United States Government Accountability Office

GAO Testimony 

Before the Committee on Commerce, 

Science, and Transportation 

United States Senate

TELECOMMUNICATIONS

Options for and Barriers to 

Spectrum Reform 

Statement of JayEtta Z. Hecker, Director 

Physical Infrastructure Issues 

For Release on Delivery

Expected at 10:00 a.m. EST 

Tuesday, March 14, 2006

 

GAO-06-526T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 14, 2006

TELECOMMUNICATIONS 

Options for and Barriers to Spectrum 

Highlights of GAO-06-526T, testimony Reform 

before the Committee on Commerce, 

Science, and Transportation, United 

States Senate 

The radio-frequency spectrum is 

used to provide an array of wireless 

communications services that are 

critical to the U.S. economy and 

various government missions, such

as national security. With demand

for spectrum exploding, and most

useable spectrum allocated to

existing users, there is growing 

concern that the current spectrum

management framework might not 

be able to respond adequately to

future demands. This testimony,

which is based on previous GAO 

reports, provides information on

(1) the extent to which the Federal 

Communications Commission 

(FCC) has adopted market-based 

mechanisms for commercial use,

(2) the extent to which marketbased mechanisms have been 

adopted for federal government

users of spectrum, (3) options for 

improving spectrum management,

and (4) potential barriers to

spectrum reform. 

What GAO Recommends

In previous reports, GAO 

recommended that (1) the 

Secretary of Commerce and FCC 

should jointly develop a national 

spectrum plan to guide decision 

making, and (2) the relevant

administrative agencies and 

congressional committees work

together to develop and implement

a plan for the establishment of an

independent commission that 

would conduct a comprehensive 

examination of current spectrum 

management. To date, these 

recommendations have not been 

implemented. 

FCC is incrementally adopting market-based approaches for managing the 

commercial use of spectrum. Market-based mechanisms can help promote 

the efficient use of spectrum by invoking the forces of supply and demand. 

For example, although FCC currently employs largely a command-andcontrol process for spectrum allocation, it has provided greater flexibility 

within certain spectrum bands. In addition, FCC began using auctions to 

assign spectrum licenses for commercial uses in 1994. Finally, FCC has

taken steps to facilitate greater secondary market activity, which may 

provide an additional mechanism to promote the efficient use of spectrum. 

While some countries have adopted market-based mechanisms to encourage 

the efficient use of spectrum by government agencies, the Department of 

Commerce’s National Telecommunications and Information Administration 

(NTIA) has not adopted similar mechanisms for federal government use in 

the United States. NTIA imposes fees designed to recover only a portion of 

its cost to administer spectrum management, rather than fees that would 

more closely resemble market prices and thus encourage greater spectrum 

efficiency among government users; currently, NTIA does not have authority 

to impose fees that exceed its spectrum management costs. However, 

adopting market-based mechanisms for federal government use of spectrum 

might be difficult or undesirable in some contexts because of the primacy of 

certain government missions, the lack of flexibility in use of spectrum for 

some agencies, and the lack of financial incentives for government users. 

Industry stakeholders and experts have identified a number of options for 

improving spectrum management. The most frequently cited options include 

(1) extending FCC’s auction authority, (2) reexamining the use and 

distribution of spectrum, and (3) ensuring clearly defined rights and 

flexibility in commercial spectrum bands; there was no consensus on these 

options, except for extending FCC’s auction authority. Given the success of 

FCC’s use of auctions and the overwhelming support for extending FCC’s 

auction authority, GAO suggested that the Congress consider extending 

FCC’s auction authority beyond 2007. Congress extended FCC’s auction 

authority to 2011 with the passage of the Deficit Reduction Act of 2005. 

The current spectrum management framework may pose barriers to reform, 

since neither FCC nor NTIA has been given ultimate decision-making 

authority over all spectrum use, or the authority to impose fundamental 

reform, such as increasing the reliance on market-based mechanisms. Under 

the divided management framework, FCC manages spectrum for nonfederal 

users, including commercial uses, while NTIA manages spectrum for federal 

government users. As such, FCC and NTIA have different perspectives on 

spectrum use. Further, spectrum management issues and major reform 

cross the jurisdictions of both agencies. Thus, contentious and protracted 

negotiations arise over spectrum management issues. 

www.gao.gov/cgi-bin/getrpt?GAO-06-526T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact JayEtta Z. 

Hecker at (202) 512-2834 or 

heckerj@gao.gov. 
Mr. Chairman and Members of the Committee: 

We appreciate the opportunity to provide testimony on spectrum reform 

issues. As you know, the radio-frequency spectrum is used to provide an 

array of wireless communications services that are critical to the U.S. 

economy and various government missions, such as national security. 

Demand for radio-frequency spectrum has exploded over the past several

decades as new technologies and services have been—and continue to 

be—brought to the market in the private sector, and new mission needs 

unfold among government users. As a result, nearly all parties are 

becoming increasingly concerned about the availability of spectrum for 

future needs because most of the usable spectrum in the United States has 

already been allocated to existing services and users. Compounding this 

concern is evidence that some of the spectrum is currently underutilized. 

Many parties believe that spectrum management reform—such as greater

reliance on market-based mechanisms that invoke the forces of demand 

and supply—is essential to meeting the growing and unpredictable 

demand for spectrum. 

My statement today will identify (1) the extent to which the Federal 

Communications Commission (FCC) has adopted market-based 

mechanisms for commercial uses of spectrum,1

 (2) the extent to which 

market-based mechanisms have been adopted for federal government use 

of spectrum, (3) options for improving spectrum management, and (4) 

potential barriers to spectrum reform. My comments are based on our 

body of work on spectrum management, including our recently issued 

report to this Committee;2

 these reports were prepared in accordance with 

generally accepted government auditing standards. 

In summary: 

 1

FCC manages spectrum use for nonfederal users, including commercial, private, and state 

and local government users. 

2

GAO, Telecommunications: Strong Support for Extending FCC’s Auction Authority

Exists, but Little Agreement on Other Options to Improve Efficient Use of Spectrum, 

GAO-06-236 (Washington, D.C.: Dec. 20, 2005); GAO, Telecommunications: Comprehensive 

Review of U.S. Spectrum Management with Broad Stakeholder Involvement is Needed, 

GAO-03-277 (Washington, D.C.: Jan. 31, 2003); and GAO, Telecommunications: Better 

Coordination and Enhanced Accountability Needed to Improve Spectrum Management, 

GAO-02-906 (Washington, D.C.: Sept. 30, 2002). 

Page 1 GAO-06-526T 
• FCC is incrementally adopting market-based approaches to managing the 

commercial use of spectrum. Market-based mechanisms can help promote 

the efficient use of spectrum by invoking the forces of supply and 

demand—that is, they provide users an incentive to use the spectrum as 

efficiently as possible. Examples of market-based mechanisms include 

introducing flexibility in the use of spectrum, using auctions to assign 

licenses, and enhancing the use of secondary markets as a means for 

companies to obtain access to spectrum. FCC has adopted these 

mechanisms for commercial uses. For example, although FCC currently 

employs largely a command-and-control process for spectrum allocation,

it has provided greater flexibility within certain spectrum bands. In 

addition, FCC began using auctions to assign spectrum licenses for 

commercial uses in 1994. According to industry stakeholders, FCC’s 

implementation of auctions is seen as an improvement over comparative 

hearings and lotteries, the primary assignment mechanisms employed in 

the past. Finally, FCC has taken steps to facilitate greater secondary 

market activity, which may provide an additional mechanism to promote 

the efficient use of spectrum. 

• While some countries have adopted market-based mechanisms to 

encourage the efficient use of spectrum by government agencies, the 

Department of Commerce’s National Telecommunications and 

Information Administration (NTIA) has not adopted similar mechanisms 

for federal government use in the United States. NTIA imposes fees that 

recover only a portion of its cost to administer spectrum management, 

rather than incentive-based fees—that is, fees that more closely resemble 

market prices and thus encourage greater spectrum efficiency among 

government users; currently, NTIA does not have authority to impose fees 

that exceed its spectrum management costs. However, adopting marketbased mechanisms for federal government use of spectrum might be 

difficult or undesirable in some contexts because of the primacy of certain 

government missions, the lack of flexibility in use of spectrum for some 

agencies, and the lack of financial incentives for government users. 

• As we reported in December 2005, industry stakeholders and experts have 

identified a number of options for improving spectrum management. The 

most frequently cited options include (1) extending FCC’s auction 

authority, (2) reexamining the use and distribution of spectrum, and (3) 

ensuring clearly defined rights and flexibility in commercially licensed 

spectrum bands; there was no consensus on these options, except for 

extending FCC’s auction authority. Given the success of FCC’s use of 

auctions and the overwhelming support for extending FCC’s auction 

authority, we suggested that the Congress consider extending FCC’s 

auction authority beyond the 2007 expiration date. Congress extended 

Page 2 GAO-06-526T 
FCC’s auction authority to 2011 with the passage of the Deficit Reduction

Act of 2005.3

• The current management framework may pose barriers to reform since, 

while two agencies have been given responsibility for aspects of spectrum 

management, neither has been given ultimate decision-making authority 

over all spectrum use or the authority to impose fundamental reform, such 

as increasing the reliance on market-based mechanisms. Under this 

divided management framework, FCC manages spectrum for nonfederal 

users while NTIA manages spectrum for federal government users. 

However, spectrum management issues and major reform cross the 

jurisdictions of both agencies. To address these barriers, we have 

previously recommended that (1) the Secretary of Commerce and FCC 

establish and carry out formal, joint planning activities to develop a 

national spectrum plan to guide decision making; and (2) the relevant 

administrative agencies and congressional committees work together to

develop and implement a plan for the establishment of a commission that 

would conduct a comprehensive examination of current spectrum 

management.4

 To date, these recommendations have not been

implemented. 

The radio-frequency spectrum is the part of the natural spectrum of 

electromagnetic radiation lying between the frequency limits of 9 kilohertz 

and 300 gigahertz.5

 It is the medium that makes wireless communications 

possible and supports a vast array of commercial and governmental 

services. Commercial entities use spectrum to provide a variety of wireless 

services, including mobile voice and data, paging, broadcast radio and 

television, and satellite services. Additionally, some companies use 

spectrum for private tasks, such as communicating with remote vehicles.

Federal, state, and local agencies also use spectrum to fulfill a variety of 

government missions. For example, state and local police departments, 

fire departments, and other emergency services agencies use spectrum to 

transmit and receive critical voice and data communications, and federal

Background 

 3

Pub. L. No. 109-171, §3003, 120 Stat. 4 (2006). 

4

GAO-02-906 and GAO-03-277. 

5

Radio signals travel through space in the form of waves. These waves vary in length, and

each wavelength is associated with a particular radio frequency. Radio frequencies are 

grouped into bands and are measured in units of Hertz. The term kilohertz refers to 

thousands of Hertz, megahertz (MHz) to millions of Hertz, and gigahertz to billions of 

Hertz. 

Page 3 GAO-06-526T 
agencies use spectrum for varied mission needs such as national defense,

law enforcement, weather services, and aviation communication. 

Spectrum is managed at the international and national levels. The 

International Telecommunication Union (ITU), a specialized agency of the 

United Nations, coordinates spectrum management decisions among 

nations. Spectrum management decisions generally require international 

coordination, since radio waves can cross national borders. Once 

spectrum management decisions are made at the ITU, regulators within 

each nation, to varying degrees, will follow the ITU decisions. In the 

United States, responsibility for spectrum management is divided between 

two agencies: FCC and NTIA. FCC manages spectrum use for nonfederal

users, including commercial, private, and state and local government users 

under authority provided in the Communications Act. NTIA manages 

spectrum for federal government users and acts for the President with 

respect to spectrum management issues.6

 FCC and NTIA, with direction 

from the Congress, jointly determine the amount of spectrum allocated to 

federal and nonfederal users, including the amount allocated to shared 

use. 

Historically, concern about interference or crowding among users has 

been a driving force in the management of spectrum.7

 FCC and NTIA work 

to minimize interference through two primary spectrum management 

functions—the “allocation” and the “assignment” of radio spectrum. 

Specifically:

• Allocation involves segmenting the radio spectrum into bands of 

frequencies that are designated for use by particular types of radio 

services or classes of users. For example, the frequency bands between 88

and 108 megahertz (MHz) are allocated to FM radio broadcasting in the 

United States. In addition to allocation, FCC and NTIA also specify service 

rules, which include the technical and operating characteristics of 

equipment. 

• Assignment, which occurs after spectrum has been allocated for 

particular types of services or classes of users, involves providing a license

 6

The Department of State also plays a role in spectrum management by coordinating and 

mediating the U.S. position and leading the nation’s delegation to international conferences

on spectrum management. 

7

Interference occurs when two or more radio signals interact in a manner that disrupts the 

transmission and reception of messages. 

Page 4 GAO-06-526T 
or authorization to use a specific portion of spectrum to users, such as 

commercial entities or government agencies. FCC assigns licenses for 

frequency bands to commercial enterprises, state and local governments, 

and other entities, while NTIA makes frequency assignments to federal 

agencies. 

When FCC assigns a portion of spectrum to a single entity, the license is 

considered exclusive. When two or more entities apply for the same 

exclusive license, FCC classifies these as mutually exclusive 

applications—that is, the grant of a license to one entity would preclude 

the grant to one or more other entities. For mutually exclusive 

applications, FCC has primarily used three assignment mechanisms—

comparative hearings, lotteries, and auctions. FCC historically used 

comparative hearings, which gave competing applicants a quasi-judicial 

forum in which to argue why they should be awarded a license instead of 

other applicants. In 1981, partially in response to the administrative 

burden of the comparative hearing process, the Congress authorized the 

use of lotteries, which allowed FCC to randomly select licenses from the 

qualified applicant pool. 8

 The Congress provided FCC with authority to 

use auctions to assign mutually exclusive licenses for certain subscriberbased wireless services in the Omnibus Budget Reconciliation Act of 1993.9

Auctions are a market-based mechanism in which FCC assigns a license to 

the entity that submits the highest bid for specific bands of spectrum. As 

of November 30, 2005, FCC has conducted 59 auctions for over 56,000 

licenses to select between competing applications for the same license, 

which have generated over $14.5 billion for the U.S. Treasury. However, 

only a very small portion of total licenses has been auctioned. (See fig. 1.)

 8

In 1981, Congress added Section 309(i) to the Communications Act to give FCC the 

authority to assign a broad range of licenses by lottery. The Balanced Budget Act of 1997,

Pub. L. No. 105-33, 111 Stat. 260, tit. III, § 3002, terminated FCC’s authority to assign 

licenses by lotteries, except with respect to licenses for non-commercial broadcast stations

and public broadcast stations. See, 47 U.S.C. § 309(i)(5) and 47 U.S.C. § 397(6). 

9

47 U.S.C. § 309(j). In subsequent years, the Congress has modified and extended FCC’s 

auction authority, including exempting some licenses from competitive bidding, such as 

licenses for public safety radio services and noncommercial educational broadcast 

services. 

Page 5 GAO-06-526T 
Figure 1: Percent of Licenses Auctioned

Notes: 

To calculate the percentage of licenses that have been auctioned, we divided the number of 

auctioned licenses by the number of licenses included in FCC’s three spectrum license databases. 

Licenses can vary considerably in terms of bandwidth, as well as the geographic area and population 

covered. 

In some frequency bands, FCC authorizes unlicensed use of spectrum—

that is, users do not need to obtain a license to use the spectrum.10 Rather, 

an unlimited number of unlicensed users can share frequencies on a noninterference basis. Thus, the assignment process does not apply to the use 

of unlicensed devices. However, manufacturers of unlicensed equipment

must receive authorization from FCC before operating or marketing an

unlicensed device. 

 10Traditional unlicensed devices are low-powered equipment that operate in a limited 

geographic range, such as cordless phones, baby monitors, garage door openers, and

wireless access to the Internet. 

Page 6 GAO-06-526T 
To promote the more efficient use of spectrum, FCC is incrementally 

adopting market-based approaches to spectrum management. For 

instance, FCC has introduced some flexibility in the spectrum allocation 

process, although it remains largely a command-and-control process. In 

addition, in 1994, FCC instituted auctions to assign certain spectrum 

licenses. According to industry stakeholders, FCC’s use of auctions is seen 

as an improvement over comparative hearings and lotteries, the primary 

assignment mechanisms employed in the past. Finally, FCC has taken 

steps to facilitate greater secondary market activity, which may provide an 

additional mechanism to promote the more efficient use of spectrum. 

FCC currently employs largely a command-and-control process for 

spectrum allocation.11 That is, FCC applies regulatory judgments to 

determine and limit what types of services—such as broadcast, satellite, or 

mobile radio—will be offered in different frequency bands by geographic 

area. In addition, for most frequency bands FCC allocates, the agency 

issues service rules to define the terms and conditions for spectrum use 

within the given bands. These rules typically specify eligibility standards 

as well as limitations on the services that relevant entities may offer and 

the technologies and power levels they may use. These decisions can 

constrain users’ ability to offer services and equipment of their choosing.

However, FCC has provided greater operational and technical flexibility 

within certain frequency bands. For example, FCC’s rules for Commercial 

Mobile Radio Service (CMRS), which include cellular and Personal 

Communications Services (PCS), are considered less restrictive. Under 

these rules, wireless telephony operators are free to select technologies, 

services, and business models of their choosing. FCC has not provided 

comparable flexibility in other bands.12 For example, spectrum users have 

relatively little latitude for making similar choices in frequency bands 

allocated to broadcast television services. 

Further, the Spectrum Policy Task Force Report, a document produced by

FCC staff, identified two alternatives to the command-and-control model: 

the “exclusive, flexible rights” model, and the “open-access” model.13 The 

FCC Has Adopted 

Several Market-Based 

Mechanisms for 

Commercial Uses 

FCC Has Introduced Some 

Flexibility in the Spectrum 

Allocation Process but 

Allocation Remains 

Largely a Command-andControl Process 

 11NTIA employs a similar process for federal government spectrum users.

12In some instances, statutory restrictions are an impediment to granting greater flexibility. 

13For more information on these alternative spectrum management models, including the 

perceived advantages and disadvantages of each, see GAO-06-236. 

Page 7 GAO-06-526T 
exclusive, flexible rights model provides licensees with exclusive, flexible

use of the spectrum and transferable rights within defined geographic 

areas. This is a licensed-based approach to spectrum management that 

extends the existing allocation process by providing greater flexibility 

regarding the use of spectrum, and the ability to transfer licenses or to 

lease spectrum usage rights. The open-access model allows a potentially 

unlimited number of unlicensed users to share frequency bands, with 

usage rights governed by technical standards, but with no rights to 

interference protection. This approach does not require licenses, and as 

such is similar to FCC’s Part 15 rules (which govern unlicensed use in the

900 MHz, 2.4 GHz, and 5.8 GHz bands)—where cordless phones and Wi-Fi

technologies operate. Both models allow flexible use of spectrum, so that 

users of spectrum, rather than FCC, play a larger role in determining how 

spectrum is ultimately used. FCC’s Spectrum Policy Task Force 

recommended a balanced approach to allocation—utilizing aspects of the 

command-and-control; exclusive, flexible rights; and open-access models. 

FCC is currently using elements of these two alternatives models, although 

it primarily employs the command-and-control model. 

In 1994, FCC began using auctions—a market-based mechanism that 

assigns a license to the entity that submits the highest bid for specific 

bands of spectrum. FCC’s implementation of auctions mitigates a number 

of problems associated with comparative hearings and lotteries—the two 

primary assignment mechanism employed until 1993. For example: 

FCC’s Use of Auctions for 

Commercial Licenses Is 

Seen as an Improvement 

Over Past Assignment 

Mechanisms 

• Auctions are a relatively quick assignment mechanism. With auctions, FCC 

reduced the average time for granting a license to less than 1 year from the 

initial application date, compared to an average time of over 18 months 

with comparative hearings. 

• Auctions are administratively less costly than comparative hearings. 

Entities seeking a license can reduce expenditures for engineers and 

lawyers arising from preparing applications, litigating, and lobbying; and 

FCC can reduce expenditures associated with reviewing and analyzing 

applications. 

• Auctions are a transparent process. FCC awards licenses to entities 

submitting the highest bid rather than relying on possibly vague criteria, as

was done in comparative hearings. 

Page 8 GAO-06-526T 
• Auctions are effective in assigning licenses to entities that value them the 

most. Alternatively, with lotteries, FCC awarded licenses to randomlyselected entities. 

• Auctions are an effective mechanism for the public to realize a portion of 

the value of a national resource used for commercial purposes. Entities 

submitting winning bids must remit the amount of their winning bid to the 

government, which represents a portion of the value that the bidder 

believes will arise from using the spectrum. 

As we reported in December 2005, many industry stakeholders we 

contacted, and panelists on our expert panel, stated that auctions are more 

efficient than previous mechanisms used to assign spectrum licenses.14 For 

example, among our panelists, 11 of 17 reported that auctions provide the 

most efficient method of assigning licenses; no panelist reported that 

comparative hearings or lotteries provided the most efficient method. Of 

the remaining panelists, several suggested that the most efficient 

mechanism depended on the service that would be permitted with the 

spectrum.15

While FCC’s initial assignment mechanisms provide one means for 

companies to acquire licenses, companies can also acquire licenses or 

access to spectrum through secondary market transactions. Through 

secondary markets, companies can engage in transactions whereby a 

license or use of spectrum is transferred from one company to another. 

These transactions can incorporate the sale or trading of licenses. In some

instances, companies acquire licenses through the purchase of an entire 

company, such as Cingular’s purchase of AT&T Wireless. Ultimately, FCC 

must approve transactions that result in the transfer of licenses from one 

company to another. 

Secondary markets can provide several benefits. First, secondary markets 

can promote more efficient use of spectrum. If existing licensees are not 

FCC Has Acted to 

Facilitate Secondary 

Market Transactions 

 14See GAO-06-236. We convened, in collaboration with the National Academies, two panels

of experts to discuss spectrum allocation and assignment issues and options to improve 

spectrum management. The panelists convened at the National Academies on August 9, 

2005, and August, 10, 2005. A total of 23 panelists participated on our two expert panels. 

For more information on the expert panels, see GAO-06-236. 

15For example, some panelists did not support using auctions to assign spectrum licenses

for public safety services. 

Page 9 GAO-06-526T 
fully utilizing the spectrum, secondary markets provide a mechanism 

whereby these licensees can transfer use of the spectrum to other 

companies that would utilize the spectrum. Second, secondary markets 

can facilitate the participation of small businesses and introduction of new 

technologies. For example, a company might have a greater incentive to 

deploy new technologies that require less spectrum if the company can 

profitably transfer the unused portion of the spectrum to another company 

through the secondary market. Also, several stakeholders with whom we 

spoke noted that secondary markets provide a mechanism whereby a 

small business can acquire spectrum for a geographic area that best meets 

the needs of the company. 

In recent years, FCC has undertaken actions to facilitate secondary-market 

transactions. FCC authorized spectrum leasing for most wireless radio 

licenses with exclusive rights and created two categories of spectrum 

leases: Spectrum Manager Leasing—where the licensee retains legal and 

working control of the spectrum—and de Facto Transfer Leasing—where 

the licensee retains legal control but the lessee assumes working control 

of the spectrum. FCC also streamlined the procedures that pertain to 

spectrum leasing. For instance, the Spectrum Manager Leases do not 

require prior FCC approval and de Facto Transfer Leases can receive

immediate approval if the arrangement does not raise potential public 

interest concerns.16 While FCC has taken steps to facilitate secondary 

market transactions, some hindrances remain. For example, some industry 

stakeholders told us that the lack of flexibility in the use of spectrum can 

hinder secondary market transactions. 

 16The public interest concerns arise as a result of FCC policies pertaining to (1) eligibility 

and use of the license and spectrum, (2) foreign ownership limitations, (3) designated 

entity and entrepreneur benefits, and (4) competition. See Promoting Efficient Use of 

Spectrum Through Elimination of Barriers to the Development of Secondary Markets, 

WT Docket No. 00-230, Second Report and Order, Order on Reconsideration, and Second

Further Notice of Proposed Rulemaking, 19 FCC Rcd. 17503 (2004). 

Page 10 GAO-06-526T 
In some countries, spectrum managers have adopted market-based 

mechanisms to encourage the efficient use of spectrum by government 

agencies. In the United States, NTIA has not adopted incentive-based fees

for federal government users of spectrum; rather, NTIA applies fees that 

recover only a portion of the cost of administering spectrum management. 

Additionally, adopting market-based mechanisms for government use of 

spectrum might be difficult or undesirable in some contexts because of the 

primacy of certain government missions, the lack of flexibility in use of 

spectrum for some agencies, and the lack of financial incentives for 

government users. 

Spectrum managers in some countries have adopted market-based 

mechanisms for government users of spectrum. For example, in Australia, 

Canada, and the United Kingdom, spectrum managers have implemented 

incentive-based fees for government users of spectrum. Incentive-based 

fees are designed to promote the efficient use of spectrum by compelling 

spectrum users to recognize the value to society of the spectrum that they

use. In other words, these fees mimic the functions of a market. These 

incentive-based fees differ from other regulatory fees that are assessed 

only to recover the cost of the government’s management of spectrum. 

In the United States, NTIA has not adopted incentive-based fees, or other 

market-based mechanisms, for federal government users of spectrum. 

Currently, NTIA charges federal agencies spectrum management fees, 

which are based on the number of assignments authorized to each agency. 

In our 2002 report, we noted that, according to NTIA, basing the fee on the 

number of assignments, rather than the amount of spectrum used per 

agency, better reflects the amount of work NTIA must do for each 

agency.

17 Moreover, NTIA stated that this fee structure provides a wider 

distribution of costs to agencies. However, NTIA’s fee does not reflect the 

value of the spectrum authorized to each agency, and thus it is not clear 

how much this encourages the efficient use of spectrum by federal 

agencies. The fee also recovers only a portion of the cost of administering 

spectrum management. NTIA does not currently have the authority to 

Market-Based 

Mechanisms Have Not 

Been Adopted for 

Federal Government 

Use of Spectrum 

Incentive-Based Fees Have 

Not Been Used to Promote 

Spectrum Efficiency 

Among Federal 

Government Users of 

Spectrum in the United 

States 

 17GAO-02-906. 

Page 11 GAO-06-526T 
impose fees on government users that exceed its spectrum management 

costs.18

Applying market-based mechanisms might be difficult or undesirable for 

federal government users in some situations. The purpose of market-based 

mechanisms is to provide users with an incentive to use spectrum as 

efficiently as possible. However, the characteristics of government use of 

spectrum impose challenges to the development and implementation of 

market-based mechanisms for federal government users, and in some 

situations, make implementation undesirable. For example: 

Applying Market-Based 

Mechanisms to Federal 

Government Users May 

Not Be Effective in All 

Contexts

• Primacy of certain federal government missions. Because of the 

primacy of certain federal government missions—such as national 

defense, homeland security, and public safety—imposition of marketbased mechanisms for use of the spectrum to fulfill these missions might 

not be desirable. In fact, NTIA officials have told us that the agency rarely

revokes the spectrum authorization of another government agency

because doing so could interfere with the agency’s ability to carry out 

important missions. 

• Lack of flexibility in use of spectrum. Market-based mechanisms can 

create an incentive to use spectrum more efficiently only if users can 

actually choose to undertake an alternative means of providing a service. 

In some situations, federal government agencies do not have a viable

alternative to their current spectrum authorization. For example, spectrum 

used for air traffic control has been allocated internationally for the 

benefit of international air travel. Thus, the Federal Aviation 

Administration has little ability to use spectrum differently than prescribed 

in its current authorizations. In situations such as this, market-based 

mechanisms would likely prove ineffective.

• Lack of financial incentives. If federal government users can obtain any 

needed funding for spectrum-related fees through the budgetary process, 

market-based mechanisms are not likely to be effective. However, 

imposing fees will make the cost visible to agency managers, thus 

 18In its 2005 program assessment of NTIA, OMB noted that NTIA does not currently have 

sufficient mechanisms in place to ensure efficient and effective federal spectrum use. OMB

further notes that NTIA lacks the authority to implement market-based or other incentives

to promote efficient and effective use of the federal spectrum among federal agencies. 

According to OMB, NTIA plans to study incentives to promote the more efficient and 

effective use of spectrum and seek authority to implement incentives, as appropriate. 

Page 12 GAO-06-526T 
providing them information they need if they are to manage spectrum use 

more efficiently. Whether more efficient spectrum use actually occurs will 

depend in part on whether agencies receive appropriations for the full 

amount of the fees or only for some portion. If agencies do not receive 

appropriations for the full amount, some pressure will be created, but it 

will not be as strong as the private sector’s profit motive. 

As we reported in December 2005, industry stakeholders and panelists on

our expert panel offered a number of options for improving spectrum 

management.19 The most frequently cited options include (1) extending 

FCC’s auction authority, (2) reexamining the distribution of spectrum—

such as between commercial and government use—to enhance the 

efficient and effective use of this important resource, and (3) ensuring 

clearly defined rights and flexibility in commercially licensed spectrum 

bands. There was no consensus on these options for improvements among 

stakeholders we interviewed and panelists on our expert panel, except for 

extending FCC’s auction authority. 

Panelists on our expert panel and industry stakeholders with whom we 

spoke overwhelmingly supported extending FCC’s auction authority. For 

example, 21 of 22 panelists on our expert panel indicated that the 

Congress should extend FCC’s auction authority beyond September 

2007—the date auction authority was set to expire at the time of our 

expert panel. Given the success of FCC’s use of auctions and the 

overwhelming support among industry stakeholders and experts for 

extending FCC’s auction authority, we suggested that the Congress 

consider extending FCC’s auction authority. In February 2006, the 

Congress extended FCC’s auction authority to 2011 with the passage of the 

Deficit Reduction Act of 2005.

20

While panelists on our expert panel overwhelmingly supported extending

FCC’s auction authority, a majority also suggested modifications to 

enhance the use of auctions.21 However, there was little consensus on the 

Industry Stakeholders 

and Panelists 

Suggested Several 

Options to Improve 

Spectrum 

Management 

Extend FCC’s Auction 

Authority 

 19GAO-06-236. 

20Pub. L. No. 109-171. 

21Fifteen of twenty-two panelists suggested modifications to enhance the use of auctions. 

Page 13 GAO-06-526T 
suggested modifications. The suggested modifications fall into the 

following three categories: 

• Better define license rights. Some industry stakeholders and panelists 

indicated that FCC should better define the rights accompanying spectrum 

licenses, as these rights can significantly affect the value of a license being 

auctioned. For example, some industry stakeholders expressed concern 

with FCC assigning overlay and underlay rights to frequency bands when a 

company holds a license for the same frequency bands.22

• Enhance secondary markets. Industry stakeholders we contacted and 

panelists on our expert panel generally believed that modifying the rules 

governing secondary markets could lead to more efficient use of spectrum. 

For example, some panelists on our expert panel said that FCC should 

increase its involvement in the secondary market. These panelists thought 

that increased oversight could help to both ensure transparency in the

secondary market and also promote the use of the secondary market. 

Additionally, a few panelists said that adoption of a “two-sided” auction 

would support the efficient use of spectrum. With a two-sided auction, 

FCC would offer unassigned spectrum, and existing licensees could make 

available the spectrum usage rights they currently hold. 

• Reexamine existing small business incentives. The opinions of 

panelists on our expert panel and industry stakeholders with whom we 

spoke varied greatly regarding the need for and success of FCC’s efforts to 

promote economic opportunities for small businesses. For example, some 

panelists and industry stakeholders do not support incentive programs for 

small businesses. These panelists and industry stakeholders cited several

reasons for not supporting these incentives, including (1) the wireless 

industry is not a small business industry; (2) while the policy may have 

been well intended, the current program is flawed; or (3) such incentives 

create inefficiencies in the market. Other industry stakeholders suggested 

alternative programs to support small businesses. These suggestions 

included (1) having licenses cover smaller geographic areas, (2) using 

auctions set aside exclusively for small and rural businesses, and (3) 

 22Underlay rights allow unlicensed users to operate in the same spectrum bands as 

licensees, as long as the unlicensed users do not cause undue interference for licensees. 

For example, ultra-wideband technology operates at very low power levels over a very

wide range of spectrum, and thus might avoid interfering with licensed spectrum users in 

the same spectrum bands. Overlay rights allow unlicensed users to operate in licensed 

spectrum bands during times or in geographic areas where licensees are not using the

spectrum. 

Page 14 GAO-06-526T 
providing better lease options for small and rural businesses. Finally, some 

industry stakeholders with whom we spoke have benefited from the small 

business incentive programs, such as bidding credits,23 and believe that 

these incentives have been an effective means to promote small business 

participation in wireless markets. 

Panelists on our expert panel suggested a reexamination of the use and 

distribution of spectrum to ensure the most efficient and effective use of

this important resource. One panelist noted that the government should 

have a good understanding of how much of the spectrum is being used. To

gain a better understanding, a few panelists suggested that the government

systematically track usage, perhaps through a “spectrum census.” This 

information would allow the government to determine if some portions of 

spectrum were underutilized, and if so, to make appropriate allocation 

changes and adjustments.24

A number of panelists on our expert panel also suggested that the 

government evaluate the relative allocation of spectrum for government 

and commercial use as well as the allocation of spectrum for licensed and

unlicensed purposes. While panelists thought the relative allocation 

between these categories should be examined, there was little consensus 

among the panelists on the appropriate allocation. For instance, as shown 

in figure 2, 13 panelists indicated that more spectrum should be dedicated 

to commercial use, while 7 thought the current distribution was 

appropriate; no panelists thought that more spectrum should be dedicated 

to government use. Similarly, as shown in figure 3, nine panelists believed

that more spectrum should be dedicated to licensed uses, six believed 

more should be dedicated to unlicensed uses, and five thought the current 

balance was appropriate. 

Reexamine the Use and 

Distribution of Spectrum 

 23A bidding credit is a percentage discount applied to the high bid amount if the bidder

meets designated entity criteria established in the auction rules. In February 2006, FCC

issued a notice of proposed rule making to consider whether its general competitive 

bidding rules should be modified. 

24In February 2006, the Technology CEO Council released a report entitled, Freeing Our

Unused Spectrum: Toward a 21st Century Telecom Policy (Washington, D.C.: Feb. 2006). 

This report included recommendations for FCC and NTIA to examine how efficiently 

spectrum bands are being used and encourage more efficient use of bands that are not

found to be used efficiently. 

Page 15 GAO-06-526T 
Figure 2: Panelists’ Views on the Allocation of Spectrum between Commercial and

Government Use 

Figure 3: Panelists’ Views on the Allocation of Spectrum between Licensed and

Unlicensed Use 

Similar to a suggested modification of FCC’s auction authority, some 

panelists on our expert panel suggested better defining users’ rights and 

Ensure Clearly Defined 

Rights and Flexibility 

Page 16 GAO-06-526T 
increasing flexibility in the allocation of spectrum. Better defining users’ 

rights would clarify the understanding of the rights awarded with any type

of license, whether the licensees acquired the license through an auction

or other means. In addition, some panelists stated that greater flexibility in

the type of technology used—and service offered—within frequency bands 

would help promote the efficient use of spectrum. In particular, greater

flexibility would allow the licensee to determine the efficient and highly

valued use, rather than relying on FCC-based allocation and service rules.

However, some panelists on our expert panel and industry stakeholders 

with whom we spoke noted that greater flexibility can lead to interference, 

as different licensees provide potentially incompatible services in close 

proximity.25 Thus, panelists on our expert panel stressed the importance of 

balancing flexibility with interference protection. 

Under the current management framework, neither FCC nor NTIA has 

been given ultimate decision-making authority over all spectrum use or the 

authority to impose fundamental reform, such as increasing the reliance 

on market-based mechanisms. FCC manages spectrum for nonfederal 

users while NTIA manages spectrum for federal government users.26 As 

such, FCC and NTIA have different perspectives on spectrum use. FCC 

tends to focus on maximizing public access to and use of the spectrum. 

Alternatively, NTIA tends to focus on protecting the federal government’s 

use of the spectrum from harmful interference, especially in areas critical

to national security and public safety. Further, despite increased 

communication between FCC and NTIA, the agencies’ different 

jurisdictional responsibilities appear to result in piecemeal efforts that 

lack the coordination to facilitate major spectrum reform. For example, 

FCC’s and NTIA’s recent policy evaluations and initiatives—the FCC 

Spectrum Policy Task Force and the Federal Government Spectrum Task 

The Current 

Framework for 

Spectrum 

Management May 

Pose Barriers to 

Reform 

 25With the current allocation process, FCC attempts to keep incompatible service separated 

to avoid interference. With licensees exerting greater control, this protection could be

reduced. 

26In some countries, a single government entity regulates spectrum for all users. For

example, Industry Canada has exclusive spectrum management responsibility in Canada. 

Page 17 GAO-06-526T 
Force, respectively—tend to focus on the issues applicable to the users 

under their respective jurisdictions.27

Major spectrum reform must ultimately address multidimensional 

stakeholder conflicts. One source of conflict relates to balancing the needs 

of government and private-sector spectrum users. Government users have 

said that because they offer unique and critical services, a dollar value

cannot be placed on the government’s provision of spectrum-based 

services. At the same time, private-sector users have stated that their 

access to spectrum is also critical to the welfare of society, through its 

contribution to a healthy and robust economy. A second source of conflict 

relates to balancing the needs of incumbent and new users of spectrum. 

Since most useable spectrum has been allocated and assigned, 

accommodating new users of spectrum can involve the relocation of 

incumbent users. While new users of spectrum view relocations as 

essential, incumbent users often oppose relocations because the moves 

may impose significant costs and disrupt their operations. A third source 

of conflict relates to existing technology and emerging technology. Some

new technologies, such as ultra wideband,28 may use the spectrum more 

efficiently, thereby facilitating more intensive use of the spectrum. 

However, users of existing technology, both commercial and government, 

have expressed concern that these new technologies may create 

interference that compromises the quality of their services. 

The current spectrum management framework may pose a barrier to 

spectrum reform because neither FCC nor NTIA has ultimate authority to

impose fundamental reform and these stakeholder conflicts cross the 

jurisdictions of both FCC and NTIA. As such, contentious and protracted

negotiations arise over spectrum management issues. We previously made 

two recommendations to help further the reform process. First, we 

recommended that the Secretary of Commerce and FCC should establish 

and carry out formal, joint planning activities to develop a national 

spectrum plan to guide decision making.29 Additionally, we also 

recommended that the relevant administrative agencies and congressional 

 27At a recent NTIA-sponsored workshop addressing spectrum management, the topics 

discussed included issues relevant for both FCC and NTIA, and the participants included

spectrum managers from several government agencies, as well as FCC officials, 

commercial users, and other experts. 

28Ultra wideband devices emit a low-power signal over large swaths of spectrum. 

29GAO-02-906. 

Page 18 GAO-06-526T 
committees work together to develop and implement a plan for the 

establishment of an independent commission that would conduct a 

comprehensive examination of current spectrum management.30 To date,

neither recommendation has been implemented. 

With authorization from Congress, FCC has taken several steps to 

implement a more market-oriented approach to spectrum management. In

recent years, FCC has taken actions to facilitate secondary-market 

transactions. FCC authorized spectrum leasing for most wireless radio 

licenses with exclusive rights and also streamlined the procedures that 

pertain to spectrum leasing. In addition, FCC has conducted 59 auctions 

for a wide variety of spectrum uses, including personal communications 

services and broadcasting. FCC’s auctions have contributed to a vibrant 

commercial wireless industry. The Congress’ recent decision to extend 

FCC’s auction authority was, in our opinion, a positive step forward in 

spectrum reform. However, more work is needed to ensure the efficient 

and effective use of this important national resource. To help reform 

spectrum management, we have previously recommended that (1) the 

Secretary of Commerce and FCC should establish and carry out formal, 

joint planning activities to develop a national spectrum plan to guide 

decision making; and (2) the relevant administrative agencies and 

congressional committees work together to develop and implement a plan 

for the establishment of a commission that would conduct a 

comprehensive examination of current spectrum management.31 To date,

these recommendations have not been implemented. 

Mr. Chairman, this concludes my prepared statement. I would be happy to

respond to any questions you or other Members of the Committee may 

have at this time. 

Concluding 

Observations 

 30GAO-03-277. 

31GAO-02-906 and GAO-03-277. 

Page 19 GAO-06-526T 
For questions regarding this testimony, please contact JayEtta Z. Hecker 

on (202) 512-2834 or heckerj@gao.gov. Individuals making key 

contributions to this testimony include Amy Abramowitz, Michael 

Clements, Nikki Clowers, Eric Hudson, and Mindi Weisenbloom. 

Page 20 GAO-06-526T 

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