA) requested that the FCC immediately initiate a Rule Making, stating that designation of additional spectrum for commercial mobile wireless

telecommunications service is vital because current and future scheduled spectrum

allocations in the United States are neither sufficient for development of new 3G

services, nor in harmony with likely worldwide implementation of IMT-2000. Failure to keep pace with world identification of spectrum for IMT-2000 or to harmonize

U.S. IMT-2000 frequency bands with the rest of the world will harm U.S. consumers, manufacturers, and service providers.

FUTURE SPECTRUM ALLOCATIONS

700 MHz

As a result of the Balanced Budget Act of 1997 (BBA), the FCC reallocated spectrum formerly assigned to TV channels 60 to 69. Channels 60 to 62 and 65 to 67

were designated for commercial use while the remaining channels were designated

for the exclusive use of public safety. The 700 MHz band is particularly interesting

as a space to foster the deployment of 3rd Generation, or 3G, services. The spectrum’s excellent propagation characteristics make it ideal for Internet services.

In its NPRM released in mid 1999, the Commission proposed service rules for

commercial licensing of the 746 to 764 MHz and 776 to 794 MHz bands for potential

provision of fixed, mobile and broadcasting. However, for consumers to fully extract

the benefit of this truly exceptional spectrum opportunity for next-generation services, service providers need clear access to the spectrum.

The Balanced Budget Act specified this spectrum be auctioned in 2001. However,

the Year 2000 DOD Appropriations Bill called for moving up this auction into year

2000.

The Commission’s efforts to expedite the 700 MHz proceeding to meet this Congressionally imposed mandate are laudable. The FCC has worked diligently to auction the 700 MHz band in full compliance with Congress’ objectives. The auction,

after one delay already, is scheduled to commence September 6, 2000, and bidders

must register by August 1, 2000. However, the required auction and service rules

are very complex and may contain conflicts and ambiguities that require further

79

clarification from the FCC. It also includes a combinatorial bidding format that is

new and uncertain to even experienced bidders.

As a matter of sound spectrum management policy, however, the rush to auction

the 700 MHz spectrum will jeopardize the efficient assignment of the spectrum and

disserve the public interest. In addition to the aforementioned auction issues requiring answers, another significant unresolved issue concerns the matter of ‘‘clearing’’. As noted above, this spectrum is currently encumbered by television transmissions.

In order to free the spectrum for 3G use, over 100 channels must first be vacated

by these incumbent broadcasters. Without clearing, the 700 MHz band will remain

virtually unusable until the conclusion of the Digital Television (DTV) transition period scheduled for the end of 2006, and may extend well beyond 2006 due to delays

in the DTV transition. The Commission is now seeking comment on the establishment of voluntary band-clearing mechanisms to facilitate the early availability of

these bands for commercial wireless services while promoting efficient migration to

DTV. However, a final decision by the Commission is not likely before November

2000, at which time the auction will likely be over.

Because Congress has indicated that its budgetary goals have already been met,

the Commission and Congress should work together to postpone the 700 MHz auction into fiscal year 2001.

C&F Block Spectrum

Fully as important, the Commission has not yet completed the 1.9 GHz PCS C

and F Block rulemaking proceeding. Certainty in this proceeding is crucial for auction planning at 700 MHz. Both auctions will offer up to 30 MHz of spectrum in

bands ideal for a broad variety of mobile and wireless applications. Potential bidders

in the 700 MHz auction should be fully informed of the terms and conditions for

the scheduled November 29, 2000 reduction of C and F Block PCS licenses prior to

the start of the 700 MHz auction. This information is necessary to formulate appropriate business plans. Therefore, it is not in the public interest to initiate the 700

MHz auction until interested parties can formulate their own individual spectrum

acquisition plans based on the final eligibility and availability restrictions of the C

and F Block spectrum vis-a`-vis the 700 MHz commercial spectrum.

CONCLUSION

Some wireless operators, including SBC Wireless, are already experiencing spectrum shortages simply trying to cope with increasing demand for current services.

New opportunities and the anticipated demand for new higher bandwidth services

promise increased spectrum shortages in the future. Demand for more spectrum for

these services will likely exceed even the increased capacity achieved through operational improvements and technical innovation in major metropolitan markets leaving consumers without full access to the services they desire.

As noted, other countries have already committed significant blocks of spectrum

to future services anticipated under IMT-2000. It is in the public interest that the

United States not fall behind the rest of the world in making spectrum available

for new services. Today wireless operators are beginning to offer wireless data services. Although these services are not at the bit rates envisioned over an IMT-2000

compliant network, the fact remains that wireless data services will grow steadily

over the next 10 years. In the interest of consumers, service providers need to be

prepared to accommodate that growth through the judicious implementation of

sound spectrum policy that promotes the most efficient use of all available spectrum.

Mr. TAUZIN. Thank you very much, Mr. Smith.

Next we will hear from Mr. Dennis Strigl, President and Chief

Executive Officer of Verizon Wireless in New Jersey.

Mr. Strigl.

STATEMENT OF DENNIS F. STRIGL

Mr. STRIGL. Thank you very much, Mr. Chairman and members

of the subcommittee. Thank you for inviting me to give my perspective on spectrum management.

I would like to make one and only one main point in my testimony. That is that the wireless industry’s continued ability to provide critical benefits to the American public, and the Nation’s economy for that matter, depends on gaining more radio spectrum.

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Let me just comment if I may on why this matters. There really

are two reasons.

First, the wireless industry is providing critical benefits to the

American public and to the economy. Second, the wireless industry’s ability to continue to grow and provide new services and new

benefits to the public and the economy depends upon access to considerably more radio spectrum.

The benefit to the American public can be, I think, best illustrated by one statistic and Congressman Markey gave it this morning. There are more than 100,000 emergency calls that are now

being made from wireless phones, and that is every day.

Customers, and your constituents, I might add, are increasingly

relying on wireless services, not only for business and for personal

calls, but also as a lifeline in emergencies.

There are more than 90 million wireless subscribers in the

United States today alone and market experts predict that the U.S.

penetration could double to as much as 70 percent or even more in

the next few years. In fact, there are some European markets that

are rapidly approaching those kind of wireless penetration levels. The cumulative capital investment today exceeds $70 billion.

Hundreds of thousands of jobs have been created in this industry

and in supporting industry and that has occurred over the past few

years.

The future for us holds even greater promise. Innovative wireless

technologies are being developed that will provide consumers with

the next generation of wireless services, delivering high speed, high

bandwidth data and multimedia applications, including wireless

Internet access, location services, real-time traffic information and

even access to large data files.

Now, the downside of the success story is that it puts a tremendous strain on the critical resource that we have which is spectrum.

The amounts of spectrum originally allocated to cellular and PCS

carriers will not be enough to meet the accelerating demand for

airtime, let alone the next generation of services which are quite

spectrum intensive.

The bottom line, Congress needs to take actions that will enable

the wireless industry to grow and obtain usable and unencumbered

spectrum which is needed to meet the American public’s demand

for wireless communications.

There are actually three concrete steps that Congress and the

FCC should take and I believe they should be taken now.

First, and most immediate, is to insure the spectrum that becomes available is usable. To that end, I would say defer the 700

MHz auctions. This spectrum is simply unusable because much of

it is already being used, as we talked this morning, by the television broadcast stations who are not obligated to move to lower

channels under the current digital television rules until at least the

year 2006.

The action is urgently needed because without it the FCC will

begin the process for auctioning off this spectrum on August 1, selling off such severely encumbered spectrum makes absolutely no

sense. It will severely depress the value of the spectrum and decrease the revenues that the Federal Government will receive.

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1 Verizon Wireless is a newly formed joint venture of Verizon Communications and Vodafone

AirTouch. It combines the U.S. wireless properties of these companies to form the nation’s largest wireless network, covering more than 90% of the U.S. population.

I would ask that Congress today urge the FCC to delay the September auction date to allow the FCC, broadcasters and the industry time to work out a solution to this problem. It must do it now

because the deadline is imminent and the FCC, as we heard this

morning, is moving ahead.

As Congressman Boucher pointed out this morning, the FCC has

the discretionary authority, we believe. They needs to be urged by

Congress to use that authority.

While the industry needs the spectrum sooner, I would just

stress that it has to be usable spectrum.

The second action that I would urge is for Congress to repeal the

FCC spectrum cap. We talked at length about that this morning.

Let me just say that it is a critical needs, I believe, for everyone

in the industry to do away with the old rules, get on with the new

way of operating.

We know, my company alone within the next year needs 65 MHz

of spectrum in order to operate and introduce new benefits and

new services to the American public.

So in summary, I think the Congress must act and act quickly

to adopt market-driven spectrum policies that promote the development of advanced wireless technologies and services.

I urge Congress to defer the 700 MHz auctions, repeal the spectrum cap so that future auctions, including the C- and the F-block

auction are open and fair. Also, I would ask that Congress direct

the FCC and the NTIA to determine how the 3-G frequency bands

will be used to the benefit of the American public, the economy and

our competitiveness in global communications, the worldwide market overall.

Thank you very much.

[The prepared statement of Dennis F. Strigl follows:]

PREPARED STATEMENT OF DENNIS F. STRIGL, PRESIDENT AND CEO, VERIZON

WIRELESS 1

Mr. Chairman and Members of the Committee, thank you for inviting me to give

my perspective on spectrum management policy. I want to make one and only one

point in my testimony:

The wireless communications industry’s continued ability to provide critical benefits to the American public and the nation’s economy depends on gaining access to

more radio spectrum.

Congress should act quickly to increase the supply of useable spectrum that is

available for our industry to purchase, and allow all companies to compete for that

spectrum, so that we can respond to the public’s growing demand for wireless voice

and data services. It should:

1. Defer the 700 MHz auction. This is urgent, because without Congressional action, the FCC will auction this spectrum in less than two months, even though the

same spectrum is already largely occupied by television stations. We need spectrum,

but we need useable spectrum. A premature auction will deprive the U.S. Treasury

of much of the value of this spectrum. Policy makers, broadcasters and the wireless

industry need time to find ways to make that spectrum useable.

2. Repeal the FCC ‘‘spectrum cap.’’ The FCC continues to enforce a limit on the

amount of spectrum any carrier can own, even though the rule long ago achieved

its purpose, and now only impedes carriers from competing for the spectrum they

will need to meet future growth in demand for data and other new services.

3. Transform the success of WRC-2000 into new spectrum for new wireless services.

The May 2000 world radio conference achieved important victories for the U.S. in

securing international agreement on the bands available for ‘‘Third Generation’’

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services. The U.S. needs to seize on these victories quickly by designating more

bands for 3G and licensing them.

The wireless industry is providing critical benefits to the American public and the

economy.

This point can be illustrated with one statistic: More than 100,000 emergency

calls are now being made from wireless phones every day. Customers (and your constituents) are increasingly relying on wireless services not only for business and personal calls, but as a lifeline in emergency situations.

That growth is astounding: There are more than 90 million wireless subscribers

in the United States alone, and the number of minutes of calls continues to accelerate. Cumulative capital investment exceeds $70 billion. Market experts predict

that U.S. penetration could double to as much as 70% or even more in the next few

years, a level that a number of European markets are already rapidly approaching.

Digital technology has been a catalyst. The capacity and efficiency of our networks

have increased, handset features and choices have been enhanced, battery time has

lengthened and equipment size and cost have been reduced. Wireless services have

become a part of many customers’ daily routine, often used by customers as an alternative to picking up a wireline telephone.

This has been accompanied by a tremendous surge in usage. Between 1995 and

1999, the average monthly minutes of use per subscriber at one of Verizon

Wireless’s predecessor companies, Bell Atlantic Mobile, increased by 122%, from 79

minutes to over 175 minutes. During the same period, the average price for these

minutes of use, considering both monthly access and per minute usage charges,

dropped by 60%. These trends, together with the continued rapid growth of the subscriber base, explain why, between calendar years 1995 and 1999, the total minutes

of use jumped over 320%, from about 2.7 billion minutes to 11.7 billion minutes annually.

The benefits that the wireless industry has provided to the American economy

flow from the ability of our industry to grow and serve the public. Hundreds of thousands of jobs have been created in this industry and supporting industries over the

past few years. Verizon Wireless is a good example: our company alone employs

about 30,000 people. The contributions that this industry have made to the long success of the U.S. economy have been well-documented by economists, the FCC and

others.

The future holds even greater promise. Innovative wireless technologies are being

developed that will provide consumers with a wide range of high-speed data and

multimedia applications, including wireless Internet access. To fulfill our customers’ anticipated demand for high-speed, high-bandwidth data services, the key is Third

Generation (3G) high-speed data technology. The wireless industry’s existing Second

Generation CDMA technology can only deliver raw data rates that average 14.4

kilobits per second. The 3G technologies presently under development hold out the

promise of a dramatic improvement in data rates, liberating consumers from

‘‘plugged in’’ PC’s. In addition to e-mail and general internet access, wireless

broadband means location services such as tailored, real-time traffic information, access to large data files, and greatly enhanced point of sale information. High-speed

broadband access involves shorter response times and quicker and fuller information flow.

The wireless industry’s ability to continue to grow and provide new services to benefit the public and the economy depends on access to considerably more radio spectrum.

The downside of this success story is that it has put tremendous strain on the

industry’s critical resource: spectrum. All of our services depend on having the spectrum capacity to meet the demands of our customers. Without enough of it, we will

not be able to provide the services customers want at the level of quality they expect

and deserve. The amounts of spectrum originally allotted to cellular and PCS will

not be enough to meet the accelerating customer demands for airtime.

The problem is growing because of the transformation of the wireless industry

from primarily a voice service to a technology that provides data, including e-mail,

messaging and Internet access, as well as voice traffic. Verizon Wireless seeks access to new spectrum to implement plans to introduce the next generation of wireless services—the broadband voice and data services known as Third Generation,

or 3G. At the same time, we must also accommodate the tremendous surge in voice

usage we are experiencing.

Data applications are very spectrum-intensive, and the higher-speed data technologies that are being developed require many times the spectrum that voice or

conventional slow-speed data need. The great promise of access to data communications anytime, anywhere will be affected if wireless service providers cannot obtain

more spectrum resources.

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Congress needs to take actions that will enable the wireless industry to grow and

obtain the spectrum it will need to meet the public’s demand for wireless communications.

Federal law vests the Congress, and through it, the FCC, with the responsibility

to manage spectrum resources for the benefit of the American people. It is an important responsibility, because wireless communications have already affected all of our

lives, and are now a major component of the national economy. Congress needs to

take steps that will ensure that the supply of the key resource for wireless communications, spectrum, is available. This will have benefits not only to individuals,

their businesses, and the economy, but it will help promote the competitiveness of

the U.S. in the increasingly global telecommunications market. Other nations have

already allocated and licensed sufficient amounts of spectrum to meet the needs of

their wireless industries. The U.S. must do the same. There are three concrete steps

that Congress should take now.

1. Defer the 700 MHz auction.

Deferral is urgently needed, because without it, the FCC will begin the process

of auctioning this spectrum on August 1. This spectrum remains already largely occupied by television broadcast stations. Aside from being clearly unwise spectrum

policy, selling off encumbered spectrum will severely reduce the value of the spectrum and thus decrease the revenues that the federal government will receive.

Under an appropriations act enacted early in 1999, Congress directed the FCC to

auction spectrum currently used by nearly 100 UHF TV stations on Channels 60-

69 by September 30, 2000, and the FCC thus feels compelled to begin the auction

that month—even though the Budget Committee has indicated the revenues are not

needed or anticipated in this fiscal year. Auction applications are due August 1. But

much of that spectrum is simply unuseable, because it is currently being used for

television. Broadcasters are not obligated to move to lower channels as part of the

digital television rules until at least the end of 2006, and in some situations much

longer. I am attaching to my testimony a map that demonstrates the areas that are

protected against interference to these stations. In those areas, we are concerned

that we may be largely precluded from providing mobile service.

Auctioning spectrum that is so severely encumbered not only makes no sense, but

it will significantly depress the revenues from the spectrum. The auction will fail

to deliver anywhere close to the real dollar value of that spectrum to the U.S. Treasury.

Congress needs to repeal the September 30 deadline to allow the FCC, broadcasters and our industry time to work out a solution to this problem; only then

should the auction occur. It must, however, do so now, because the deadline is imminent, and the FCC is moving ahead.

There is another reason to defer the auction. The FCC is planning to use a new

bidding scheme, combinatorial bidding, that is extremely complex and has never before been used. My company has many questions about the procedures that the FCC

intends to use in this auction, yet there has been no time to obtain clarity since

the FCC just published the combinatorial bidding rules two weeks ago. Conducting

an auction before all parties and the FCC are clear on the ground rules is a recipe

for problems.

The FCC has already decided that it will permit broadcasters and wireless service

providers to negotiate voluntary agreements that would facilitate the early availability of this spectrum for commercial wireless service while promoting efficient migration to DTV. It is also seeking comment on the use of other voluntary mechanisms to clear the spectrum, but it has set a deadline for comments that do not end

until mid-September, after the auction is underway. Therefore, the Commission is

unlikely to reach any decisions until long after the auction is over. The Commission

must be given more time to thoroughly consider all its rules before auctioning these

licenses.

The current schedule for the auction will already result in the U.S. Treasury receiving the auction receipts outside of fiscal year 2000. Delaying it for a year will

not undermine budgetary objectives, while creating greater certainty for bidders,

greater interest in the auction, and ultimately greater benefits for American consumers and taxpayers. I urge Congress to extend the deadline for this auction until

September 2001.

2. Repeal the FCC ‘‘spectrum cap.’’

Unfortunately, outdated rules still exist that restrict our ability to acquire the

spectrum resources we expect we will need to provide 3G and other new services.

The FCC’s ‘‘spectrum cap’’ rule, which dates from 1994, prohibits any company from

holding more than 45 MHz of cellular, PCS and specialized mobile radio (SMR)

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spectrum in the same geographic area, with a higher limit of 55 MHz in rural areas.

The non-uniform nature of the size of license areas and licensed bands further prevent carriers from approaching even these caps in their full footprint. This economic

regulation was not imposed by Congress. To the contrary, in the 1993 Omnibus

Budget Reconciliation Act, Congress had replaced traditional wireless regulation,

such as entry and price controls, with a competitive, market-driven model.

The ‘‘cap’’ is an outdated vestige of a time, years ago, when there was considerably

less wireless competition. Today, however, the industry is one of the most vigorously

competitive in the nation. Prices have fallen dramatically, and new and enhanced

service features are introduced into the market every day. In his February 28, 2000

speech to CTIA’s annual convention, FCC Chairman William Kennard characterized

the wireless industry as ‘‘the poster child for competition.’’ In its 1999 Competition

Report, the FCC reported that more than 75% of the U.S. population is served by

at least 5 wireless service providers and more than 93% of the population is served

by at least 4 wireless service providers. In the Washington, D.C. market, for example, we hold one license and compete against SBC, AT&T, Sprint and Nextel.

Today, the cap threatens to constrain our ability to grow to meet demand and

offer new services. It threatens to impair the very competition that it was intended

to promote and to penalize carriers for their competitive success. My company and

many others are restricted from bidding on new spectrum that we can use productively to serve the public. Lifting the cap, and allowing an open and fair auction

of available spectrum, will favor innovation and competition in the wireless industry

and yield the highest auction revenues by allowing any firm that values the spectrum to bid.

I want to thank Congressman Stearns for introducing the spectrum cap legislation

and to thank you, Mr. Chairman, and others who have co-sponsored the bill. I urge

the Committee to pass this important piece of legislation. By doing so, it will promote a more competitive auction for the ‘‘C’’ and ‘‘F’’ block PCS licenses that the

FCC has scheduled for this coming November. The bill meets the need for a full,

fair, and open auction that permits all interested carriers to bid, by lifting all bidding restrictions.

The ‘‘C’’ and ‘‘F’’ block licenses are particularly suitable for 3G services, since the

PCS band has been identified globally for that purpose. We need to be able to make

our business plans based upon the opportunities and the needs of this exploding

market and to meet the global competition that 3G will intensify. U.S. competitors

are at a significant disadvantage relative to our non-U.S. counterparts. For example,

as a result of the recent 3G auction in the United Kingdom, the four national wireless providers now have as much as 90 MHz of spectrum, double the amount permitted under the U.S. spectrum cap.

The spectrum cap’s adverse impact on budgetary policy is obviously a matter of

supply and demand. It reduces auction revenues by excluding carriers that are likely to place the highest value on the new spectrum.

In short, the spectrum cap rule is not only no longer necessary; it threatens to

impede my company’s ability to obtain the spectrum we need to serve the public.

Competitive industries require market-driven policies, not outmoded regulation.

Spectrum caps pick winners and losers by allowing some to bid on new spectrum

while excluding others. Such policies penalize the most successful carriers by denying them access to the additional spectrum resources we need to remain competitive

and offer new services.

3. Capitalize on the Decisions of WRC-2000.

Substantial amounts of additional spectrum are needed to support 3G wireless

services. The wireless industry, working with the U.S. Government, estimated that

at least 160 MHz of additional spectrum will be needed over the next decade in addition to the current cellular and PCS bands. And, the U.S. is not alone in recognizing the need for more spectrum. Last month, governments from around the world

met at the World Radiocommunication Conference (WRC-2000) in Istanbul, Turkey.

The Conference, which established proactive policies for the development of 3G services, was a major success for the U.S. It identified two key bands to accommodate

the future development of 3G technologies and services—a significant step toward

meeting future market demand and promoting worldwide spectrum harmonization.

These actions are encouraging, but we cannot claim victory yet. Important steps

must now be taken domestically to implement the decisions made at WRC-2000. The

U.S. Government must work diligently to complete its spectrum studies and make

decisions about what spectrum it will make available in the U.S. for 3G. This process must occur soon, and it must consider the entirety of the subject bands. Piecemeal treatment would be unfortunate and counterproductive. My company stands

ready to assist the FCC and NTIA in these efforts. Failure to complete these studies

85

and license this spectrum quickly will place the U.S. behind the rest of the world

in the deployment of advanced mobile technologies and services. What is at stake

is the ability of consumers to benefit from these new technologies and services and

of the U.S. to reestablish its leadership in the wireless marketplace.

CONCLUSION

Congress must act now to adopt market-driven spectrum policies that promote the

development of advanced wireless technologies and services. I urge Congress to (1)

defer the 700 MHz auction, (2) repeal the spectrum cap this year so that future auctions, including the upcoming ‘‘C’’ and ‘‘F’’ block auction, are open and fair, and (3)

direct the FCC and NTIA to determine how the 3G frequency bands will be used

to the benefit of the American public, the economy, and our competitiveness in the

global communications market.

Mr. TAUZIN. Thank you, Mr. Strigl.

Next will be Mr. Rudy Baca, Global Strategist for the Precursor

Group here in Washington, DC. Mr. Baca.

STATEMENT OF RUDY L. BACA

Mr. BACA. Thank you. Mr. Chairman and members of the subcommittee, thank you for the honor of testifying before your subcommittee today on the subjects of H.R. 4758 and spectrum policies

for the 21st Century.

I am Rudy Baca, analyst with the Precursor Group. The views

expressed here are mine alone. By way of introduction, the Precursor Group is an independent employee-owned controlled research company structured to avoid financial conflicts of interest

inherent in Wall Street research.

In that context I offer the following insights and observations in

hopes that they will be useful to the subcommittee.

The Spectrum Resource Assurance Act, H.R. 4758, recognizes

that wireless communications providers in the United States are at

a competitive disadvantage with their foreign counterparts because

of a lack of adequate radio frequency spectrum.

Spectrum is the life blood of wireless services. But not all radio

frequency spectrum is equally useful or available. Spectrum management policies determine the rules of the game. That is, who can

play, how much spectrum they will get, and where it will be located.

Governments have traditionally managed radio frequency spectrum as a public resource for the common good. A coherent, efficient forward-looking spectrum management policy and process is

critical for U.S. wireless operators to be able to compete in providing global, interconnected, seamless advanced communications.

Technologically sound spectrum policies allow for the competitive

provision of communication services which benefits the public with

rapid deployment of innovative offerings at fair prices.

Conversely, antiquated and ad hoc spectrum decisions can hinder

development and delay or even deny services to the public by predetermining winners and losers or handicapping some providers

unfairly.

The world is on the cusp of the rollout of Third Generation wireless services. Third Generation, also known as IMT-2000 and

UMTS promise one, wireless Internet access; two, increased data

utility; and three, video capability from a handheld communications devise.

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The governments of the European community and Japan in particular view 3-G as an opportunity to leapfrog the U.S. dominance

of the Internet and e-commerce by building upon higher wireless

penetration rates for second generation digital cellular, that is PCS

outside of the United States.

The agencies responsible for spectrum management in the U.S.

must rapidly streamline the spectrum identification, allocation and

licensing processes if the U.S. operators are to be able to compete

and meet this challenge successfully.

The reality of spectrum management in the U.S. in 2000 and for

the foreseeable future is one of chronic spectrum shortages, especially compared to most of the rest of the world. These shortages

are the result of intensive spectrum usage in the U.S. for both commercial and government purposes.

This means that the U.S. suffers one, from an availability imbalance, and two, from a commercialization imbalance. The availability imbalance springs from the U.S. role as the sole remaining

global super power. National and global commitments require tremendous ongoing and increasing use of radio frequency for security

and defense purposes.

These legitimate needs mean that very large portions of the radio

frequency spectrum are simply off limits for commercial that is

non-government use.

Accordingly, spectrum management policies in the U.S. must be

even more efficient and targeted in identifying usable spectrum, allocating it for wireless services, harmonizing the uses with other

countries and clearing the bands by relocating incumbent users, licensing and assigning that spectrum for commercial.

Unencumbered spectrum is almost non-existent in the U.S. So

new services must either be squeezed into already licensed spectrum, that is, shared spectrum among technologically compatible

users or incumbent users must be relocated to other frequency

bands.

In summing up, what I would like to say is that the investment

community is well aware of these imbalances that are occurring

and you are going to see a very dramatic effect on the ability of

U.S. providers to compete.

The government programs and policies outside of the United

States have specifically targeting Third Generation as a way for

their providers to not only catch up to but to surpass U.S. providers.

It is absolutely critical that spectrum reforms such as the spectrum cap be looked at as the hindrances that perhaps may have

served at a time when the U.S. was transitioning from a duopoly

into a competitive marketplace but are now thwarting competitive

U.S. provision of communication services with ongoing global communications development.

Thank you very much.

[The prepared statement of Rudy L. Baca follows:]

PREPARED STATEMENT OF RUDY L. BACA, THE PRECURSOR GROUP

Mr. Chairman, thank you for the honor of testifying before your Subcommittee on

H.R. 4758 and Spectrum Policies for the 21st Century. I am Rudy Baca, Global

Strategist with The Precursor Group. The views expressed here are mine alone.

87

I request that my full written testimony be printed in its entirety in the hearing

record.

By way of introduction, The Precursor Group is an independent, employee owned

and controlled research company structured to avoid the potential financial conflicts-of-interest inherent in Wall Street research. The Precursor Group does no investment banking, money management, proprietary trading, or stock picking. We

help institutional investors anticipate change in regulation, technology, competition,

and globalization so that they can invest more proactively than reactively. In that

context, I offer the following insights and observations in hopes that they will be

useful to the subcommittee.

I. THE UNITED STATES IS RELATIVELY DISADVANTAGED BY SPECTRUM SCARCITY

The Spectrum Resource Assurance Act, H.R. 4758, recognizes that wireless communications providers in the United States are at a competitive disadvantage with

their foreign counterparts because of a lack of adequate radio frequency spectrum.

Spectrum is the ‘‘life blood’’ of wireless services. But not all radio frequency spectrum is equally useful or available. Spectrum management policies determine the

‘‘rules of the game,’’ that is, who can play, how much spectrum they will get and

where it will be located.

Governments have traditionally managed radio frequency spectrum as a public resource for the common good. A coherent, efficient, forward-looking spectrum management policy and process is critical for U.S. wireless operators to be able to compete in providing global interconnected seamless advanced communications. Technologically sound spectrum policies allow for competitive provision of communications

services, which benefits the public with rapid deployment of innovative offerings at

fair prices. Conversely, antiquated and ad hoc spectrum decisions can hinder development and delay or even deny services to the public by predetermining winners

and losers or handicapping some providers unfairly.

The world is on the cusp of the rollout of Third Generation (3G) wireless services.

3G (a/k/a IMT-2000 and UMTS) promises wireless Internet access, increased data

utility, and video capability from a handheld ‘‘communications device’’. The governments of the European Community and Japan, in particular, view 3G as an opportunity to build upon higher wireless penetration rates for Second Generation digital

cellular (PCS) outside the U.S., to leapfrog the U.S.’s dominance of the Internet and

E-commerce.

The agencies responsible for spectrum management in the U.S. must rapidly

streamline the spectrum identification, allocation, and licensing processes if U.S. operators are to be able to meet this competitive challenge successfully.

II. WHY THERE’S A PROBLEM WITH SPECTRUM SCARCITY IN THE U.S.?

The reality of spectrum management in the U.S. in 2000, and for the foreseeable

future, is chronic spectrum shortages, especially compared to most of the rest of the

world. These shortages are the result of intensive spectrum usage in the U.S. for

both commercial and government purposes. This means that the U.S. suffers an (1)

availability imbalance, and a (2) commercialization imbalance.

Availability Imbalance. The U.S. is the sole remaining global superpower. National and global commitments require tremendous on-going and increasing use of

radio frequency spectrum for security and defense purposes. These legitimate needs

mean that very large portions of the radio frequency spectrum are ‘‘off-limits’’ for

commercial (non-government) use. Accordingly, the spectrum management policies

in the U.S. must be even more efficient and targeted in identifying usable spectrum,

allocating it for wireless services, harmonizing uses with other countries, clearing

the bands by relocating incumbent users, and licensing (‘‘assigning’’) spectrum for

commercial use.

Unencumbered (‘‘virgin’’) spectrum is almost non-existent in the U.S., so new services must either be squeezed into already licensed spectrum—that is, spectrum is

‘‘shared’’ among technologically compatible users—or, incumbent users must be relocated to other frequency bands. Both necessitate consistent and intensive spectrum

management. In addition, domestic allocations must be ‘‘harmonized’’ with international allocations to facilitate roaming and minimize interference. To function effectively, the responsible agencies must make the required resources available to

manage these processes.

Commercialization Imbalance. Spectrum management in the U.S. is a more complex, and therefore prolonged, process than in most countries because of the previously noted scarcity of usable spectrum and also the many U.S. regulatory ‘‘managers’’ with conflicting goals. Unlike almost all other countries, where one entity is

responsible for spectrum management, the U.S. spectrum management policy procVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00091 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
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ess involves numerous participants. The FCC manages commercial uses of spectrum, including some public safety uses; NTIA manages governmental uses, including Department of Defense, and the national security agency uses; the Department of State ‘‘coordinates’’ international communications agreements, including

treaties; and, more recently, the USTR is responsible for trade aspects of communications. All impact spectrum management to varying degrees, with the FCC and

NTIA being the principal managers.

Reconciling the oftentimes divergent interests of these entities is done on a generally informal and ad hoc basis. While that may have sufficed in a pre-mobile hard

wired telephone voice communications world dominated by monopoly national operators, a more efficient and consistent spectrum management policy process is needed

in the increasingly global virtual village of modern mobile digital voice, data, and

video communications if U.S. operators are going to be able to compete effectively.

Otherwise, this regulatory imbalance between the U.S.’ spectrum management approach and that of the rest of the world will continue to handicap U.S. operators

in providing advanced global and domestic communications services such as 3G.

III. WHAT CAN BE DONE TO CORRECT THE IMBALANCE?

Spectrum management policy and practice reform could ameliorate the competitive disadvantage caused by spectrum scarcity and ad hoc multi-regulator spectrum

management. Comprehensive reform could include rationalizing and streamlining

the process with emphasis on expedited technical recommendations and evaluations

such as ‘‘sharing studies’’.

The private sector could be more fully engaged in all aspects of the process. For

example, although the private sector has recently been given an increased ‘‘advisory’’ role, the ITU (International Telecommunication Union) remains a governmentdominated bureaucracy under the United Nations. The government Members are

adept at leveraging the one country/one vote ITU system into regional blocs that cut

against the lone U.S. positions that increasingly seek ‘‘multi-band’’ approaches borne

of U.S. scarcity of contiguous spectrum. The U.S. has been remarkably successful

in advocating its spectrum policies internationally, but faces a much more difficult

task as spectrum management processes exacerbate spectrum scarcity for new advanced mobile communications. Technological development now operates on ‘‘Internet time,’’ while U.S. spectrum management is encumbered by bureaucratic delay

and legacy prohibitions such as the FCC’s Spectrum Cap. Removal of the Spectrum

Cap pursuant to H.R. 4758 and other spectrum management reform could help correct the spectrum imbalances hindering U.S. operators.

Mr. Chairman, thank you again; it is an honor to testify before your Subcommittee.

Mr. TAUZIN. Our final witness is Mr. Mark Kelley, Chief Technology Officer of Leap Communications International who is speaking for the PCIA, the Personal Communications Industry Association here in Alexandria, Virginia.

Mr. Kelley.

STATEMENT OF MARK KELLEY

Mr. KELLEY. Thank you, Mr. Chairman and thanks to the committee for allowing me to speak today, particularly on the impact

of H.R. 4758, the Spectrum Resource Assurance Act.

I am the Chief Technical Officer of Leap Wireless in San Diego.

I want to tell you just a little bit about the services that we offer

and what we are doing. It is going to be in a bit of a contrast to

what you have heard from some of the others today.

Leap Wireless is a wireless communication carrier. We deploy,

own and operate wireless networks in domestic and international

markets with strong growth potential. We purchased 36 licenses in

the 1999 C-block reauction. We are purchasing additional licenses

throughout the United States.

Through our subsidiary, Cricket Communications, we are planning on offering an innovative service to 35 of those markets within

the next year.

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Cricket has already introduced an innovative, local wireless service known as ‘‘The Around Town Phone’’ to residents of Chattanooga and Nashville. What we are offering in Chattanooga and

Nashville is what we are going to be offering in all the other markets where we own spectrum in the United States.

What we are able to do in 10 MHz a spectrum is to offer unlim- ited, unlimited wireless voice service for $29.95 a month and in

doing that we have provided an opportunity for a lot of Americans

who haven’t previously been able to afford wireless service to have

wireless service. We are doing that in 10 MHz of spectrum in many

markets.

One of a couple of the issues that I would like to talk to you

today is: How much spectrum do you really need for voice. The

issue was raised several times this morning, in particular, Mr.

Sawyer had led a discussion about the efficiency of the spectrum

and isn’t it incumbent upon the people that hold that spectrum to

be efficient with it?

Briefly, with our 10 MHz of spectrum, we are offering unlimited

service to what we believe will be up to 20 percent of any one market. That is after accounting for some of the deployment challenges

and so forth that all wireless carriers have.

The most important thing to emphasize here is that the future

technologically is even better. There are two or three technological

developments that are underway right now that are going to provide up to 6X more capacity in the existing spectrum and I want

to talk about just a few of those.

One is the first phase of 3-G which is known as 1XRTT, sometimes called 2.5-G. but what 1XRTT is going to do is permit us to

essentially double the amount of users that we can put in the spectrum today.

The next development is a new compression of vocoder development which is going to give us another 50 percent more capacity

beyond 1XRTT.

Finally, something Mr. Hatfield and the panel this morning referred to, there is a thing called ‘‘smart antenna’’ technology which

is going to allow up to two or three times more capacity above and

beyond that.

Incidentally, with regard to smart antenna technology, it is already being used in several other places in the world for people to

add capacity to their own systems. It was the method of pointing

the antenna specifically at the users.

So between our efficient use of spectrum and what we know is

going to be possible in the next several years, we believe that we

can handle quite a bit, even more than the 20 percent that we are

handling right now with our 10 MHz of spectrum.

We also believe were we to acquire even another ten MHz in the

regions where we don’t have more, that we could offer wonderful

wireless data service as well. Briefly about wireless data, a lot of

discussion this morning and indeed this afternoon, has focused on

the U.S.’s position relative to other countries with respect to high

speed wireless data services.

There is technology available that will be rolled out commercially

next year that will allow up to two megabytes per second, in a one

and a quarter MHz channel, which would allow carriers such as

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ourselves to offer high-speed, 3-G-like services within our own spectrum band.

Really, what will occur then when this equipment is available

commercially is that you will see rolled out by not only ourselves,

but mostly the other carriers who have adopted the same technology and it will be applications and services that are riding on

top of this high-speed data.

It is really the spectrum cap that allows smaller carriers such as

ourselves to be able to play in a market with the other much larger

carriers.

So in conclusion, and I didn’t mention the designated entity status, we are a DE. We do believe that the set asides are also equally

critical for our own survival. But we believe that the technology

today and tomorrow allows you to do a ton in 45 MHz.

Thank you very much.

[The prepared statement of Mark Kelley follows:]

PREPARED STATEMENT OF MARK KELLEY, CHIEF TECHNICAL OFFICER, LEAP

WIRELESS INTERNATIONAL

Good morning, Mr. Chairman and members of the Committee. Thank you for inviting me here today to discuss FCC spectrum policies and the potential impact of

H.R. 4758, the Spectrum Resource Assurance Act. My name is Mark Kelley. I am

Chief Technical Officer of Leap Wireless International of San Diego, California.

Leap Wireless is a wireless communications carrier that deploys, owns, and operates wireless networks in domestic and international markets with strong growth

potential. Leap purchased 36 FCC licenses in the 1999 PCS C Block re-auctions and

is purchasing additional licenses throughout the United States. Through its subsidiary, Cricket Communications, Leap plans to offer its innovative service in 35

markets by the end of 2001.

Cricket has already introduced an innovative local wireless service offering,

known as Around-Town Phone Service, to residents of Chattanooga and Nashville,

Tennessee. Cricket gives customers the freedom to make all of their local calls for

a low, flat rate of $29.95 per month. Cricket customers can also choose to receive

voicemail, caller ID, and call waiting services at a price that is competitive with traditional landline service. By tapping into large underserved markets like Chattanooga and Nashville, Cricket seeks to achieve rapid penetration growth. At the

same time, Cricket also intends to re-shape the economic models of wireless service

by lowering the costs of wireless service to the American consumer. Cricket plans

to offer its innovative service in 35 markets by the end of 2001.

Leap employs over 200 people in the United States and has over 46,000 subscribers domestically. While still maintaining an operating loss in this build-out

stage, the company had revenues of $22 million in 1999 and $3.3 million in 1998.

The company began operations in 1998.

As Leap understands the purpose of H.R. 4758, it would prohibit the FCC from

applying any spectrum aggregation limits to spectrum purchased at auction today.

It would not, however, forbid the FCC from applying its 45 MHz spectrum limits

(‘‘spectrum cap’’) to current licenses and the transfer and assignment of these licenses. This proposal creates an unnecessarily complex dichotomy for a rule that

continues to promote local wireless voice and data competition. Companies that exceed the spectrum cap with ‘‘new’’ spectrum purchased at auction would be permitted to expand without limits. In contrast, companies that choose not to participate in auctions could not expand with ‘‘old’’ spectrum garnered through secondary

market mechanisms. This dichotomy gives the largest incumbent cellular/PCS operators a tremendous incentive to participate in the upcoming PCS re-auction before

they actually need this spectrum. As a result, incumbent operators are more likely

to ignore potential spectrum efficiencies in favor of warehousing spectrum.

H.R. 4758 also threatens specific congressional goals for the remaining C and F

Block PCS licenses now scheduled for re-auction to designated entities in November.

Despite clear guidance from Congress and recent reminders from Chairman Tauzin,

Mr. Dingell and many of the members of this Committee, the FCC is on the verge

of dismantling a program that is bringing new companies like Leap to the wireless

market, thereby denying American consumers the choice and lower prices that new

companies offer.

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It is not an overstatement to tell you that Leap Wireless, as well as scores of

other new wireless carriers, would not be in business today without two crucial

spectrum polices: (1) the Federal Communications Commission’s 45 MHz spectrum

aggregation limits (‘‘spectrum caps’’) for local cellular, PCS and SMR spectrum holdings; and (2) the PCS C and F Block set-aside program that makes spectrum available to congressionally-identified designated entities.

The FCC adopted the spectrum cap limit coincidentally with its creation of the

Personal Communications Service (PCS) rules and Congress’ adoption of competitive

bidding procedures to award PCS and other commercially used spectrum licenses.

(47 U.S.C. § 309(j)). Without the spectrum cap, the two cellular licensees in each

local market—one of which is the incumbent local telephone company—would have

been free to bid on the new PCS spectrum by using monopoly profits from their

phone operations and the duopoly profits from their cellular operations. Ultimately,

consumers would have been denied the benefits of new digital networks, lower

prices and innovative service offerings.

The FCC determined just last September that it should retain the spectrum cap

in order to promote the continued rollout of wireless alternatives and prevent reconsolidation of this market. More specifically, the Commission found that the spectrum cap was providing consumers with several benefits, including:

• Lower wireless prices • Heightened equipment and service quality • Accelerated introduction of technological advances • Efficient and innovative use of the spectrum • Reduction of spectrum warehousing by carriers

Leap notes that recent evidence indicates that PCS is still in its early rollout state

in many communities, with only 23% of all PCS licenses in commercial operation.

Many communities still do not yet have a choice of mobile carrier other than the

two cellular operators.

Leap agrees wholeheartedly with the authors of H.R. 4758 that the wireless industry is experiencing strong growth and competitive development, with many communities having a choice of five or more wireless services. However, it is because

of the spectrum cap—not despite it—that Americans now have far greater choices

in mobile providers. Because the spectrum cap prevents the concentration of spectrum in to a few hands, the government is able to let market forces work rather

than imposing strict behavioral regulation over pricing and operations.

The spectrum cap also sends the proper efficiency signals to carriers as it promotes the efficient use of existing spectrum and the modernization of networks.

Some of the most vociferous proponents of eliminating the cap are the same carriers

unwilling to transition to digital networks. While the new PCS industry is 100 percent digital, cellular carriers are still primarily using legacy analog networks: Bell

Atlantic 49% digital; SBC 41% digital; AirTouch 39% digital; GTE 26% digital

(Source: Merrill Lynch, The Matrix—1Q 00, June 20 2000)

H.R. 4758 suggests that the spectrum cap can be replaced with antitrust enforcement. Leap believes that the cap is the least intrusive means of preserving a diversity of operators and consumer choice. Antitrust litigation is costly, time-consuming

and detracts from an entrepreneur’s focus on rolling out new services. Mr. Chairman, Leap loves its lawyers, it just does not want to pay more of them to contest

the market concentration that is sure to come if H.R. 4758 is adopted.

The bill also threatens the completion of Congress’ express goal of putting licenses

in the hands of designated entities, namely, rural phone companies, small businesses, and business owned by women and minority groups. With the advent of auctions, Congress recognized that these companies would not be able to compete headto-head in auctions with the largest wireless carriers. It directed the FCC to ensure

that its auction procedures give designated entities a meaningful opportunity to participate in auctions and enter the wireless marketplace. For PCS, the Commission

originally implemented this guidance by reserving 40 MHz of the 120 MHz for designated entities (the C and F block spectrum bands). Despite a few well-publicized

bankruptcies, this program has been extremely effective in putting spectrum in the

hands of entrepreneurs and small carriers like Leap. The C and F block companies

are rolling out services in rural markets and major metropolitan areas and offering

innovative service alternatives like Around-Town Phone Service to replace traditional landline service.

This bill before you today allows the nation’s largest carriers to participate in the

very auctions now reserved for designated entities—unquestionably the last auction

in which designated entities will have a meaningful opportunity to purchase reserved PCS spectrum. Despite the unquestioned success of this entrepreneurs’ program, the FCC is now considering a proposal that would take back as much as 20

MHz of the 30 MHz reserved for designated entities. The mega-carriers claim that

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this spectrum will relieve congestion and is the only available alternative for them

to offer advanced 3G services. This contention is simply untrue. The FCC will be

conducting a 700 MHz auction in September and is slated to re-allocate additional

spectrum for mobile services in the next year or so. In addition, carriers always

have the option of entering the secondary market for spectrum through assignments

and transfers, affiliation agreements, swaps, mergers, and disaggregation and partitioning arrangements.

As the FCC has repeatedly recognized until now, it is simply not plausible for designated entities to compete in open auctions against the nation’s largest companies

who are targeting specific markets. Under the current rules, designated entities bid

against each other. Under the FCC proposal, designated entities would be forced to

bid against companies, like SBC, that are almost 400 times as large as the largest

designated entity. H.R. 4758 would remove the last impediment for these mega-carriers to obtain the very spectrum meant to promote the creation of new competitors

and new business opportunities for entrepreneurs.

Leap urges this committee to move cautiously in eliminating a program that is

the catalyst of mobile wireless competition. The FCC is scheduled to review the continued need for the spectrum cap later this year as part of its Congressionally-mandated biannual review. Moreover, a straightforward waiver process is in place and

the Commission has raised the cap to 55 MHz for rural markets.

The adoption of H.R. 4758 will reduce the number of potential competitors in the

wireless marketplace by eliminating the possibility of any meaningful designated

entity participation in the upcoming C and F block re-auction, ultimately harming

the American consumer. This committee should reject a proposal that so narrowly

targets Congress’ goals of avoiding an excessive concentration of licenses and disseminating licenses among a wide variety of applicants, including small business,

rural telephone companies, and members of minority groups and women.

Mr. TAUZIN. Thank you, Mr. Kelley.

The committee wants to recognize the presence of Mr. Brian

Bilbray, who is not a member of the subcommittee but is a member

of the full Commerce Committee. I want to welcome you, Brian, to

these hearings.

Mr. BILBRAY. Thank you, Mr. Chairman.

Mr. TAUZIN. We only have about five or so minutes before we are

all going to have to run. We have a 15-minute vote on the floor.

I have asked Mr. Stearns to proceed over there and then to come

back. So as soon as he gets back, he will be back before I will be

back and he will reconvene the hearing.

But let me recognize myself and see if we can get another member in before we have to go. I have just a couple of quick questions.

First of all, my understanding is that digital can accommodate

as much as 20 times the number of conversation as analog can accommodate on the spectrum. According to the reports we have

seen, various phone companies have different percentages of digital

in their mix. For example, Verizon is at 49 percent. I think SBC

is at 41 percent.

Obviously, increasing the percentage of digital in the wireless

mix would increase dramatically the efficient use of the spectrum.

Mr. Smith, maybe you could respond to that. Mr. Strigl, you could

tell us something. You, too, Mr. Kelley. Is that so and what is being

done about that?

Mr. SMITH. Well, Mr. Hatfield, I think, made a statement that

I would even say was very understated when he said that is an aggressive number, the 20 to 25 times number. I think that the more

operative number is around six times the digital capacity over analog.

With regards to the mix of analog and digital, there is no question that digital services are more efficient in the spectrum.

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But I would like to remind you that to the degree to which a mix

is between analog and digital is to a large extent determined by the

customers themselves who have analog phones versus digital

phones.

Mr. TAUZIN. But obviously a company can aggressively pursue

the sale of its digital products.

Mr. SMITH. That is exactly correct.

Mr. TAUZIN. I suspect that should be in company plans; right?

Mr. SMITH. It is in our company plans. One thing I will point out

that was not mentioned this morning, Mr. Dingell accurately, I

think, pointed out that the FCC requires us to provide a base of

analog service everywhere and one of the reasons that that is still

the case is that there are multiple digital technologies across the

country, GSMT, and so the analog service becomes a common denominator for roaming.

So we will probably always have a degree of analog capacity.

Mr. TAUZIN. Do you want to comment on that, Mr. Strigl?

Mr. STRIGL. Mr. Chairman, I think the better way of measuring

digital penetration is to look at the usage that comes from digital

customers. While we have 49 percent of our base that is digital, we

are moving very rapidly more and more to digital, but that 49 of

our base accounts for approximately 80 percent of our busy hour

usage.

So we have moved very rapidly. I think that the analog customer

base that exists today is more what we could categorize as the

‘‘glove box’’ customer. They use the phone very little and primarily

for emergency reasons.

Mr. TAUZIN. Mr. Kelley, do you want to respond?

Mr. KELLEY. Yes. If I could just comment on that. What he is

saying is absolutely accurate if you have 50 percent or more of your

spectrum that is devoted to analog. It is true, that is really not

being used very much, even by the customers that you have to reserve that spectrum for.

You can’t dynamically allocate more spectrum to digital just

when you need it.

Mr. TAUZIN. I want to give you each a chance, if you will, and

this is the only other question I have for you, to respond to anything you heard in the first panel that you really want to disagree

with, wholeheartedly, aggressively, passionately. Here is your

chance, anyone of you. Mr. Strigl.

Mr. STRIGL. I would be pleased to respond to some of the comments that I heard this morning about this very issue that we are

talking about. It is interesting and I think it works in a laboratory

to try to plan how to more efficiently engineer a digital network.

But the fact of the matter is, if you look at what is done in cities

like New York City today or Los Angeles today, you can look at virtually every other building top and see an antenna.

So I think what Mr. Hatfield suggested this morning in terms of

better engineering techniques perhaps works in some of the smaller markets, but we are at a limitation in the larger markets today

that makes building out, obtaining more cellular tower sites very,

very difficult.

Mr. TAUZIN. So you are back to needing more spectrum? Anyone

else? Mr. Smith.

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Mr. SMITH. I would start out by concurring with Mr. Strigl’s remarks and say that with regard to the issue of spectrum caps,

again, the spectrum caps were very effective in doing what they

were intended to do, and the graphs show that. But to compare

spectrum caps in 1994 to spectrum caps in 2000 is an unfair comparison.

We are here in 2000 looking at three major trends in wireless

usage. No. 1, increased minutes of use because of the pervasive nature of wireless, increased penetration, more customers than every

coming on board, and the advent of new wireless digital data services. All of these things will, for all the reasons mentioned, increase

the demand.

Mr. TAUZIN. It is a different marketplace.

Mr. SMITH. It is just a different marketplace.

Mr. TAUZIN. As they say in Istanbul, you can’t go back to Constantinople.

Mr. SMITH. That’s right.

Mr. TAUZIN. Mr. Kelley.

Mr. KELLEY. Yes. Just to reiterate, where we have rolled out

service, it is not a laboratory. These are real users using 1,000 minutes a month of phone service, some of them up to 15,000. It is an

unlimited service. We are able to do this by making 100 percent

use of the latest digital technology.

Mr. TAUZIN. I am not allowed to vote wireless, otherwise, I

would. I have to go in person.

The committee will stand in recess for about five or 10 minutes

until Mr. Stearns can reconvene the hearing.

[Brief recess.]

Mr. STEARNS [presiding]. The Subcommittee on Telecommunications will reconvene. The Chairman will be back momentarily

and I think members will. Just to expedite, the second panel has

been very patient to wait while we had a second round of questions

with the first panel.

So let me start off the questioning.

Mr. Kelley, I guess you were here earlier when we showed the

graphs of what the other countries, where they have a lot more

than the 46 MHz and many countries don’t even have any limits.

You seem to think if we don’t do anything that technology will

take care of it. That is what you imply. I heard the end of your

testimony. Isn’t it true that if the spectrum cap is lifted for future

auctions it would increase the value of the spectrum because more

people would bid on it? Do you think that is true?

Mr. KELLEY. I am the CTO of Leap Wireless. I will give you my

best estimate. I really wouldn’t want to tread in the area of the

value of it. That is really not the message I was here with today.

Referring back to the charts that you showed, I did see them. Referring to some of the comments that were made earlier, there is

this fixed pie of spectrum in the world. That is all that there is.

It is between 300, 400 or 500 MHz and around 3,000 MHz. That

is all there is.

You can consolidate that into a few groups or you can allow more

competitors into the market in the same pie by using smaller slices

and in doing so you enable companies such as ourselves at Leap

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Wireless to offer what is the lowest wireless phone service, mobile

service, anywhere on the planet ahead of Europe and Asia.

Mr. STEARNS. Mr. Baca, do you agree?

Mr. BACA. I agree that the value of the spectrum is dependent

upon the number of rules determining who can bid and who can’t

bid. I think what is important here is to look at what is the effect

on competition.

The spectrum cap served a very useful purpose when the U.S.

was transitioning from a duopoly environment into a competitive

environment, particularly because the FCC was using a new licensing methodology. So we are moving in a very different way than

we had done before in communications provision.

Other countries have used that experience that the U.S. has had

and see that they no longer need something like a spectrum cap because there are other means by which they can achieve those same

goals. There are other law enforcement type means where they can

prevent undue concentration.

So I am saying that the spectrum cap served a purpose but it is

no longer needed now and in fact is thwarting the competitive ability of U.S. providers.

Mr. STEARNS. Mr. Smith, do your companies own or operate any

commercial licenses outside the United States and if so, based upon

what you have seen on spectrum caps, if any, imposed on your licenses outside the United States, you might compare and give us

some comments on that.

Mr. SMITH. We do own licenses in Europe and in Mexico and in

several other parts of the world. I am not that familiar with all of

the spectrum rules outside of the U.S., but I can tell you what we

have experienced is a rapid growth of subscribership based upon

our freedom and our ability to build networks within the constraints of what the local laws are and which have allowed us a

degree of pricing flexibility which has allowed our customer base to

continue to grow.

Mr. STEARNS. In those licenses that are outside the United

States, have you been able to provide additional services to these

folks that you can’t provide those same services here in the United

States?

Mr. SMITH. Well, not yet. I think we have not reached an impediment at that point, but clearly we are kind of at the cusp of the

introduction of some new services and our concern is that as we

move forward into the next several years and as we do spectrum

planning for the next several years that there are no artificial

boundaries and no artificial barriers here, particularly in the U.S.

to be able to offer whatever services our customers might want.

Mr. STEARNS. Are you bumping up against the cap now?

Mr. SMITH. We are not necessarily bumping up against the cap.

We are clearly bumping up against capacity limits in the spectrum

allocations that we have in some major markets.

We happen to serve a number of major markets in the U.S., very

large cities, Los Angeles, Chicago, Boston, Washington, D. C., and

so forth. In many of these cities we are virtually at the limits of

our current technology.

Mr. STEARNS. Limits of current technology?

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Mr. SMITH. We would allow that there are going to be some technological improvements in the future, and we are going to take advantage of those, but we are at a point where additional spectrum

is going to be needed in a very short period of time.

Mr. STEARNS. Mr. Strigl, based upon some of these questions I

have asked Mr. Smith, is there anything you would like to comment on?

Mr. STRIGL. First of all, my company, Verizon Wireless does not

own licenses outside the United States. However, our two owners,

Verizon Communications and Vodaphone Air Touch own numerous

licenses outside of the United States.

I guess I would just offer that some of the commentary that I

heard this morning suggesting that there was not a significant

amount of competition in international markets I think is just

plain wrong.

If I look at the United Kingdom, Italy, or Germany, they are very

competition markets. So I would just correct that perception if I

might.

Mr. STEARNS. My time has expired.

The gentleman, Mr. Green from Texas, is recognized for 5 minutes.

Mr. GREEN. Thank you, Mr. Chairman. I apologize for all of us

running and being gone. That is kind of the nature of the system

here.

Mr. Smith, I note in your testimony the rapid expanding FCC

spectrum auction of the 700 MHz bandwidth is causing great concern within your industry. If the issue of clearing is not resolved

by the September 1 auction date, how do you think this will affect

the bidding on the spectrum?

Mr. SMITH. Well, I know that there is a large degree of concern

in the industry and the FCC and their Policy Memorandum, Opinion and Order on the spectrum clearing issue has taken a fairly

passive position favoring instead private negotiations between what

they call license holders and broadcasters that occupy the spectrum

today.

The concern that we have is that in order to be a license holder

you have to bid on the spectrum and you have to win the spectrum.

Yet, as a company that is concerned about the evaluation of our

business, we need to know how much it is going to cost to clear

that spectrum before we can begin to build business plans and before we can establish a willingness to pay in the auction.

So the discussions have to take place with the broadcasters before the auction begins, not after the auction begins.

So that would cause us a degree of concern. I can’t speak for everybody but it is causing us a degree of concern and at least it will

impact the degree to which we are aggressive bidders in the auction.

Mr. GREEN. Would that affect the amount of money that the auction may raise? It seems logical.

Mr. SMITH. Logically, it would. If there was a more aggressive

bidding across the board you would expect the prices to rise. Certainly if this were unencumbered spectrum I would expect the values to be much higher than they would be if it was encumbered

spectrum.

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Mr. GREEN. How long do you thing the 700 MHz auction should

be delayed to better bring the spectrum to the consumers?

Mr. SMITH. Well, as a practical matter, there are a number of

issues that have to be resolved. Any delay at all is probably going

to be for several months. That would place it on top of the scheduled time for the C- and F-block in November.

Our recommendation is that it is delayed on into 2001 and

maybe as late as July 2001.

Mr. GREEN. Thank you. Mr. Strigl, Verizon Wireless, I guess I

should keep up with the market better, do you also have GTE

Wireless?

Mr. STRIGL. Congressman Green, the merged company of GTE

Wireless, Vodaphone, Air Touch, PrimeCo and Bell Atlantic Mobile.

Mr. GREEN. Okay. Because I know the beauty of the spectrum in

Houston, for example, GTE Wireless is one of them along with

Houston Cellular. Because of the spectrum expansion now we have

4 or 5 companies and the competition has worked to the benefit of

the consumer. More people, obviously, are having cellular phones.

In your testimony you spoke of Verizon’s interest in bidding on

the spectrum recaptured from the NextWave bankruptcy proceedings.

Are you concerned that this C- and F-block spectrum could be

flawed if all the legal entanglements are not resolved or to simply

the question, would you urge the FCC to postpone this auction if

all the legal issues surrounding the recaptured are not fully resolved before the auction?

I guess what I am wondering, who would bid on an auction

where they may end up spending a great deal of time in court?

Mr. STRIGL. I think, sir, that both auctions at current course and

speed are flawed. Would we bid? We have already said that we

were very interested in bidding on 700 MHz. I think that what

happens is the values are significantly depressed.

I am terribly concerned about clearing it. On the 700 MHz auctions, I have the particular problem of having to go to my board,

justify how much money I would put down on this auction and then

turning around again and saying, ‘‘Here is how much money I need

to clear the spectrum.’’

With the reauction of the 1900 MHz, perhaps this, too, should be

delayed somewhat until the legal entanglements have worked their

way through. But in both cases I can’t forego at least studying and

figuring out how I can bid on this and use it in either case.

Mr. GREEN. So again, on both auctions, I guess you would be interested in seeing some of the issues resolved hopefully by the middle of next year?

Mr. STRIGL. Yes, sir. Yes. Certainly on 700 MHz because it is not

usable until at best 2006. There is plenty of time for that. So I

would concur with my colleague, Mr. Smith, that mid next year is

probably thoughtful.

Mr. GREEN. Mr. Chairman, I know my time is out. But I see Mr.

Smith may have an additional comment.

Mr. SMITH. If I could just follow up on your question, Congressman Green, one way to look at this with regard to the 700 MHz

spectrum is that by the policy that has been established by the

FCC where the potential licensee will have to negotiate with the

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broadcasters, the value of the spectrum, to address your point, is

actually being transferred from the public interest, from the government and the public, extracting that value for themselves to the

broadcasters.

I think Congressman Boucher this morning talked about some of

the discussions that he had been privy to where that could actually

occur.

So the more that this is delayed the more we have an opportunity to reach some sound judgments with regards to what the

value of this spectrum is actually worth, to maximize its value for

the government.

Mr. GREEN. Thank you, Mr. Chairman.

Mr. TAUZIN. Thank you, Mr. Green. Before we finish with the

panel, I would like to ask any of you, if you can help us understand

this, what are the elements that have allowed our Asian and European friends to move more quickly on 3-G than we have in this

country?

What elements are there that are missing here?

Mr. Baca?

Mr. BACA. If I could do that, Mr. Chairman, what I did was recently look at that very issue for investors. My big conclusion was

that spectrum management outside of the United States is a much

more simplified process. It is done in one group generally. There

is one entity within the government that can do that.

There is also a greater availability of potentially usable spectrum. In the industry, the spectrum is so cut up into the various

government and non-government users that it is very, very difficult

to get contiguous spectrum.

We saw that in the U.S. proposal for the recent WRC in Istanbul.

It was spun. There were slices of spectrum all over the spectrum

map and it was spun as more flexible and more innovative and allowing all sort of, you know, benefits, but it was just spin.

Basically, what it said was the U.S. doesn’t have the spectrum

so that we are not like the U.K. which says, we don’t have to wait

for the ITU to move and allocate new spectrum. We have contiguous spectrum available, so we can schedule an auction. We can be

first off the block. We can raise $35 billion.

It is simply that the U.S. needs to be more focused and efficient

in managing the spectrum because it has less spectrum available

and tremendous demands on it. So the U.S. can’t afford the

luxury——

Mr. TAUZIN. Is that all it is? Are there any other elements, any

other problems we face that they don’t face that are handicaps to

the deployment of 3-G in this country?

Mr. KELLEY. If I could just respond to that and actually just comment on the perception that somehow the U.S. is as far behind Europe and Asia in this.

3-G means different things to different people. To some people it

means more spectrum. To others it means a new technology.

But what it means to most people who would like to see wireless

data, high speed wireless data, but to consumers much the way you

can see Docomo’s I-mode service in Japan, which incidentally is

done at 9.6 kilobytes a second, not any blazing speed at all.

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What it really means is being able to offer a higher speed data

service. That is something that will be possible to do next year.

That is really the point I would like to make.

If we have the opportunity ourselves to have another ten MHz

of spectrum in the markets where we only have ten today, then

with 20 MHz a spectrum we would be able to provide not only our

unlimited voice service, but high speed wireless data services as

well, which would really accomplish the end game which is to bring

high speed wireless data to American consumers.

Mr. TAUZIN. Are there any other comments? Mr. Strigl?

Mr. STRIGL. Mr. Chairman, I really can’t add much to that except

to say that I, too, believe that what is touted as greater success in

Europe is not necessarily so. Remember that first there is greater

penetration in Europe.

That is driven in part by the fact that there is less land line penetration and we do see substitution over their very early time.

Mr. TAUZIN. In short, they have a weaker wired system as we

and they have had to rely upon wireless a lot more than we have.

Mr. STRIGL. In many countries, sir, that is correct. They have

done some things in terms of advance services that we haven’t done

as quickly, like two-way SMS but you will see that roll out very

quickly here.

Mr. TAUZIN. Mr. Baca, if I can summarize again, your conclusion

after studying this is that it is simply a problem of management

and availability of contiguous enough spectrum for indeed these advanced services to roll out?

Mr. BACA. It is certainly not a matter of the competition spirit

of U.S. providers or certainly their technological ability. It has to

be other impediments that are causing them to become competitively disadvantaged domestically versus outside of the United

States.

It is the ability to know that you are going to have access on a

timely basis to the spectrum that you say that you need.

Mr. TAUZIN. Thank you. Mr. Stearns, do you have anything you

would like to follow up on?

Mr. STEARNS. No, Mr. Chairman. I think you hit upon it basically. If you were sitting in our place, I might just go down the line

here, what do you think this committee could do to make sure that

we are competitive in 3-G and that we would have superior competitiveness with the Europeans.

May I start with you, Mr. Smith?

Mr. SMITH. Sure. One of the concerns we had in spectrum allocation policy is that the FCC has demonstrated a practice of incrementally developing spectrum allocation. In other words, we are

going to auction this off this year. There is no long-term plan.

As we look at the world allocation, international allocation of tables and look at what has been done at WRC 2000 and so forth,

I think the FCC needs to step back, and with the NTIA, because

some of the spectrum is government-controlled, and say, what is

the long-term plan here? Here is where we are. Here is where we

want to be. Then develop cooperatively between the Congress, between the FCC and the NTIA a plan.

Mr. TAUZIN. Would my friend yield?

Mr. STEARNS. Sure.

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Mr. TAUZIN. It may be useful, I mean you can comment on this

if you like, it may be useful for us to consider next year the adoption of a legislative policy position to guide such a long-term plan.

I mean part of the stop and go decisions that are being made is

not just the fault of the agencies.

Much of it is the fault of the Congress who for years have been

looking at spectrum as a piggybank, as a cash cow, and making decisions, as many of us pointed out, that are related to the budget,

not necessarily to good spectrum policy.

Perhaps we might want to explore that, Cliff, in terms of defining for the administration what a long term policy should look like

and therefore giving the Budget Committee a few more barriers to

leap before it begins dictating spectrum policy on the basis of financial requirements. That may be our responsibility as well.

Did you have anything else, Cliff?

Mr. STEARNS. I was just going to ask the rest of them if they

agree.

Mr. STRIGL. Yes, sir, I do agree with what Mr. Smith has said

in terms of the long term plan. I would add, however, just a caution. That is that we are behind in having a long term plan so I

would prefer not planning the plan for a long time.

Mr. BACA. I think that the Congress could be very effective by

urging all of the participants, and that is part of the problem, that

in the U.S. there are many more participants. There is NTIA and

all the 43 Defense agencies and the FCC and there is the Department of State and there is USTR.

Urge all of them, make this a No. 1 priority, to make sure that

they demonstrate that they can implement the decisions that were

made internationally WRC domestically and show how this will

form the basis for a new spectrum management plan.

The one big piece of advice is the advice that I give my students

when I teach international communications at Georgetown. My

parting advice to them is: When you go back to your foreign countries, remember, auctions and anti-trust are not spectrum management. That is law enforcement.

Mr. STEARNS. Mr. Kelley.

Mr. KELLEY. Yes, thanks.

To continue with the competitive forces that we have in this

country that have created the technologies that we have now is the

most prudent action I think we could take, by continuing to allow

the set aside program, as it was constructed, to continue and by

keeping the spectrum caps in place you allow companies like ourselves to exist and will allow other new wireless companies to roll

out new services as well.

Mr. TAUZIN. Thank you, Cliff. Thank you all.

The record, by our rules, will stay open for 30 days. So if you

have additional suggestions or comments, I would encourage you,

by the way, to examine the testimony in the next few days that you

heard on the first panel. If you want to make additional comments

regarding that testimony, I would deeply appreciate that.

I like the interaction of panels. Because we separated you, we

didn’t get that. So if you would kindly do that for me in the next

30 days, the record will stay open.

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My deep thanks for your patience today. The hearing stands adjourned.

[Whereupon, at 3 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

PREPARED STATEMENT OF MATTHEW J. FLANIGAN, PRESIDENT, TELECOMMUNICATIONS

INDUSTRY ASSOCIATION

Mr. Chairman and Ranking Member, thank you for this opportunity to testify before the Subcommittee on a matter of great importance to the telecommunications

industry. I am Matthew J. Flanigan, President of the Telecommunications Industry

Association (TIA).

TIA is a full-service national trade organization with membership of 1,000 large

and small companies that provide communications and information technology products, materials, systems, distribution services and professional services in the

United States and around the world. The association’s member companies manufacture or supply virtually all of the products used in global communications networks.

TIA seeks to provide its members a forum for the examination of industry issues

and information and serves as their voice on public policy and international issues.

Accredited by the American National Standards Institute (ANSI), TIA also is a

major contributor of voluntary industry standards that promote trade and commerce

in telecommunications products—domestically and around the world—including

standards for many of the products that use the wireless spectrum. Since January

1999, TIA has been the secretariat for the

Third-Generation Partnership Project 2 (3GPP2), which was created to support

International Mobile Telecommunications (IMT)-2000, the International Telecommunication Union (ITU)-led initiative to develop global third-generation wireless

standards. To that end, TIA’s contributions to IMT-2000 help form the backbone of

the ITU’s radio interface recommendation.

Mr. Chairman, TIA strongly supports and greatly appreciates the attention you

are giving today to this nation’s pressing need for more radio spectrum for the advanced wireless telecommunications services known as third-generation or ‘‘3G’’

services. Last month, on June 2nd in Istanbul, Turkey, the ITU completed the

World Radiocommunication Conference 2000 (WRC-2000), a global meeting of national administrations that identified several possible additional radio frequency

bands for the provision of IMT-2000. IMT-2000 is the ITU’s terminology for the

wireless 3G systems capable of broadband and multimedia applications, including

voice, video, and data.

The successful conclusion of WRC-2000 presents a unique opportunity to move

without delay to begin the process of making third-generation spectrum available

in the United States. For the sake of U.S. consumers, manufacturers and service

providers, it is extremely critical to keep pace with world market demand and to

harmonize U.S. bands for 3G services with the spectrum being designated in the

rest of the world. How do we move toward achieving alignment with the rest of the

world for 3G services? The answer begins with sound spectrum management and

a focused, cooperative effort between the Federal Communications Commission

(FCC) and the Executive Branch.

PRINCIPLES OF SOUND SPECTRUM MANAGEMENT

As manufacturers of wireless products and systems, TIA members have a direct

interest in our nation’s spectrum management polices. Responsible spectrum management contributes to high volume manufacturing that increases opportunities for

competition in both the equipment and service markets and also ensures that consumers and users can purchase equipment using the best technology at the lowest

price. Geographically unified national allocations, for example, reduce equipment

cost through economies of scale. Harmonized domestic and international spectrum

allocations increase exports and jobs generated by this industry.

Radio spectrum is a unique, ubiquitous natural resource. Unlike many other natural resources, it can be repeatedly reused. However, it is a resource that can only

accommodate a limited number of simultaneous users at one time. This limitation

requires careful planning and management in order to maximize its value for public

and private services. This is particularly true because the demand for communications spectrum is rapidly increasing. Both the competition in wireless markets and

the continuing development of new radio technologies are increasing the demand for

access to the same limited spectrum. While this increased demand is placing pressure on regulators to make difficult choices among competing potential spectrum

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users, it is also stimulating technological advances in spectrum sharing techniques

and creating the opportunity to realize economies of scale.

The shared goal of global, mobile, seamless, ‘‘anytime, anywhere’’ communications

was the motivation for the high degree of consensus achieved at the recent WRC2000. The national administrations represented there recognized the need to achieve

a global harmonized spectrum plan so as to maximize economies of scale, lower

costs, and secure an early implementation of the third-generation services. The outcome of this conference represents sound spectrum management at the international

level. The U.S. must now move promptly to make its own spectrum management

decisions at the national level in light of the global framework adopted at WRC2000, and make available on an expeditious basis the spectrum needed for 3G services.

While sound spectrum management is not easy to accomplish, it is a challenge

that can be met through strategic planning and recognition of the fundamental principles that lead to optimal spectrum usage. It is TIA’s position that increased reliance on market forces, rather than government oversight, will lead to the most economically efficient use of spectrum, the development of the most innovative technologies, and the universal deployment of wireless services. This does not, however,

mean that the government can take a hands-off approach to how spectrum is allocated. This is a function that remains uniquely the government’s and it should be

given a high priority.

In a competitive market, companies will develop and produce those technologies

and services that are most desired by consumers. And they will offer these services

at competitive prices. If spectrum can be used for those services that are most in

demand, then companies will have a greater profit motive for entering the wireless

market. In this way, market forces will encourage an efficient, innovative, and flexible use of the spectrum and will serve as the best arbiter among competing technologies and the services that they provide.

However, a management framework that relies on market forces does not preclude the government from playing a significant role within that framework. As I

noted, spectrum management is an essential task that the regulator must undertake. This includes determining how best to apportion spectrum among competing

services, both licensed and unlicensed, making spectrum available for essential public safety services and national defense, and protecting users from harmful interference.

Traditionally, governments have allocated available frequency bands for specific

uses before granting licenses to use the frequencies. Regulators should establish the

initial geographic scope and bandwidth of licenses, taking into account the various

characteristics of different frequencies, electromagnetic compatibility and the different spectrum needs of broad categories of service. This approach still allows for

technological developments that might make the most effective and efficient use of

the bandwidth provided, as well as permitting the introduction of new services that

are compatible with the intended use of the spectrum.

Ultimately, spectrum allocation decisions must reflect a government and private

sector consensus as to what services are technologically possible, commercially viable, spectrally efficient and likely to benefit the public. Allocating spectrum without

an understanding of domestic and global marketplace and technical demands can

lead to fractured markets, increased equipment costs, delayed research and product

development, and increased time-to-market. This is particularly true where the failure to achieve harmonization with global allocation plans will put a nation at a competitive disadvantage that will continue throughout the life of the service. Many

argue this is precisely the case with 3G services in the U.S.

It is also self-evident that the substantial benefits to the U.S. economy arising

from a well-crafted spectrum allocation process, as described above, will be lost if

spectrum allocation decisions are driven primarily by the demands of federal budget

planning. Although spectrum auctions may be an effective license assignment tool

for certain services, spectrum auctions should not be a substitute for sound spectrum allocation decisions or used primarily as a means of revenue generation. In

addition, as noted, responsible spectrum stewardship requires that consideration be

given to services that do not generate commercial revenues, for example, public safety systems.

Just as worldwide telephony standards have enabled telecommunications systems

to cross borders and become globally accessible, harmonized spectrum coordination

around the world can enable more effective, economical and competitive wireless

communications. This provides the consumer with global communications mobility

as well as global access. Given the unprecedented potential growth in advanced mobile and personal communications, and the convergence of telecommunications and

information technologies, it is imperative that the U.S. rises to the difficult chalVerDate 11-MAY-2000 09:08 Mar 09, 2001 Jkt 010199 PO 00000 Frm 00106 Fmt 6633 Sfmt 6621 E:\HEARINGS\65904 pfrm01 PsN: 65904
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lenge of ensuring sound spectrum planning and management for third-generation

wireless services,

3G SPECTRUM ALLOCATION PRIORITY

As I have noted, the ITU recently completed its WRC-2000 meeting and the outcome was very successful for the future of third-generation wireless services. The

conference recognized that approximately 160 MHz of additional spectrum would be

needed to meet the projected demand for 3G services in the next decade. It identified both the 1710-1885 MHz and 2500-2690 MHz bands as potential bands for the

service, with no preference given to either band. It indicated strong support for market-driven policies, including those that allow operators to evolve their first- and

second-generation mobile systems to 3G and provide operators with flexibility in

choosing technologies. It is now time for the U.S. to move forward expeditiously to

develop a national spectrum plan for 3G.

The bands identified by the WRC-2000 are currently being used in the U.S. The

1710-1850 band has been used by the federal government. Part of this spectrum,

the 1710-1755 MHz band, already has been reallocated for commercial wireless services, and is likely to be available for 3G. The 1755-1850 MHz band is heavily used

today by many federal agencies, and the National Telecommunications and Information Administration (NTIA) has indicated that it will study the band to determine

whether, and under what timeframe, portions of the band can be made available

for IMT-2000.

The 2500-2690 MHz band also is being used today for commercial fixed services,

i.e. the Multichannel Multipoint Distribution Service (MMDS) and the Instructional

Television Fixed Service (ITFS). This spectrum originally was used for ‘‘wireless

cable’’ systems, but recent rule changes now permit it to be used for wireless Internet access and other fixed services.

It is imperative that the FCC and NTIA work with industry to determine what

portions of the bands identified at WRC-2000 can be made available for IMT2000

in a timeframe that meets market demand. Studies must be completed to determine,

for example, whether 3G services can share spectrum with existing services in these

bands, whether relocation of existing services is feasible, and the cost and timing

of such relocations. The wireless industry has asked the FCC to commence a rulemaking proceeding to begin this process and to work with NTIA to complete these

studies as soon as possible.

The ability of consumers to benefit from emerging wireless services depends on

prompt action by the federal government. The U.S. economy also needs to evolve to

advanced wireless services in order to continue its information technology driven expansion. Wireless technologies and services are becoming essential to many e-commerce applications and industry is planning a variety of future information services

that can be provided wirelessly. Consumers in the United States and abroad are beginning to rely on mobile, hand-held devices and services to deliver the Internet

anywhere, any time.

As the federal government proceeds to study the bands for 3G uses, it must also

avoid taking actions that could preempt their use and prevent the U.S. from adopting a 3G spectrum plan that is harmonized with the rest of the world. For example,

the FCC, in its Spectrum Policy Statement released in November 1999, proposes to

make available 1710-1755 MHz paired with 2110-2150 MHz and 2160-2165 MHz for

fixed and mobile wireless services which could include 3G technology and services.

This proposal is inconsistent with the harmonized approach that the WRC-2000

framework seeks to promote and should be put on hold until the studies of the proposed bands are completed. Although the FCC is permitted, under the Balanced

Budget Act of 1997, to auction 1710-1755 MHz at any time after January 1, 2001,

and is presently obligated to license 2110-2150 MHz by September 30, 2002, to proceed in auctioning these bands prior to completing the spectrum studies on the

bands identified at WRC-2000 would put the U.S. irrevocably out of step with the

rest of the world. This threatens to harm the U.S. wireless industry and the American public by depriving them of the global economies of scale that harmonized spectrum allocations would bring. I call upon Congress to address this matter by directing the FCC to refrain from auctioning any part of the 1710-1755 MHz or 2110-2150

MHz bands prior to the completion of these studies and a decision on whether this

spectrum is appropriate for 3G services in the U.S.

CONCLUSION

In conclusion, Mr. Chairman, I would urge the Subcommittee to provide both support and direction to the FCC and NTIA in order to facilitate completion of the studies needed to allocate 3G spectrum in the U.S. Prompt action by these agencies is

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essential to ensure that 3G spectrum allocation decisions are made on the basis of

informed consideration of all alternatives. This will allow U.S. consumers and industry to avoid the costs of precipitous action, as well as those arising from undue

delay, including lost economic growth and jobs, unreasonable delays in introducing

new services for the American public, and further erosion of U.S. leadership in the

wireless technology area.

The Subcommittee should establish a regular reporting structure to assure that

it is informed about how the studies are proceeding. The Subcommittee should also

encourage the FCC and NTIA to establish ambitious goals for the completion of the

work. Both agencies should be strongly encouraged to keep the private sector involved by working closely with industry and trade associations such as TIA to complete the necessary studies and by developing a plan for obtaining spectrum for 3G

services. Finally, the Subcommittee should take steps to assure that the auction of

1710-1755 MHz and 2110-2150 MHz does not occur before the completion of these

spectrum studies by NTIA and the FCC.

Thank you again for allowing TIA to present its members’ views.

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