Spectrum Management: Preliminary Findings on Federal Relocation Costs and Auction Revenues
Published: 2013-04-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Radio frequency spectrum is the resource that makes possible wireless communications. Balancing competing industry and government demands for a limited amount of spectrum is a challenging and complex task. In 2006, FCC completed an auction of spectrum licenses in the 1710-1755 MHz band that had previously been allocated for federal use. As part of an effort to make additional spectrum available for commercial use, DOD assessed the feasibility of relocating 11 major communication systems from the 1755-1850 MHz band. In September 2011, DOD found that it would cost about $13 billion over 10 years to relocate most operations from the 1755-1850 MHz band.
GAO was asked to review the costs to relocate federal spectrum users and revenues from spectrum auctions. This testimony addresses our preliminary findings on (1) estimated and actual relocation costs and revenue from the previously auctioned 1710-1755 MHz band, (2) the extent to which DOD followed best practices to prepare its preliminary cost estimate for vacating the 1755-1850 MHz band, and (3) existing government or industry forecasts for revenue from an auction of the 1755-1850 MHz band. GAO reviewed relevant reports; interviewed DOD, FCC, NTIA, and Office of Management and Budget officials and industry stakeholders; and analyzed the extent to which DOD's preliminary cost estimate met best practices identified in GAO's Cost Estimating and Assessment Guide (Cost Guide).
section_title: What GAO Found
paragraphs: Actual costs to relocate federal users from the 1710-1755 megahertz (MHz) band have exceeded the original $1 billion estimate by about $474 million as of March 2013, although auction revenues appear to exceed relocation costs by over $5 billion. Actual relocation costs exceed estimated costs for various reasons, including unforeseen challenges and some agencies not following the National Telecommunications and Information Administration's (NTIA) guidance for preparing the cost estimate. In contrast, the Department of Defense (DOD) expects to complete relocation for about $275 million or approximately $80 million less than its $355 million estimate. According to DOD officials, the relocation of systems from this band has been less expensive than originally estimated because many systems were simply re-tuned to operate in the adjacent 1755-1850 MHz band. The auction of the 1710-1755 MHz band raised almost $6.9 billion in gross winning bids. NTIA expects agencies to complete the relocation effort between 2013 and 2017; therefore, final net auction revenue (auction revenue less relocation costs) may change.
DOD's preliminary cost estimate for relocating systems from the 1755-1850 MHz band substantially or partially met GAO's best practices, but changes in key assumptions may affect future costs. Adherence with GAO's Cost Guide helps to minimize the risk of cost overruns, missed deadlines, and unmet performance targets. GAO found that DOD's estimate substantially met the comprehensive and well-documented best practices. For instance, it included complete information about systems' life cycles and documentation for the majority of systems was sufficient. However, not all programs had evidence of cost-influencing ground rules and assumptions, and some of the source data were insufficient. GAO also determined that DOD partially met the accurate and credible best practices. For example, DOD applied appropriate inflation rates and its estimated costs generally agreed with its 2001 cost estimate for this band. However, DOD did not develop a confidence level, making it difficult to determine if the costs considered are the most likely costs, and DOD only completed some sensitivity analyses and risk assessments at the program level for some programs. DOD officials said that changes to key assumptions could substantially change its costs. Most importantly, decisions about which spectrum band DOD would relocate to are still unresolved. Nevertheless, DOD's cost estimate was consistent with its purpose--informing the decision to make additional spectrum available for commercial wireless services.
No government revenue forecast has been prepared for a potential auction of licenses in the 1755-1850 MHz band, and a variety of factors could influence auction revenues. One private sector study in 2011 forecasted $19.4 billion in auction revenue for licenses in this band, assuming that federal users would be cleared and the nationwide spectrum price from a previous auction, adjusted for inflation, would apply to this spectrum. The price of spectrum, and ultimately auction revenue, is determined by supply and demand. The Federal Communications Commission (FCC) and NTIA jointly influence the amount of spectrum allocated to federal and nonfederal users (the supply). The potential profitability of a spectrum license influences its demand. Several factors would influence profitability and demand, including whether the spectrum is cleared of federal users or must be shared.

section_title: Letter
paragraphs: Thank you for the opportunity to be here today as the Subcommittee  examines the Department of Defense’s (DOD) requirements for radio  frequency spectrum. As you know, DOD requires spectrum to support  military operations, testing, and training at home and around the world.  For example, DOD has dramatically increased its use of unmanned aerial  systems in support of overseas missions; these systems require spectrum  to transmit volumes of critical intelligence, surveillance, and  reconnaissance data, leading to an increase in DOD’s demand for  spectrum. Similarly, as the demand for and use of smart phones, tablets,  and other wireless devices continues to grow, commercial requirements  for spectrum are expanding as well, with important implications for  economic growth. Thus, balancing competing industry and government  demands for a limited amount of spectrum, today and in the future, is a  challenging and complex task.
In June 2010, the administration issued a presidential memorandum  directing the National Telecommunications and Information Administration  (NTIA) to collaborate with the Federal Communications Commission  (FCC) to make available a total of 500 MHz of federal and nonfederal  spectrum for wireless broadband within 10 years. As part of this effort,  DOD studied the feasibility of relocating military systems from the 1755- 1850 MHz band, which is ideally suited to enabling highly mobile, yet  reliable communication links for commercial and federal users. Relocating  to other parts of the radio frequency spectrum means that many of these  military systems would need to be redesigned. In addition, few other  comparable spectrum bands are available that can effectively support the  federal operations currently in the band. In September 2011, DOD  estimated that the cost to relocate most military systems from the 1755- 1850 MHz band would be about $12.6 billion over 10 years.
My statement today discusses our ongoing review, requested by the  Senate Committee on Armed Services, of federal agencies’ spectrum  relocation costs and auction revenues. Our review focuses on (1) the  differences between estimated and actual federal relocation costs, and  revenue from the auction of the 1710-1755 MHz band; (2) the extent to  which DOD followed best practices to prepare its preliminary cost  estimate for vacating the 1755-1850 MHz band and the limitations, if any,  of its analysis; and (3) what government or industry revenue forecasts  exist for an auction of the 1755-1850 MHz band, and what factors, if any,  could influence the actual auction revenue. To determine the estimated  and actual federal relocation costs, and revenue from the auction of the  1710-1755 MHz band, we reviewed annual progress reports for the 1710- 1755 MHz transition published by NTIA and spectrum auction data  published by FCC as of December 2012. We limited our analysis to the  Advanced Wireless Services-1 (AWS-1) auction involving the 1710-1755  MHz band; this is the only spectrum auction involving federal agencies,  including DOD, with significant, known relocation costs. To assess  whether the cost of vacating the 1755-1850 MHz band is sufficiently  captured in DOD’s preliminary cost estimate, we assessed DOD’s  preliminary estimate against GAO’s Cost Estimating and Assessment  Guide (Cost Guide), which has been used to evaluate cost estimates  across the government; these best practices help ensure cost estimates  are comprehensive, well-documented, accurate, and credible. To identify  any limitations affecting DOD’s estimate, we also interviewed DOD  officials responsible for developing the department’s preliminary cost  estimate. To identify any government or industry forecasts of revenue  from a future auction of the 1755-1850 MHz band and any factors that  would affect the value of spectrum licenses, we reviewed academic,  government, and public policy literature. We also interviewed officials  from the Congressional Budget Office (CBO) and the Office of  Management and Budget (OMB), and stakeholders with knowledge of  spectrum licensing issues, including industry and policy experts. We are  conducting our work in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. We plan to issue  our final report on this work in May 2013.
subsections: section_title: Background
paragraphs: The radio frequency spectrum is the resource that makes possible  wireless communications and supports a vast array of government and  commercial services. DOD uses spectrum to transmit and receive critical  voice and data communications involving military tactical radio, air  combat training, precision-guided munitions, unmanned aerial systems,  and aeronautical telemetry and satellite control, among others. The  military employs these systems for training, testing, and combat  operations throughout the world. Commercial entities use spectrum to  provide a variety of wireless services, including mobile voice and data,  paging, broadcast television and radio, and satellite services.
In the United States, FCC manages spectrum for nonfederal users under  the Communications Act, while NTIA manages spectrum for federal  government users and acts for the President with respect to spectrum  management issues as governed by the National Telecommunications  and Information Administration Organization Act. FCC and NTIA, with  direction from Congress and the President, jointly determine the amount  of spectrum allocated for federal, nonfederal, and shared use. FCC and  NTIA manage the spectrum through a system of frequency allocation and  assignment.
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. (Fig. 1 illustrates examples of allocated  spectrum uses, including DOD systems using the 1755-1850 MHz  band.) In addition, spectrum managers 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  users, such as commercial entities or government agencies, with a  license or authorization to use a specific portion of spectrum. FCC  assigns licenses within frequency bands to commercial enterprises,  state and local governments, and other entities. Since 1994, FCC has  used competitive bidding, or auctions, to assign certain licenses to  commercial entities for their use of spectrum. 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. NTIA  authorizes spectrum use through frequency assignments to federal  agencies. More than 60 federal agencies and departments combined  have over 240,000 frequency assignments, although 9 departments,  including DOD, hold 94 percent of all frequency assignments for  federal use.
Congress has taken a number of steps to facilitate the deployment of  innovative, new commercial wireless services to consumers, including  requiring more federal spectrum to be reallocated for commercial use.  Relocating communications systems entails costs that are affected by  many variables related to the systems themselves as well as the  relocation plans. Some fixed microwave systems, for example, can use  off-the-shelf commercial technology and may just need to be re-tuned to  accommodate a change in frequency. However, some systems may  require significant modification if the characteristics of the new spectrum  frequencies differ sufficiently from the original spectrum. Specialized  systems, such as those used for surveillance and law enforcement  purposes, may not be compatible with commercial technology, and  therefore agencies have to work with vendors to develop equipment that  meets mission needs and operational requirements.
In 2004, the Commercial Spectrum Enhancement Act (CSEA) established  a Spectrum Relocation Fund, funded from auction proceeds, to cover  the costs incurred by federal entities that relocate to new frequency  assignments or transition to alternative technologies. The auction of  spectrum licenses in the 1710-1755 MHz band was the first with  relocation costs to take place under CSEA. Twelve agencies previously  operated communication systems in this band, including DOD. CSEA  designated 1710-1755 MHz as “eligible frequencies” for which federal  relocation costs could be paid from the Spectrum Relocation Fund. In  September 2006, FCC concluded the auction of licenses in the 1710- 1755 MHz band and, in accordance with CSEA, a portion of the auction  proceeds is currently being used to pay spectrum relocation expenses.
In response to the President’s 2010 memorandum requiring that  additional spectrum be made available for commercial use within 10  years, in January 2011, NTIA selected the 1755-1850 MHz band as the  priority band for detailed evaluation and required federal agencies to  evaluate the feasibility of relocating systems to alternative spectrum  bands. DOD provided NTIA its input in September 2011, and NTIA  subsequently issued its assessment of the viability for accommodating  commercial wireless broadband in the band in March 2012. Most  recently, the President’s Council of Advisors on Science and Technology  published a report in July 2012 recommending specific steps to ensure  the successful implementation of the President’s 2010 memorandum.  The report found, for example, that clearing and vacating federal users  from certain bands was not a sustainable basis for spectrum policy largely  because of the high cost to relocate federal agencies and disruption to  the federal missions. It recommended new policies to promote the sharing  of federal spectrum. The sharing approach has been questioned by  CTIA—The Wireless Association and its members, which argue that  cleared spectrum and an exclusive-use approach to spectrum  management has enabled the U.S. wireless industry to invest hundreds of  billions of dollars to deploy mobile broadband networks resulting in  economic benefits for consumers and businesses.
section_title: Some Agencies Underestimated 1710- 1755 MHz Band Relocation Costs, Although Auction Revenues Appear to Exceed Those Costs
subsections: section_title: Some Federal Agencies Underestimated Relocation Costs
paragraphs: Actual costs to relocate communications systems for 12 federal agencies  from the 1710-1755 MHz band have exceeded original estimates by  about $474 million, or 47 percent, as of March 2013. The original  transfers from the Spectrum Relocation Fund to agency accounts, totaling  over $1 billion, were made in March 2007. Subsequently, some agencies  requested additional monies from the Spectrum Relocation Fund to cover  relocation expenses. Agencies requesting the largest amounts of  subsequent transfers include the Department of Justice ($294 million), the  Department of Homeland Security ($192 million), the Department of  Energy ($35 million), and the U.S. Postal Service ($6.6 million). OMB and  NTIA officials expect the final relocation cost to be about $1.5 billion  compared with the original estimate of about $1 billion. Total actual costs  exceed estimated costs for many reasons, including unforeseen  challenges, unique issues posed by specific equipment location, the  transition timeframe, costs associated with achieving comparable  capability, and the fact that some agencies may not have properly  followed OMB and NTIA guidance to prepare the original cost estimate.  NTIA reports that it expects agencies to complete the relocation effort  between 2013 and 2017.
Although 11 of the 12 agencies plan to spend the same amount or more  than they estimated, DOD expects to complete the 1710-1755 MHz  transition for about $275 million, or approximately $80 million less than its  cost estimate. DOD’s cost estimates, some made as early as 1995,  changed over time as officials considered different relocation scenarios  with differing key assumptions and their thinking evolved about the  systems that would be affected, according to DOD and NTIA officials.  Cost estimates to relocate military systems from the late 1990s and early  2000s ranged from a low of $38 million to as much as $1.6 billion,  depending on the scenario. DOD’s final cost estimate to relocate from the  band was about $355 million. DOD officials told us that the relocation of  systems from the 1710-1755 MHz band has been less expensive than  originally estimated because many of its systems were simply re-tuned to  operate in the 1755-1850 MHz band.
section_title: Auction Revenues Appear to Exceed Agency Relocation Costs
paragraphs: The auction of the 1710-1755 MHz band raised almost $6.9 billion in  gross winning bids from the sale of licenses to use these frequencies.  This revenue minus the expected final relocation costs of approximately  $1.5 billion suggests that the auction of the band will raise roughly $5.4  billion for the U.S. Treasury. As mentioned above, NTIA reports that it  expects agencies to complete the relocation effort between 2013 and  2017; therefore, the final net revenue amount may change. For example,  the Department of the Navy has already initiated a process to return  almost $65 million to the Spectrum Relocation Fund.
section_title: DOD’s Preliminary Cost Estimate Substantially or Partially Met GAO’s Identified Best Practices, but Changes in Assumptions May Affect Future Costs
subsections: section_title: DOD’s Preliminary Cost Estimate for Relocating from the 1755-1850 MHz Band Substantially or Partially Met GAO’s Identified Best Practices
paragraphs: DOD’s Office of Cost Assessment and Program Evaluation (CAPE) led  the effort to prepare the department’s preliminary cost estimate portion of  its study to determine the feasibility of relocating its 11 major radio  systems from the 1755-1850 MHz band. To do so, CAPE worked closely  with cost estimators and others at the respective military services  regarding the technical and cost data needed to support the estimate and  how they should be gathered to maintain consistency across the services.  The services’ cost estimators compiled and reviewed the program data,  identified the appropriate program content affected by each system’s  relocation, developed cost estimates under the given constraints and  assumptions, and internally reviewed the estimates consistent with their  standard practices before providing them to CAPE. CAPE staff then  reviewed the services’ estimates for accuracy and consistency, and  obtained DOD management approval on its practices and findings.  According to DOD officials, CAPE based this methodology on the cost  estimation best practices it customarily employs.
We reviewed DOD’s preliminary cost estimation methodology and  evaluated it against GAO’s Cost Guide, which also identifies cost  estimating best practices that help ensure cost estimates are  comprehensive, well-documented, accurate, and credible. These  characteristics of cost estimates help minimize the risk of cost overruns,  missed deadlines, and unmet performance targets:
A comprehensive cost estimate ensures that costs are neither omitted  nor double counted.
A well-documented estimate is thoroughly documented, including  source data and significance, clearly detailed calculations and results,  and explanations for choosing a particular method or reference.
An accurate cost estimate is unbiased, not overly conservative or  overly optimistic, and based on an assessment of most likely costs.
A credible estimate discusses any limitations of the analysis from  uncertainty or biases surrounding data or assumptions.
DOD officials developed the preliminary cost estimate as a less-rigorous,  “rough-order-of-magnitude” cost estimate as outlined by NTIA, not a  budget-quality cost estimate. Because of this, we performed a high-level  analysis, applying GAO’s identified best practices to DOD’s cost estimate  and methodology, and did not review all supporting data and analysis.
Overall, we found that DOD’s cost estimate was consistent with the  purpose of the feasibility study, which was to inform the decision-making  process to reallocate 500 MHz of spectrum for commercial wireless  broadband use. Additionally, we found that DOD’s methodology  substantially met the comprehensive and well-documented characteristics  of reliable cost estimates, and partially met the accurate and credible  characteristics.
Comprehensive—Substantially Met: We observed that DOD’s  estimate included complete information about systems’ life cycles, an  appropriate level of detail to ensure cost elements were neither  omitted nor double-counted, and overarching study assumptions that  applied across programs. However, some programs did not list all the  discrete tasks required for relocation, and not all the individual  programs had evidence of cost-influencing ground rules and  assumptions.
Well-documented—Substantially Met: We found that management  reviewed and accepted the estimate, the estimate was consistent with  the technical baseline data, and documentation for the majority of  programs was sufficient that an analyst unfamiliar with the program  could understand and replicate what was done. However, the  documentation also captured varying levels of detail on source data  and its reliability, as well as on calculations performed and estimation  methodology used, some of which were not sufficient to support a  rough-order-of-magnitude estimate.
Accurate—Partially Met: We found that DOD properly applied  appropriate inflation rates and made no apparent calculation errors. In  addition, the estimated costs agreed with DOD’s prior relocation cost  estimate for this band conducted in 2001. However, no confidence  level was specifically stated in DOD’s cost estimate to determine if the  costs considered are the most likely costs, which is required to fully or  substantially meet this characteristic.
Credible—Partially Met: We observed that DOD cross-checked  major cost elements and found them to be similar. However, some  sensitivity analyses and risk assessments were only completed at the  program level for some programs, and not at all at a summary level.  Performing risk assessments and sensitivity analyses on all projects  and at the summary level is required to fully meet this characteristic,  and is required on a majority of projects and at the summary level to  substantially meet this characteristic.
section_title: As the Assumptions Supporting DOD’s Cost Estimate for Relocating from the 1755-1850 MHz Band Change, Costs May Also Change
paragraphs: Even though DOD’s preliminary cost estimate substantially met some of  our best practices, as the assumptions supporting the estimate change  over time, costs may also change. According to DOD officials, any  change to key assumptions about the bands to which systems would  move could substantially change relocation costs. Because decisions  about the time frame for relocation and the spectrum bands to which the  various systems would be reassigned have not been made yet, DOD  based its current estimate on the most likely assumptions, provided by  NTIA, some of which have already been proven inaccurate or are still  undetermined. For example:
Relocation bands: According to DOD officials, equipment relocation  costs vary depending on the relocation band’s proximity to the current  band. Moving to bands further away than the assumed relocation  bands could increase costs; moving to closer bands could decrease  costs. In addition, congestion, in both the 1755-1850 MHz band and  the potential bands to which its systems might be moved, complicates  relocation planning. Also, DOD officials said that many of the potential  spectrum bands to which DOD’s systems could be relocated would  not be able to accommodate the new systems unless other actions  are also taken. For example, the 2025-2110 MHz band, into which  DOD assumed it could move several systems and operate them on a  primary basis, is currently allocated to commercial electronic news  gathering systems and other commercial systems. To accommodate  military systems within this band, FCC would need to withdraw this  spectrum from commercial use to allow NTIA to provide DOD primary  status within this band, or FCC would have to otherwise ensure that  commercial systems operate on a non-interference basis with military  systems. FCC has not initiated a rulemaking procedure to begin such  processes.
Relocation start date: DOD’s cost estimate assumed relocation  would begin in fiscal year 2013, but no auction has been approved, so  relocation efforts have not begun. According to DOD officials, new  equipment and systems continue to be deployed in and designed for  the current band, and older systems are retired. This changes the  overall profile of systems in the band, which can change the costs of  relocation. For example, a major driver of the cost increase between  DOD’s 2001 and 2011 relocation estimates for the 1755-1850 MHz  band was the large increase in the use of unmanned aerial systems.  DOD deployed these systems very little in 2001, but their numbers  had increased substantially by 2011. Conversely, equipment near the  end of its life cycle when the study was completed may be retired or  replaced outside of relocation efforts, which could decrease relocation  costs.
Inflation: Inflation will drive up costs as more time elapses before the  auction occurs.
In addition to changing assumptions, the high-level nature of a rough- order-of-magnitude estimate means that it is not as robust as a detailed,  budget-quality lifecycle estimate, and its results should not be considered  or used with the same confidence. DOD officials said that for a spectrum- band relocation effort, a detailed, budget-quality cost estimate would  normally be done during the transition planning phase once a spectrum  auction has been approved, and would be based on specific auction and  relocation decisions.
section_title: No Government Revenue Forecasts Exist for a Potential Auction of the 1755- 1850 MHz Band, and a Variety of Factors Could Influence Auction Revenues
subsections: section_title: Federal Agencies Have Not Produced a Revenue Forecast for the 1755-1850 MHz Band
paragraphs: No official government revenue forecast has been prepared by CBO,  FCC, NTIA, or OMB for a potential auction of the 1755-1850 MHz band  licenses, but some estimates might be prepared once there is a greater  likelihood of an auction. Officials at these agencies knowledgeable about  estimating revenue from the auction of spectrum licenses said that it is  too early to produce meaningful forecasts for a potential auction of the  1755-1850 MHz band. Moreover, CBO only provides written estimates of  potential receipts when a congressional committee reports legislation  invoking FCC auctions. OMB officials said NTIA, with OMB concurrence,  will transmit federal agency relocation cost estimates to assist FCC in  establishing minimum bids for an auction once it is announced. OMB  would also estimate receipts and relocation costs as part of the  President’s budget. OMB analysts would use relocation cost information  from NTIA to complete OMB’s estimate of receipts.
Although no official government revenue forecast exists, an economist  with the Brattle Group, an economic consulting firm, published a revenue  forecast in 2011 for a potential auction of the 1755-1850 MHz band that  forecasted revenues of $19.4 billion for the band. We did not evaluate  the accuracy of this revenue estimate. Like all forecasts, the Brattle  Group study was based on certain assumptions. The study assumed that  the 1755-1850 MHz band would be generally cleared of federal users. It  also assumed the AWS-1 average nationwide price of $1.03 per MHz-pop  as a baseline price for spectrum allocated to wireless broadband  services, and that the 1755-1780 MHz portion of the band would be  paired with the 2155-2180 MHz band, which various industry  stakeholders currently support. The study assumed that the 95 MHz of  spectrum between 1755 and 1850 MHz would be auctioned as part of a  total of 470 MHz of spectrum included in 6 auctions sequenced 18  months apart and spread over 9 years with total estimated net receipts of  $64 billion. In addition, the study adjusted the price of spectrum based on  the increase in the supply of spectrum over the course of the six  auctions, as well as for differences in the quality of the spectrum bands  involved.
section_title: A Variety of Factors Could Influence Auction Revenues
paragraphs: Like all goods, the price of licensed spectrum, and ultimately the auction  revenue, is determined by supply and demand. This fundamental  economic concept helps to explain how the price of licensed spectrum  could change depending on how much licensed spectrum is available  now and in the future, and how much licensed spectrum is demanded by  the wireless industry for broadband applications. Government agencies  can influence the supply of spectrum available for licensing, whereas  expectations about profitability determine demand for spectrum in the  marketplace.
Supply. In 2010, the President directed NTIA to work with FCC to make  500 MHz of spectrum available for use by commercial broadband  services within 10 years. This represents a significant increase in the  supply of spectrum available for licensing in the marketplace. As with all  economic goods, the price and value of licensed spectrum are expected  to fall as additional supply is introduced, all other things being equal.
Demand. The expected, potential profitability of a spectrum license  influences the level of demand for it. Currently, the demand for licensed  spectrum is increasing and a primary driver of this increased demand is  the significant growth in commercial-wireless broadband services,  including third and fourth generation technologies that are increasingly  used for smart phones and tablet computers. Some of the factors that  would influence the demand for licensed spectrum are:
Clearing versus Sharing: Spectrum is more valuable, and companies  will pay more to license it, if it is entirely cleared of incumbent federal  users, giving them sole use of licensed spectrum; spectrum licenses  are less valuable if access must be shared. Sharing could potentially  have a big impact on the price of spectrum licenses. In 2012, the  President’s Council of Advisors on Science and Technology  advocated that sharing between federal and commercial users  become the new norm for spectrum management, especially given  the high cost and lengthy time it takes to relocate federal users.
Certainty and Timing: Another factor that affects the value of licensed  spectrum is the certainty about when it becomes available. Any  increase in the probability that the spectrum would not be cleared on  time would have a negative effect on the price companies are willing  to pay to use it. For example, 7 years after the auction of the 1710- 1755 MHz band, federal agencies are still relocating systems. The  estimated 10-year timeframe to clear federal users from the 1755- 1850 MHz band, and potential uncertainty around that timeframe,  could negatively influence demand for the spectrum.
Available Wireless Services: Innovation in the wireless broadband  market is expected to continue to drive demand for wireless services.  For example, demand continues to increase for smartphones and  tablets as new services are introduced in the marketplace. These  devices can connect to the Internet through regular cellular service  using commercial spectrum, or they can use publicly available  (unlicensed) spectrum via wireless fidelity (Wi-Fi) networks to access  the Internet. The value of the spectrum, therefore, is determined by  continued strong development of and demand for wireless services  and these devices, and the profits that can be realized from them.
Chairman Udall, Ranking Member Sessions, and Members of the  Subcommittee, this concludes my prepared remarks. I am happy to  respond to any questions that you or other Members of the Subcommittee  may have at this time.
section_title: GAO Contacts and Staff Acknowledgments
paragraphs: For questions about this statement, please contact Mark L. Goldstein,  Director, Physical Infrastructure Issues, at (202) 512-2834 or  goldsteinm@gao.gov. In addition, contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Individuals who made key contributions to this  statement include Mike Clements, Assistant Director; Stephen Brown;  Jonathan Carver; Jennifer Echard; Emile Ettedgui; Colin Fallon; Bert  Japikse; Elke Kolodinski; Joshua Ormond; Jay Tallon; and Elizabeth  Wood.
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