Telecommunications: Options for and Barriers to Spectrum Reform
Published: 2006-03-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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 market-based mechanisms have been adopted for federal government users of spectrum, (3) options for improving spectrum management, and (4) potential barriers to spectrum reform.
section_title: What GAO Found
paragraphs: 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-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. 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.

section_title: Letter
paragraphs: 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, (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; these reports were prepared in accordance with  generally accepted government auditing standards.
In summary:    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 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.
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  FCC’s auction authority to 2011 with the passage of the Deficit Reduction  Act of 2005.
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. To date, these recommendations have not been  implemented.
subsections: section_title: Background
paragraphs: 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. 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  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. 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. 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  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.  The Congress provided FCC with authority to  use auctions to assign mutually exclusive licenses for certain subscriber- based wireless services in the Omnibus Budget Reconciliation Act of 1993.  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.)
In some frequency bands, FCC authorizes unlicensed use of spectrum— that is, users do not need to obtain a license to use the spectrum. Rather,  an unlimited number of unlicensed users can share frequencies on a non- interference 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.
section_title: FCC Has Adopted Several Market-Based Mechanisms for Commercial Uses
paragraphs: 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.
subsections: section_title: FCC Has Introduced Some Flexibility in the Spectrum Allocation Process but Allocation Remains Largely a Command-and- Control Process
paragraphs: FCC currently employs largely a command-and-control process for  spectrum allocation. 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. 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. The  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.
section_title: FCC’s Use of Auctions for Commercial Licenses Is Seen as an Improvement Over Past Assignment Mechanisms
paragraphs: 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:    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.
Auctions are effective in assigning licenses to entities that value them the  most. Alternatively, with lotteries, FCC awarded licenses to randomly- selected 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. 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.
section_title: FCC Has Acted to Facilitate Secondary Market Transactions
paragraphs: 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  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. 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.
section_title: Market-Based Mechanisms Have Not Been Adopted for Federal Government Use of Spectrum
paragraphs: 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.
subsections: section_title: Incentive-Based Fees Have Not Been Used to Promote Spectrum Efficiency Among Federal Government Users of Spectrum in the United States
paragraphs: 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. 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  impose fees on government users that exceed its spectrum management  costs.
section_title: Applying Market-Based Mechanisms to Federal Government Users May Not Be Effective in All Contexts
paragraphs: 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:    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 market- based 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  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.
section_title: Industry Stakeholders and Panelists Suggested Several Options to Improve Spectrum Management
paragraphs: As we reported in December 2005, industry stakeholders and panelists on  our expert panel offered a number of options for improving spectrum  management. 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.
subsections: section_title: Extend FCC’s Auction Authority
paragraphs: 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.
While panelists on our expert panel overwhelmingly supported extending  FCC’s auction authority, a majority also suggested modifications to  enhance the use of auctions. However, there was little consensus on the  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.
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)  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, and believe that  these incentives have been an effective means to promote small business  participation in wireless markets.
section_title: Reexamine the Use and Distribution of Spectrum
paragraphs: 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.
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.
section_title: Ensure Clearly Defined Rights and Flexibility
paragraphs: Similar to a suggested modification of FCC’s auction authority, some  panelists on our expert panel suggested better defining users’ rights and  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. Thus, panelists on our expert panel stressed the importance of  balancing flexibility with interference protection.
section_title: The Current Framework for Spectrum Management May Pose Barriers to Reform
paragraphs: 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. 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  Force, respectively—tend to focus on the issues applicable to the users  under their respective jurisdictions.
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, 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. Additionally, we also  recommended that 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,  neither recommendation has been implemented.
section_title: Concluding Observations
paragraphs: 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. 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.
section_title: Contact and Acknowledgments
paragraphs: 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.
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