Telecommunications: Comprehensive Review of U.S. Spectrum Management with Broad Stakeholder Involvement Is Needed
Published: 2003-01-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The radiofrequency spectrum--a natural resource used for wireless communications--is a critical input to various commercial and government functions. Because of expanding commercial and government demand for spectrum, there is increasing debate on how best to manage this resource to meet current and future needs. GAO was asked to examine whether future spectrum needs can be met, given the current regulatory framework; what benefits and difficulties have arisen with the application of market mechanisms to spectrum management; and what barriers exist to reforming spectrum management.
section_title: What GAO Found
paragraphs: In the past, the United States relied primarily on a command and control approach to spectrum management, wherein the federal government largely dictated the use of spectrum. This approach generally met commercial and government users' needs for spectrum. However, increased use of commercial wireless services, such as mobile telephones, and expanding government agency missions have created growing demand for spectrum resources. GAO found that concerns exist as to whether the current spectrum-management approach can adequately meet future needs for spectrum. The United States and most other countries that GAO spoke with are incrementally adopting market-based mechanisms for spectrum management. By invoking the forces of supply and demand, market-based mechanisms can help promote the efficient use of spectrum, especially in an environment with increasing and unpredictable demand. A prominent example of a market-based mechanism is the requirement for commercial spectrum users to bid at auction for the right to use spectrum. However, because of mission and system requirements, there is some question as to whether these mechanisms can or should be applied to certain government functions. Also, legal and technical limitations can, in some instances, hinder the application of these mechanisms to commercial users. GAO found several barriers to reforming spectrum management in the United States. While active dialogue among key stakeholders is ongoing, differing priorities have led to little consensus on appropriate reforms. In addition, the current spectrum-management structure--with multiple agency jurisdictions and a slow decisionmaking process--has hindered consideration of whether fundamental reform is needed. In the past, commissions--such as the Defense Base Closure and Realignment Commission--have been used to look at major policy change when complex problems arise.

section_title: Letter
paragraphs: The radiofrequency spectrum is a natural resource that is used to provide  an array of wireless communications services critical to the U.S. economy  and to a variety of government functions, such as scientific research,  national defense, homeland security, and other public safety activities. As  new technologies and services are brought to market in the private sector  and new mission needs unfold among government users of spectrum,  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. Along with this  concern, there is a growing view that current spectrum management in the  United States may not be able to respond adequately to the rapidly  changing needs and competing demands of spectrum users.
To promote a more efficient use of spectrum, many countries, including  the United States, are incrementally adopting market-oriented approaches  to spectrum management. Examples of these approaches include requiring  commercial spectrum users to bid at auction for the right to use spectrum,  charging spectrum users market-based fees to use spectrum, and allowing  greater flexibility in how spectrum is used. However, market-oriented  mechanisms are not universally supported among interested parties. As a  result, increasing debate is emerging on how best to manage this scarce  spectrum resource to meet critical commercial and government needs,  both now and in the future.
As agreed with your offices, this is our final report in response to your  request that we study a variety of spectrum-management issues. Our first  report, released in September 2002, provided an overview of the  development of the legal and regulatory framework for spectrum  management at the federal level and assessed key issues associated with  spectrum management at federal agencies. That report contained four  recommendations: (1) that the Chairman of the Federal Communications  Commission (FCC) and the Secretary of Commerce, who oversees the  National Telecommunications and Information Administration (NTIA),  jointly develop a clearly defined national spectrum strategy; (2) that the  Secretary of State, the Secretary of Commerce, and the Chairman of FCC  jointly review the adequacy of the preparation process for the 2003 World  Radiocommunication Conference; (3) that the Secretary of Commerce  direct NTIA to analyze the human capital needs of federal agencies for  spectrum management, as well as develop a strategy for addressing any  identified shortcomings; and (4) that the Secretary of Commerce develop a  strategy for enhancing its oversight of federal agencies’ use of spectrum.  FCC, NTIA, and the Department of State generally agreed that these  recommendations should be implemented.
This report builds on that effort by examining market-oriented approaches  to spectrum management and other issues. Specifically, this report  discusses (1) concerns about whether future spectrum needs can be met,  given the current regulatory framework; (2) the advantages of market- based mechanisms and how they have been applied to help meet future  spectrum needs; (3) whether there are difficulties with using market-based  mechanisms; and (4) if it is found that fundamental spectrum reform is  needed, whether the current regulatory environment is conducive to  facilitating such reform. In addition, in appendix II we provide information  on certain stakeholders’ views on auctions and spectrum royalties.
To respond to these objectives, we reviewed a broad array of technical,  economic, and legal research related to spectrum management. For  example, we reviewed spectrum-management reports completed by  several foreign governments. In addition, we interviewed experts on  spectrum issues and officials from companies and from government  agencies, including FCC and NTIA. We also conducted semistructured  interviews and analyzed the results of these interviews with spectrum- management officials in 12 other countries: Australia, Canada, Finland,  France, Hong Kong, Italy, Japan, Mexico, New Zealand, Spain, Sweden,  and the United Kingdom. We selected these countries based on their  geographic size, gross national product per capita, population density,  level of mobile telephone penetration, primary methods for assigning  spectrum, and whether the country uses market incentives to encourage  government conservation of spectrum. For Canada and the United  Kingdom, which have both recently adopted certain market-based  mechanisms, we conducted more in-depth case studies of spectrum- management practices, interviewing not only spectrum managers but also  government users and commercial firms. We also surveyed representatives  to the Interdepartment Radio Advisory Committee (IRAC), which  represents 20 federal agencies that use spectrum, regarding their spectrum  use and their views on certain policy issues. Finally, we invited 10 experts  to participate in an expert panel (see app. VI for a list of panel members).  These experts participated in a day-long conference at GAO and discussed  a series of issues on spectrum-management concerns. For more detailed  information on how we chose the countries we reviewed, the panelists we  invited to serve on the expert panel, and other aspects of our research  methodology, see appendix I. We conducted our review from January 2002  through December 2002 in accordance with generally accepted  government auditing standards.
subsections: section_title: Background
paragraphs: The radiofrequency spectrum is the medium that enables wireless  communications of all kinds. Although the radio spectrum spans the range  from 3 kilohertz to 300 gigahertz, 90 percent of its use is concentrated in  the 1 percent of frequencies that lie below 3.1 gigahertz, because these  frequencies have properties that make this portion of the spectrum well  suited for many important wireless technologies.
Spectrum is used to provide a variety of services in the United States.  Companies are licensed to provide mobile telephone, paging, broadcast  television and radio, and various satellite services. Additionally, some  companies maintain spectrum licenses for a variety of private tasks,  including communication in a particular location (such as a large  industrial complex) or among remote vehicles of a company. A variety of  government users also employ spectrum to provide public safety services  and other functions of federal, state, and local government agencies. For  example, local and state police departments, fire departments, and other  emergency services use spectrum to transmit and receive critical voice  and data communications. Federal agencies use spectrum for varied  mission needs, such as law enforcement, weather services, aviation  communication, and national defense.
Since the beginning of radio communications, concern about interference  among users has been a driving force in the management of spectrum at  the national and international levels. Interference among spectrum users  can occur when two or more radio signals interact in a manner that  disrupts or degrades the transmission and reception of messages.  Spectrum managers have worked to minimize interference through their  two primary spectrum-management functions, the “allocation” and the  “assignment” of radio spectrum.
The allocation process begins with the International Telecommunication  Union (ITU), a specialized agency of the United Nations, where member  nations identify spectrum bands for about 40 broad categories of wireless  services. The Department of State coordinates and mediates the views of  FCC and NTIA to reach a U.S. position on spectrum issues for  international discussions. Once spectrum-allocation decisions are made at  the ITU, regulators within each country will, to varying degrees, follow the  ITU decisions when allocating spectrum for particular types of radio  services or classes of users to meet domestic needs. In the United States,  spectrum allocation is handled primarily by two agencies: FCC—an  independent agency that regulates spectrum use for nonfederal users,  including commercial, private, and state and local government users—and  NTIA, an agency within the Department of Commerce that regulates  spectrum for federal government users. NTIA works in consultation with  IRAC, which is composed of representatives from federal agencies, to  manage the federal spectrum use.
Once spectrum is allocated for specific uses, the spectrum-management  agencies assign portions of spectrum to specific users. Spectrum  assignment has generally been very proscriptive regarding how a specified  portion of spectrum can be used. That is, generally a license or assignment  specifies the frequencies the license holder may use, the length of time the  license covers, the geographic areas the license covers, and the services  that may be provided. FCC assigns licenses for commercial enterprises,  state and local governments, and others. NTIA makes frequency  assignments to federal agencies. In addition to licensed uses for spectrum,  FCC authorizes unlicensed use of spectrum in some frequencies.  Unlicensed spectrum has traditionally been used for low-powered devices  that operate in a limited geographic range, such as cordless phones, baby  monitors, and garage door openers, and it is increasingly being used to  provide services such as wireless access to the Internet.
Over the years, FCC has used a variety of methods to assign spectrum for  commercial users. Sometimes spectrum has been assigned on a first-come,  first-served basis. When more than one party applies for the same license,  FCC has used several alternative approaches to assign the license. FCC  historically used comparative hearings, which give 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  licensees from the qualified applicant pool. In the Omnibus Budget  Reconciliation Act of 1993, the Congress authorized FCC to use auctions  to award spectrum licenses for certain wireless communications services.  Auctions, a market-based mechanism, grant a license to the company that  has bid the highest price for specific bands of spectrum. Since auctions  were put into place, FCC has conducted 42 auctions.
Since nearly all of the usable radio spectrum in the United States has been  allocated already, accommodating more services and users often involves  having more than one user sharing spectrum, or reallocations of spectrum  from one use to another. “Spectrum sharing”—one method of  accommodating more services and users—enables more than one user to  transmit or receive radio signals on or near the same frequency band.  Within the United States, about 56 percent of the spectrum is shared by  federal and nonfederal users, while about 31 percent is designated  exclusively for nonfederal use and about 14 percent exclusively for use by  federal agencies. Another method of accommodating new users and  technologies is “band clearing,” or reclassifying a band of spectrum from  one set of radio services and users to another, which requires moving  previously authorized users off of the band. Band-clearing decisions that  affect federal and nonfederal users may require coordination between FCC  and NTIA to ensure that moving existing users off of a band is technically  feasible and meets the users’ needs. Such moves often involve costs  because existing users of the band may need to modify or replace existing  equipment.
In addition to spectrum-management policies directed at the allocation  and assignment of spectrum, advances in technology could also help to  accommodate more services and users. For example, by compressing  pieces of information, digital technologies are able to use less spectrum  than would analog technologies to transmit a given amount of spectrum.  Also, with appropriate technical standards, ultrawideband devices—which  use very low power over very large bandwidths—can operate using  spectrum occupied by existing radio services, in some cases, without  causing interference. This permits scarce spectrum resources to be used  more efficiently, as more than one service can use the same spectrum. See  appendix III for more discussion of technological advancements that could  help relieve spectrum scarcity.
section_title: Concerns Exist That Future Needs for Spectrum Will Be Difficult to Meet
paragraphs: In the past, the spectrum available to commercial users has  accommodated rapid growth in wireless telephone markets and supported  a competitive structure in that market. In addition, many government  agencies’ spectrum managers say that, in the past, government users’  needs for spectrum have generally been met. However, concerns exist  about the ability to meet the growing needs of both commercial and  government users. In addition, some observers are particularly concerned  that some spectrum is not currently used as efficiently as possible. Many  are also concerned that current spectrum-management practices, which  generally take a command and control approach—that is, policies wherein  government largely dictates how spectrum is used—may not work  effectively as spectrum needs rapidly change. Key stakeholders are voicing  these concerns as they search for ways to meet these needs.
subsections: section_title: Spectrum Allocated to the Commercial Sector Has Accommodated Rapid Growth and Competitive Structure in Some Wireless Markets
paragraphs: Many industries that rely on spectrum to provide services have grown  dramatically over the past 20 years, including mobile telephone service  and varied satellite-provided services. In particular, the availability of  spectrum has accommodated the dramatic growth of mobile telephone  service since it was first launched in the 1980s. Between 1985 and 2001,  subscribership increased from approximately 340,000 to over 128 million,  and wireless use (measured in minutes) grew by almost 800 percent  between 1996 and 2001 (fig.1). This growth resulted from an increase in  subscribership as well as a marked increase in the average number of  minutes used by each subscriber. In terms of revenues, the industry has  also mushroomed: in 1985 annual revenues were $482 million, and by 2001  annual revenues stood at over $65 billion. Finally, the number of people  employed in the mobile telephone sector grew from about 3,000 in 1985 to  over 200,000 by 2001.
In addition to the rapid growth in wireless services, most observers believe  that wireless phone markets are highly competitive. According to a recent  FCC report, 94 percent of the U.S. population lives in counties with access  to 3 or more mobile telephone service providers, and 80 percent lives in  counties with at least 5 providers. Officials from the wireless companies  we spoke with and participants on our expert panel overwhelmingly  perceived wireless markets as competitive. Twelve of the 13 wireless  service providers that we interviewed said that mobile markets are  competitive. Even in rural areas wireless markets appear competitive. For  example, officials at the 3 rural companies we spoke with reported that  they were among 3 to 6 competitors in the small and rural markets they  serve. Similarly, all 10 of the participants on our expert panel reported that  wireless markets are “extremely” or “moderately” competitive.
A number of policy decisions implemented by the Congress and FCC have  helped to accommodate the rapid growth and competitiveness of wireless  markets. In the 1990s, the Congress mandated the transfer of over 200  megahertz (MHz) of spectrum from government use to nonfederal use.  This provided additional spectrum for commercial wireless services. Since  1994, FCC has conducted 42 auctions for spectrum dedicated to various  kinds of wireless services. Additionally, FCC’s licensing scheme for mobile  telephone service helped ensure that many providers were available in  each market region. In every region, FCC authorized up to eight different  mobile telephone licenses.
section_title: Government Spectrum Managers Say Government Users’ Needs Have Generally Been Met
paragraphs: Our survey of the 20 IRAC agencies asked whether agencies were able to  meet their critical mission needs, given their current spectrum resources.  Of the 16 agencies that responded to this question on our survey, 13 said  that all or most of their critical mission needs were being met; 3 agencies  responded that some critical needs were not being met. Moreover, officials  at FCC and NTIA stated that spectrum needs of government users have  generally been met.
Officials at three of the four government agencies we interviewed in  greater depth told us that their agencies have generally received the  spectrum necessary to meet their mission needs. Officials at the Federal  Aviation Administration (FAA) told us that their agency has been able to  meet aviation requirements with the currently available spectrum. Officials  at the Department of Defense (DOD) said that their missions had not yet  been compromised because of a lack of spectrum. The Federal  Emergency Management Agency (FEMA), which most often uses  spectrum allocated to the U.S. Army, also told us that it has been able to  obtain spectrum when needed. The Department of Justice (DOJ),  however, stated that in just the past few years, as the use of wireless  surveillance activities has increased, congestion has increased, resulting in  increased occurrences of interference.
Agency officials we interviewed noted that they have taken measures to  achieve mission requirements in the absence of new spectrum  assignments. For example:    Officials stated that their agencies share considerable spectrum with other  federal agencies, as well as with nongovernmental users. FAA officials  noted that spectrum allocated for certain systems, such as radar, is shared  among a number of users, including FAA, DOD, the U.S. Customs Service,  and the National Weather Service; DOJ officials also noted that they share  spectrum in the government bands and are in the design phase of a plan to  implement greater sharing with a variety of users having similar missions.
FAA and DOD officials noted that they perform internal audits of spectrum  use within their agency. FAA told us that the results of these internal  audits are used to make more efficient use of the available spectrum; DOD  said that it has relinquished use of underutilized spectrum that has been  identified during these audits.
All four government agencies told us that, when possible, they use  commercial vendors—who use spectrum assigned for commercial uses— to provide nonsafety–related spectrum services, such as mobile telephone  service.
Officials at both DOJ and DOD told us that they attempt to economize on  spectrum use by implementing new technologies. DOJ is planning on  making greater use of trunking technology; DOD is investigating new  technologies that use spectrum more efficiently, or do not depend on  spectrum.
section_title: Commercial and Government Users See Future Spectrum Needs Growing
paragraphs: Commercial users have expressed a need for more spectrum in certain  highly congested areas, as well as to accommodate new services. This  spectrum is needed to accommodate the expected growth in the demand  for wireless voice services as well as for additional services that will be  provided over telephone handsets, including the transfer of data at higher  speeds than current wireless devices are able to do—so-called third- generation wireless services (3G). Also, certain commercial users have  argued that additional spectrum should be made available for unlicensed  use by low-powered devices. These users, as well as staff at FCC, have  stated that more spectrum for unlicensed services is particularly helpful in  trying to bring new technologies, such as local area Internet access, to the  market. In a recent speech, an FCC Commissioner noted that a research  study had predicted that 21 million Americans will be using wireless local  area networks—a service that can be provided without a license—by 2007.
Officials of the United Telecom Council, an organization that helps utilities  and railroads to manage their spectrum needs, told us that these entities  also need more spectrum for the wireless communications used by their  maintenance personnel. These officials told us that since 1997, utilities  have increasingly had to share spectrum assignments with certain other  users. Moreover, within these arrangements, no limit exists as to the  number of licenses that can be assigned for use on any particular  frequency. As a result, they told us, these frequencies are either too  congested to be used safely or are in imminent threat of such congestion.  In a recently released report, NTIA stated that the events of September 11,  2001 have underlined the importance of these industries and the roles they  play in times of disaster response and recovery.
Officials at most of the federal government agencies we spoke with also  told us that they face increasing needs for spectrum and are concerned  that adequate spectrum will not be available in the future. Furthermore, of  the 17 IRAC members who responded to our survey, 12 believed that their  spectrum needs would at least moderately increase over the next 2 to 3  years. Fifteen of the 17 respondents felt that they would have at least some  difficulty meeting their future critical mission needs because of  insufficient spectrum, whether or not they were meeting those needs at  this time.
Two of the four agencies that we interviewed in depth also revealed an  expectation of increased spectrum needs. In particular:    Officials at DOJ believe that they will need access to additional spectrum  to support homeland security, accommodate increased border patrol, and  provide for additional surveillance.
Defense spectrum use has grown exponentially since Desert Storm in  1991, according to DOD spectrum managers we interviewed. A DOD  official testified before the Senate Committee on Commerce, Science, and  Transportation in June 2002 that DOD’s spectrum usage is projected to  grow by more than 90 percent by 2005—and this estimate was made prior  to September 11, 2001. According to DOD officials we interviewed, since  September 11th, DOD’s spectrum needs have further increased.
Finally, public safety officials with whom we spoke said they needed  additional spectrum. In particular, these officials said that small bits of  spectrum located in various bands have been allocated for public safety  use, and that some of these slices of spectrum have been allocated very  close to certain commercial providers. Public safety officials told us that  this situation has resulted in there being some interference between public  safety users and commercial vendors, and they noted their continued need  for more contiguous blocks of spectrum to provide critical safety-of-life  services.
section_title: Concerns Exist about Inefficient Spectrum Use in the Public and Private Sectors
paragraphs: Given the concern about the growing need for spectrum, stakeholders are  particularly concerned that some users may not be applying the most  spectrally efficient technologies. If that is the case, then spectrum  scarcity may be exacerbated by this inefficient use. As such, policies to  promote more spectrally efficient technologies can help to meet future  spectrum needs by freeing up unneeded spectrum.
Some observers, including several of our expert panel members,  commercial users, and regulators we spoke with in certain other  countries, expressed concern that government users do not have adequate  incentives to conserve their use of spectrum and therefore may not deploy  this valuable resource efficiently. NTIA, which manages federal spectrum,  is responsible for promoting the efficient use of that spectrum to the  maximum extent feasible. Our September 2002 report noted that it is not  clear that NTIA is able to ensure that spectrum is being used efficiently.
NTIA currently charges federal government users a small spectrum- management fee for each frequency assignment the government user  holds. However, it is not clear how much these fees, which are designed to  recover 80 percent of the administrative costs in NTIA’s spectrum- management budget, encourage government users to economize on their  use of the spectrum. Officials from two federal agencies that use spectrum  noted that the current charges—approximately $55 per assignment—were  not high enough to cause them to economize on their use of spectrum.  Recently, NTIA has expressed an interest in examining a fee structure that  provides a greater incentive to promote efficient use of spectrum than is  currently being used by NTIA.
Federal agency officials told us that they have some nonfinancial  incentives to conserve spectrum. Officials from two of the agencies we  interviewed reported that because they are unlikely to get substantial new  spectrum from NTIA, they face internal pressures to conserve and  reshuffle current spectrum resources to meet new needs. Also, DOD  officials stated that the department’s internal goal of being a responsible  steward of America’s resources drives it to use spectrum efficiently.  Agencies we spoke with noted that NTIA requires that federal agencies  review their assignments every 5 years. However, in our first report,  released in September 2002, we noted that one agency official said that  these reviews are often perfunctory, there is no independent verification  of the reviews, and there is no other evidence that these reviews are  effective. Those we spoke with for this report did cite other audits of  spectrum use in the federal government—including spectrum reviews by  the White House—as incentives to use spectrum efficiently. Finally, NTIA  has required the adoption of certain technologies—such as  narrowbanding and trunking—that conserve spectrum. However, NTIA  officials told us that, in practice, it is difficult for NTIA to invoke its  enforcement authority because its primary enforcement tool is the ability  to remove frequency assignments from agencies not complying with  certain requirements. Because license removal is a radical measure that  could interfere with government agencies’ ability to carry out important  missions, it is difficult for NTIA to use this approach.
Some of those we spoke with also expressed concern that public safety  users do not employ the most efficient technologies and are therefore  wasteful with their spectrum. The head of a commercial wireless  organization noted that public safety communications equipment is often  antiquated. One public safety official we interviewed stated that public  safety officials often do not have adequate funding to update their  equipment to be more spectrally efficient.
Concerns also exist that some nongovernmental users do not have  incentives to be efficient. In August 2001, FCC commenced an audit of  private land mobile radio stations licensed on frequencies below 512 MHz.  These license holders included industrial/business users and public safety  users. As part of the audit, FCC sent letters to over 260,000 licensees  seeking information to determine whether they (1) were meeting required  construction deadlines and (2) were operational. As of October 2002, FCC  had received responses from over 228,000 licensees, and these licensees  reported that over 33,000 licenses (7.9 percent of licenses) were not being  used and could be canceled. FCC officials told us that they would like to  undertake more spectrum audits such as this.
Additionally, some concerns exist that certain commercial users may not  employ spectrally efficient technologies. Members of the expert panel and  government users have stated that they believe the television broadcasting  industry does not employ spectrally efficient technologies. Several  stakeholders noted that in part this is attributable to a lack of receiver  standards. Some expert panel members and some government users also  noted that mobile satellite services, radio broadcasters, and the mobile  telephone industry are also not necessarily using the most spectrally  efficient technologies.
section_title: Concerns Exist That Primary Reliance on Administrative Management May Not Be Effective in Today’s Rapidly Changing Environment
paragraphs: For most of the history of wireless transmissions, the national  governments of the countries we reviewed have used centralized  administrative techniques—often called command and control—to  allocate and assign spectrum. An important focus of this regulatory  approach has generally been to minimize interference among users. Using  the ITU allocation tables as a starting point, individual countries have  traditionally allocated spectrum for particular uses and assigned spectrum  to particular users by licensing them to use the spectrum in specific ways.  Until the past 10 to 15 years, when some countries started using auctions  to assign spectrum, countries throughout the world assigned spectrum on  a first-come, first-served basis, or used some other administrative device  (such as comparative hearings) to decide among applicants who wanted  the same spectrum. In the United States, FCC used comparative hearings  and, later, used lotteries to assign spectrum to competing commercial  carriers.
One of the benefits of using market forces to allocate and assign spectrum  resources is that these methods help to ensure that spectrum moves into  the services that are most highly valued by consumers, as measured by  their willingness to pay higher prices for those services. When resources  move to more valued uses, a form of efficiency known as “allocative  efficiency” is advanced. For example, if, because of the development of  cable and satellite television, broadcast television were to lose viewers  and its spectrum were to become more valuable for other uses in higher  demand, such as mobile telephone service, then market forces—that is,  market mechanisms in spectrum management—would naturally lead to a  reallocation of some of that spectrum to these other uses. However,  without market forces helping to direct resources, spectrum managers  would have to predict the most valued use of the resource in order to  make decisions designed to allocate spectrum to the services that would  best serve society’s interests.
Because of the growing demand for spectrum and the inability to predict  where technology will lead, spectrum managers in some countries, as well  as many other interested parties, are questioning the continued  appropriateness of relying largely on traditional command and control  methods for allocating and assigning spectrum. In October 2001, FCC’s  Chairman underlined the need to move away from reliance on command  and control methods when he stated that it is becoming an “impossible  task” for government officials to determine the best use for spectrum and  to repeatedly adjust allocations and assignments of spectrum to  accommodate new spectrum needs and new services. Similarly, in June  2002, the Assistant Secretary of Commerce for Communications and  Information at NTIA indicated her support of market-oriented approaches  for commercial users when she stated that NTIA is hoping that FCC will  move forward fairly rapidly with its efforts to promote secondary markets  for spectrum.
section_title: Key Stakeholders Are Discussing Ways to Meet Future Spectrum Needs
paragraphs: Because stakeholders are concerned that the current system may not be  able to meet the country’s future needs for spectrum, they have been  having discussions and looking to find solutions for these concerns. These  forums and initiatives are indicative of a general sense among many  interested parties that managing spectrum is difficult, complex, and  challenging, and that significant reforms to the current processes may be  needed. These initiatives include a variety of task forces and working  groups, including:    FCC: In June 2002, the Spectrum Policy Task Force, composed of senior  FCC staff, was announced. The task force’s mission was to identify and  evaluate changes in spectrum policy to increase public benefit. The task  force released its report in November 2002, with four key  recommendations: (1) To provide an incentive for spectrum holders to be  technically innovative and economically efficient, FCC should move  toward more flexible, market-oriented policies, which would require FCC  to clearly define spectrum users’ rights and responsibilities. (2) FCC  should adopt a new standard for judging acceptable interference, to be  called the “interference temperature.” (3) FCC should increasingly  consider the dimension of time to make allocation and assignment  decisions, so that spectrum users could better share unused and  underused spectrum. (4) FCC should begin basing its spectrum policy on  the “commons” and exclusive use models rather than on the command and  control model, except in cases where there is a compelling public interest,  such as public safety.
NTIA: In April 2002, NTIA held a Spectrum Management and Policy  Summit. The purpose of this conference was to discuss how spectrum  management could be more effective and to find ways of meeting future  spectrum needs. Additionally, NTIA included in the Department of  Commerce’s fiscal year 2003 budget a proposal for an NTIA Spectrum  Management Reform initiative. The fiscal year 2003 appropriation request  for the program, which is expected to take about nine years to be  implemented, was $1.425 million. The purpose of this initiative would be  to review the management processes that are currently being used to  allocate and distribute spectrum, including those used by NTIA, FCC, and  the individual federal agencies that manage spectrum.
Public Safety Wireless Advisory Committee: This committee, established  by FCC and NTIA in response to concerns voiced by the Congress that the  agencies’ individual reporting of public safety’s spectrum needs may be  insufficient, outlined public safety’s spectrum needs through the year 2010.  The committee suggested focusing on obtaining new spectrum allocations  for public safety, implementing technologies to allow more efficient  spectrum use and sharing, and encouraging public safety users to utilize  commercial services when possible.
The Center for Strategic and International Studies (CSIS): Recognizing  increasing demands on the spectrum allocation process, CSIS conducted a  series of roundtable discussions in the past 2 years on spectrum allocation  and long-term spectrum-management needs and goals for the U.S.  government and economy. In addition, CSIS has convened a Commission  on Spectrum Management to further examine the issue and expects to  release a report on spectrum management in mid-2003.
In addition, both the Senate and the House of Representatives are looking  at ways to better meet future spectrum needs. Issues being examined  include creating funds for reallocating spectrum from one use or user to  another and setting aside unlicensed spectrum for broadband use.  Hearings have been held to examine the current process and the impact of  this system on the implementation of 3G technologies—which include  transferring data at higher speeds than current technologies generally  permit. Also, a variety of bills introduced in the 107th Congress addressed  diverse spectrum-related issues.
section_title: Many Countries Are Adopting Market- Based Mechanisms to Help Meet Future Spectrum Needs
paragraphs: There appears to be general agreement among many regulators and  experts that a more dynamic system for allocating and assigning spectrum  is needed. To promote the movement of spectrum to those uses where it is  most highly valued, the United States and some other countries have  adopted some market-based mechanisms in their management of the  spectrum. According to spectrum managers we spoke with in various  countries, some have adopted these mechanisms for both government and  commercial users, while others have adopted mechanisms only for  commercial users. Spectrum managers in the remaining countries we  studied said that they were not using these market-based mechanisms, but  some reported that they were exploring using these mechanisms.
subsections: section_title: Many Countries Identified Advantages to Using Market-Based Mechanisms for Spectrum Management
paragraphs: While spectrum users have been shielded historically from the normal  workings of the marketplace, market-based approaches to spectrum  management invoke mechanisms or policies that leverage the information  normally available in markets—such as prices of goods or services—to  promote the efficient use of spectrum. Regulators can implement market- based mechanisms in a variety of ways. They can:    Create a market where none previously existed. For example, markets for  spectrum have been created over the past 10 to 15 years by adopting  auctions as a method for assigning spectrum licenses to mobile telephone  and other wireless service providers.
Remove or relax rules and regulations that created barriers to the full  functioning of spectrum markets. For example, some countries reported  that they are considering rules and regulations to permit users to more  readily purchase or lease spectrum from other license holders, allowing a  more robust secondary market. Similarly, with more flexibility, spectrum  licensees can more readily make business decisions to change how they  use their assigned spectrum without having to get regulatory approval.  Implement a policy that artificially mimics the functions of a market. For  example, in some countries, regulators have developed fees that are based  on information about prices for spectrum that would likely exist under a  free 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. 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. Mechanisms such as  these might have the most applicability for users that do not function  within a commercial context.
According to the spectrum managers in the 13 countries we reviewed (see  fig. 2), many have adopted a variety of market-based mechanisms  including auctions and incentive-based fees, more flexible licenses, and  secondary markets. Managers in many countries told us that they are  moving away from administrative processes and adopting market-based  mechanisms for a variety of reasons. Spectrum managers in the countries  we studied shared their views on the advantages of market-based policies,  which included their usefulness in  facilitating the reallocation and reassignment of spectrum to its most  efficient use;    allowing the market to handle the assignment and allocation of spectrum,  which some believe the market can do better than managers can;  requiring government agencies to pay market prices for spectrum just as  they do for other resources, such as land and electricity; and    addressing the challenges of spectrum management under conditions of  increasing demand and rising unpredictability of new opportunities for  using spectrum.
section_title: Some Countries Have Adopted Market-Based Mechanisms for Government and Commercial Users
paragraphs: According to spectrum managers in Australia, Canada, and the United  Kingdom, these countries have adopted market-based mechanisms as part  of their spectrum-management approaches for both government and  commercial users. As table 1 shows, in addition to holding auctions, these  countries have instituted incentive-based pricing—which is designed  specifically to provide an incentive to conserve on spectrum—for  commercial and government spectrum. These countries have also  introduced greater flexibility and secondary markets for spectrum holders.  Of these three countries, Australia was the first to institute market  mechanisms, adopting auctions in 1994 and incentive-based pricing in the  early 1980s. Canada and the United Kingdom started using auctions at a  later time—in 1999 and 2000, respectively. With regard to incentive-based  pricing, Canada has been using this mechanism since the late 1980s and  the United Kingdom since 1998. See appendix V for more information on  spectrum management in all of the countries we reviewed.
The incentive-based pricing systems in these countries were designed to  encourage government spectrum users to recognize the market value of  the spectrum they use. Although officials told us that these fees have  been successful in providing incentives for government agencies to use  spectrum efficiently, part of that success was attributed to other factors.  In particular, political pressures and budgetary policies were key to  helping promote efficient spectrum use.
In Australia, the fees paid by government and nongovernmental users  (including the military) are based on a formula that includes factors such  as the demand for frequency, amount of spectrum assigned, geographic  location, and power of transmission. Australian officials report that  government users appear to be able to fulfill their missions despite having  to pay for spectrum. When asked to explain the mechanism by which these  fees provide an incentive for government users to conserve on spectrum,  the spectrum manager we spoke with told us that the impact in Australia is  largely the result of synergy between the spectrum fees and declining  government agency budgets. Since the 1970s, budgets have been  constrained because of the government’s attempt to recover some of the  benefits of the gains in efficiency arising from various government  management reforms. The official we spoke with believes that this  budgetary pressure, combined with more appropriate pricing of spectrum  licenses, leads government users to be more efficient with their spectrum.  This greater efficiency may manifest itself in government users’  relinquishing spectrum that they do not currently need.
Spectrum managers in Canada reported that they charge incentive-based  fees for most uses of spectrum, including many government uses.  Although the fees are currently based on the amount of equipment in use,  Canada is considering changing its fee structure to be based more on other  factors such as bandwidth, geography, and the degree to which spectrum  is shared. Spectrum managers in Canada reported that the fees have  helped some government agencies to use spectrum more efficiently and  that a number of licenses have been returned as a result of the fees. They  reported that some of these results might also have come about because of  their close working relationship with licensees.
The United Kingdom developed an approach for determining spectrum  fees for all users, except those who had purchased their spectrum at  auction and certain providers of exempted services (such as certain  military functions). The approach considers alternative means to provide a  service that is currently being provided with certain assigned spectrum.  Then, an evaluation is made of how that service could be provided by  using alternative spectrum, or without any spectrum at all, if possible. A  key evaluation is made of the difference in cost between the current  means of providing the service and the next best means. Adjusted for  certain other factors, this difference represents the “opportunity cost” of  the spectrum to the user—that is, the value of the spectrum to that user.  As such, this dollar value is the basis for the incentive-based portion of the  fee the user must pay. Officials in the United Kingdom believe that  spectrum fees are working to improve the efficiency of government  spectrum use because agencies are generally facing budgetary restrictions  and therefore cannot easily finance spectrum fees through the budgetary  process.
For commercial users, these countries are working to provide more  flexibility in licensing and to establish or improve secondary markets for  spectrum.
In Australia, licenses may be traded, sold, or sublet. Some of these can  also be traded, sold, or sublet in portions based on geography, time, or  bandwidth. Australian spectrum managers have not been satisfied with the  speed of development of secondary markets in that country, however, and  spectrum managers are considering measures to stimulate these markets.  Payments among users are also allowed as part of the spectrum-clearing  process. Although government funding for moving incumbent spectrum  holders to alternative spectrum is not provided, new spectrum licensees  are allowed to pay incumbent license holders to induce more rapid  clearing of spectrum.  In Canada, licenses acquired through auctions have greater flexibility of  use than those acquired in other ways, which enables spectrum licensees  to more freely decide to modify how they use their assigned spectrum. For  example, licenses gained through the auction process have a broader class  of services that can be provided with the spectrum than licenses gained  through other assignment mechanisms. According to officials there,  Canada is planning to extend this flexibility to spectrum obtained in  comparative hearings as well. Although holders of auction-based licenses  can also participate in the secondary market, officials report that  secondary markets are not well developed.
The United Kingdom is in the process of increasing the flexibility allowed  by its spectrum licenses. Its recent major review of spectrum management  recommends allowing more flexibility in the services that spectrum users  can provide and the technologies they use. The United Kingdom is  planning to issue future licenses with as much flexibility as possible, while  recognizing that international coordination and interference management  may sometimes limit flexibility. The United Kingdom also sees the  development of a robust secondary market as a valuable tool for ensuring  that spectrum flows to its most valued use.
section_title: United States and Certain Other Countries Have Adopted Some Market- Based Mechanisms for Commercial Users Only
paragraphs: According to the spectrum managers we spoke with in each country, the  United States, New Zealand, Mexico, Italy, and Hong Kong have adopted  market-based mechanisms for the commercial sector only (see table 2).  For various reasons, these countries do not charge government users more  than cost recovery for their use of the spectrum. In the United States,  NTIA and FCC do not have the authority to impose fees that exceed the  costs of spectrum management. Similarly, managers in Italy are currently  prohibited from charging fees above a cost-recovery level. Officials in  New Zealand reported that they had considered charging government  users an incentive-based value for spectrum, but decided against it  because they were concerned that determining the value of spectrum not  bought and sold in a commercial market would be too difficult.
The United States has used auctions since 1994, shortly after  congressional legislation first authorized auctions to be used for  commercial spectrum assignment. FCC has also adopted rules that afford  companies more flexibility regarding various license provisions—such as  the technologies that a company may use or the services that it may  provide with its licensed spectrum. FCC plans to increase the flexibility of  its licenses, and it is considering liberalizing the right to engage in  secondary markets. In recent congressional testimony, an FCC official  noted that flexible spectrum rules, which allow companies to respond to  market conditions without government intervention, are essential in  today’s dynamic world of wireless communications. With regard to  secondary market activity, spectrum trades in the United States generally  require regulatory approval from FCC. Despite this requirement, a majority  of companies we spoke with in the United States have either purchased  spectrum licenses from another company or traded spectrum licenses with  another company. FCC has an ongoing proceeding looking at ways to  encourage the growth of secondary markets. For example, FCC is seeking  to institute policies that would allow commercial users to sublease slices  of spectrum covered by a license for variable lengths of time.
With regard to the use of market-based mechanisms for commercial users  in other countries, spectrum managers told us the following:    New Zealand was the first country to implement a market-based  mechanism to assign spectrum. Today, New Zealand assigns “management  rights” to some spectrum it auctions. A winner of such a license is allowed  to assign the spectrum in various configurations to itself or others. As  such, auction winners essentially have a profit motive that gives them an  incentive to assign spectrum to its most valued use. Although licenses are  tradable in New Zealand without regulatory approval, spectrum managers  reported that because there is not a scarcity of spectrum in that country,  there is very little market activity.
More recently, Italy has begun to use auctions to assign spectrum, but as  with many other European countries subject to certain restrictions on the  regulation of spectrum under European Commission law, Italy is moving  more slowly than Canada, Australia, and New Zealand to adopt certain  market mechanisms. At this time, Italy issues very restricted licenses and  has a very limited secondary market for spectrum.
Spectrum managers in Hong Kong reported that they assigned spectrum  for 3G services in 2001 using a royalty-based auction, which is unique  among the countries we reviewed. Unlike most auctions in other countries  in which participants bid the total fixed cash price they are willing to pay  for spectrum, bidders in Hong Kong bid on the percentage of future  revenues—that is, a royalty rate—that they would pay to the government  on an ongoing basis. Officials in Hong Kong told us that they chose the  royalty method so that the government could share some of the risk  inherent in paying for spectrum in future years. They explained that the  risk exists because 3G services are new and their full potential cannot be  estimated accurately. They also reported that they were concerned that  requiring companies to spend large amounts of capital in a cash auction  requiring an up-front payment for spectrum would result in too large a  financial burden for potential bidders, who also require capital to roll out  their networks. Spectrum managers told us that the royalty auction  resulted in four incumbent providers of traditional wireless services  offering the minimum bid allowable (5 percent of revenue) for the four  licenses to provide advanced wireless services. We further discuss Hong  Kong’s use of royalty auctions in appendix II.
section_title: Several Countries Have Not Adopted Market-Based Mechanisms at This Time, but Some May in the Future
paragraphs: Spectrum managers from five of the countries in our study—Japan,  France, Finland, Spain, and Sweden—reported that they have not used  mechanisms that we have defined as being market-based in managing their  spectrum. Some of these countries, however, reported that they are  considering changing laws and regulations in the future to encourage more  efficiency. France, which imposes a large fee to participate in comparative  hearings, reported that it has legislation pending to require most users— including government users but not broadcasters—to pay for spectrum.  Similarly, managers from Finland reported that they are currently  reviewing their policies to extend spectrum fees to more users. Finally,  Sweden reported that a committee has proposed changes to Swedish law  to allow greater use of market-based mechanisms.
section_title: Market Mechanisms May Not Be Effective in All Contexts and May Be Difficult to Implement
paragraphs: While a move to market-based mechanisms could help to meet future  spectrum needs by encouraging users to better utilize spectrum, these  mechanisms may not be effective in some contexts and may be difficult to  implement. In particular, the context in which certain government users  function may not be conducive to the influence of market-based  mechanisms. For commercial users, implementing market-based  mechanisms may heighten concerns about interference among users.  Moreover, market-based mechanisms can work well only when license  holders have clearly defined “rights” regarding their use of spectrum.
subsections: section_title: Greater Reliance on Market-Based Mechanisms for Government Users May Be Undesirable, Ineffective, or Difficult to Implement in Some Circumstances
paragraphs: Greater reliance on market-based mechanisms may not be desirable or  effective for some government users or uses. The purpose of market-based  mechanisms is to provide users with an incentive to use spectrum as  efficiently as possible. This may result in users’ considering alternative  methods of providing services by adopting technologies that either (1) use  less spectrum, (2) use less congested parts of the spectrum, or (3) do not  require spectrum at all. Because of the primacy of certain government  functions—such as homeland security and national defense—charging  government users for these functions may not be desirable. In addition, if  particular users are unable to adopt any alternative method in a  reasonable time frame, market-based mechanisms, such as incentive- based spectrum fees, are not likely to result in reduced spectrum use. In  other words, market-based mechanisms can create an incentive for  spectrum conservation only if users can actually choose to undertake an  alternative means of providing a service. Government users provided  several examples of circumstances in which market-based fees might not  provide incentives:    Spectrum used for certain functions, such as air traffic control, has been  allocated internationally—the same bands of spectrum are allocated for  this service around the world. The benefit of this in the context of air  traffic control is that airplanes on international flights can use the same  radio equipment and systems in every country, making air travel safer and  less costly than it would be if countries provided services on different  bands. If FAA wanted to use bands that are different from those allocated  in these international agreements, airplanes from the United States that  are making international flights would require multiple communications  systems and procedures, which would impose considerable additional  costs on carriers. In fact, the United Kingdom charges government users  incentive-based fees but exempts spectrum used for air traffic control  from these fees.  It may also be inappropriate to apply market-based mechanisms for  defense systems that involve international agreements. For example, the  United Kingdom does not charge the Ministry of Defence for spectrum  identified for North Atlantic Treaty Organization use. In addition, DOD has  publicly stated that the ability to operate certain systems depends on  international agreements with other countries that allow DOD to use  certain frequencies within other countries’ borders. DOD officials note  that it is important for DOD to employ the same systems, and thus the  same portions of spectrum, inside the United States as it does overseas.  DOD officials said that it would be very difficult to renegotiate these  arrangements in response to spectrum reallocations, or to the  implementation of incentive-based fees for spectrum in the United States.
Many government defense systems that use spectrum—such as large  weapons systems, or satellite systems—not only involve complex  international agreements, but are also large and complex from an  engineering perspective. These systems usually require years of  development, and spectrum may be only a small part of the total resources  used by a given system. Thus, once a system is designed and operational,  any benefits of conserving spectrum by redesigning these systems are  likely to be outweighed by the costs of making such modifications.  Consequently, imposing an incentive-based fee for spectrum employed in  projects with a long time horizon may not result in spectrum conservation.
In some cases, charging government users a market-based fee for  spectrum may have the potential to make spectrum use more efficient,  such as in situations where a government user is providing a service  similar to that of a commercial vendor. Nevertheless, implementing  market-based incentives may still be challenging, for several reasons:   It is difficult to place prices on goods and services that are not traded in  the marketplace. For commercial users, spectrum prices are reflective of  the value of the services provided with that spectrum, as measured, in  part, by what consumers will pay for the service. Some government  services are unique and provide safety-of-life or national defense services.  For example, FAA’s air traffic control services and DOD’s precision  weapons–guidance systems rely on spectrum, yet there are no equivalent  commercial services. Government spectrum users have said that services  without a direct commercial corollary cannot be easily valued. One  government representative noted that the value to the nation of spectrum  allocated to government services is difficult to measure through market  mechanisms.  If government users can obtain any needed funding for spectrum fees  through the budgetary process, market-based incentives are not likely to  be effective in conserving spectrum. Two of the three countries that  believed that their incentive-based pricing systems were providing some  financial incentives for government users to conserve on spectrum  reported that one factor contributing to this conservation was a  requirement for agencies to reduce their overall budgets while paying for  spectrum. Thus, agencies could not easily finance the increased cost of  spectrum through the budgetary process. In the United States, most of the  limits or caps on discretionary spending contained in the Budget  Enforcement Act of 1990 expired in fiscal year 2002. These limits or caps  would have constrained discretionary spending, including amounts  available for using the spectrum, if government users were charged for  that use.
In the commercial sector, the profit motive typically provides an incentive  for individuals and companies to use spectrum efficiently. Government  users do not have a similar financial incentive to conserve on spectrum,  because spectrum efficiency is not directly rewarded within government  agencies. Thus, imposing fees may create some pressure, but does not  mimic a profit motive. Linking spectrum-efficient decisions to  performance contracts and individual awards could create greater  individual efforts to make such decisions.
Another impediment to implementing market-based incentives for  government users may be the views of those users. Our survey of IRAC  agencies found that 7 of the 17 agencies responding to this survey did not  support greater flexibility of use for government spectrum users, 13 did  not support the practice of allowing agencies to buy or sell spectrum, 12  were opposed to allowing agencies to lease spectrum, and 13 were  opposed to paying fees for spectrum that exceeded regulatory costs.  However, 9 agencies were “greatly” or “moderately” supportive of allowing  commercial users to pay government license holders to relocate to  alternative spectrum, and 11 greatly/moderately supported creating a trust  fund to pay for spectrum reallocation.
section_title: Impediments Have Limited Implementation of Market- Based Mechanisms for Commercial Users
paragraphs: Despite the potential benefits of adopting market-based mechanisms for  spectrum management, some impediments have limited the  implementation of these methods for commercial users. Even though both  FCC and NTIA support the use of market-based mechanisms for  commercial users, FCC’s implementation of these tools has been limited.  Impediments to more widespread implementation of market-based  mechanisms—such as auctions, secondary markets, and flexibility of  use—include statutory restrictions, the degree to which the most highly- valued spectrum is already assigned, and the sometimes conflicting  interests of commercial entities.
Auctions: FCC has auctioned off only a limited amount of the spectrum it  oversees. Because most of the spectrum is already assigned, the amount of  spectrum that could be auctioned without reallocating spectrum is quite  limited. Also, FCC has attempted to auction additional spectrum by  relocating some users to other parts of the spectrum. Relocation can  impose significant costs on the incumbent spectrum holder and sometimes  on the new entrant who may be required to fund the relocation. In  addition, FCC officials told us that there are statutory limits to their ability  to use auctions.
Secondary markets: Further implementation of secondary markets in the  United States will require that the rights of licensees with regard to their  assigned spectrum be more clearly specified. In other resource markets— such as those for land—commercial entities usually have the right, without  regulatory approval, to buy or sell the resource, or to lease the resource  from another entity that owns it. Although the Communications Act of  1934 prohibits the ownership of spectrum, companies have generally been  able to buy and sell spectrum licenses with FCC’s approval. However,  according to an FCC official, it is unclear at this time whether, in general,  license holders can legally lease all or part of their spectrum rights to  other users for some limited period of time. The opposition of some  stakeholders, who are concerned that conferring any specific spectrum  rights will make it more difficult to release spectrum for new services and  technologies that might develop in the future, further complicates  providing rights to spectrum users. For over 2 years, FCC has been  considering these issues under a Notice of Proposed Rulemaking on  secondary markets and hopes to resolve some of these issues shortly.
Flexibility of use: Granting greater flexibility in the use of spectrum would  enable license holders to behave like other resource owners in having the  opportunity to make economic decisions that put their resource to its  most highly valued use. Although FCC is examining ways to improve  access to spectrum by providing additional flexibility, an FCC official told  us that only a small portion of the spectrum it assigns is held under  licenses that allow for considerable flexibility of use. FCC’s ability to  introduce additional flexibility has been limited because most of the  desirable spectrum has already been assigned, making it more difficult to  change the rules embodied in these licenses. Moreover, there are  considerable disagreements among commercial users over the appropriate  degree of flexibility. In particular, some interested parties are concerned  that allowing greater flexibility could result in more interference among  users. In its report, the FCC Spectrum Policy Task Force made a number  of recommendations for handling this potential interference, including the  promotion of receiver requirements and creation of a new standard for  quantifying acceptable levels of interference, the “interference  temperature.”
section_title: Diversity of Views among Stakeholders and Current Regulatory Structure Are Barriers to Meeting Future Spectrum Needs
paragraphs: While a number of discussions and activities are under way to help ensure  that future spectrum needs can be met, stakeholders appear to be having  difficulty finding consensus that balances the needs of various interest  groups. Regulatory actions aimed at providing solutions are often  protracted. Moreover, because of the bifurcated regulatory structure in the  United States, an examination of whether an overarching redesign of  spectrum management is required may best be undertaken by an entity  independent of the two regulatory agencies currently involved. In the past,  Presidents and the Congress have appointed bipartisan commissions to  address difficult policy issues such as this.
subsections: section_title: Stakeholders Have Major Disagreements on Spectrum Policy
paragraphs: Stakeholders have been actively searching for ways to improve spectrum  management and, thus, to alleviate concerns about meeting future  spectrum needs. However, certain conflicts among the stakeholders make  it difficult to find workable solutions that balance the needs of various  spectrum users. Many conflicts arise because of divergent economic  interests among users. For example:    Concerns about the cost of reallocation. Incumbent users are often  opposed to relocations of current users to new bands, because such  moves are likely to require the purchase of new equipment and may thus  impose significant costs and disruption on incumbents—although some of  this cost may be shared with the firms receiving licenses to use the cleared  spectrum. But firms with new services view reallocations as being  essential for bringing the benefits of wireless services, including Internet  services, to the American public.
Concerns about interference. Many conflicts with regard to spectrum  decisions arise over concerns about interference. A good example of this  concern arises with regard to unlicensed spectrum users. Many licensed  spectrum users, both commercial and government, have expressed  concern that allowing certain unlicensed uses—wherein devices operating  at low power and in fairly limited range use the same frequencies as  licensed providers—may create interference that compromises the quality  of services provided by licensed users. Conversely, those wanting to  introduce certain new technologies view access to unlicensed spectrum as  beneficial to the public interest and maintain that the degree of  interference created by certain unlicensed uses is not “harmful.”
Concerns about policies that influence markets’ competitiveness. Many  policy initiatives can have an effect on the competitiveness of wireless  markets. For example, allowing greater flexibility for spectrum holders to  use spectrum in a variety of ways could create opportunities for firms to  enter markets for certain services, increasing the competitiveness of those  markets. In fact, some experts have noted that, at times, incumbent firms  oppose certain spectrum policies, in part, because of concerns about the  effect on competition in the market.
Another area where conflicts among spectrum stakeholders have arisen  relates to difficulties in determining how to balance the needs—or a  process to ensure a balancing of needs—between public-sector and  private-sector spectrum users. Government users have said that because  they offer unique and critical services that are not comparable to those  provided in the commercial sector, a dollar value cannot be placed on the  government’s provision of spectrum-related services. FCC officials,  commercial users, and others have stated that the ability of commercial  users to acquire adequate spectrum is also critical to the welfare of  society, because the commercial wireless sector makes important  contributions to a healthy, robust economy. FCC and Department of  Commerce officials acknowledge the difficulty of balancing the critical  needs of government and commercial spectrum users. To illustrate this  point, they refer to the difficulties experienced in negotiating two recent  agreements: the reallocation of spectrum from government to commercial  users for 3G services and the rules under which ultrawideband devices  will share spectrum with federal users.
section_title: Regulatory Environment Results in Protracted Policy Development and Implementation
paragraphs: Under the divided management framework, no one entity has been given  ultimate decisionmaking authority over all spectrum use. There must be  coordination and cooperation in order to determine how best to  accommodate users of spectrum. While any decisions involving spectrum  can be difficult, those involving spectrum allocations can be particularly  protracted. Because most of the desirable spectrum has already been  allocated, allocating spectrum for a new technology or service usually  requires that some existing users be moved to another part of the  spectrum. Since existing users are likely to experience costs for relocating  but little, if any, benefit, they are often reluctant to make a move. Even  within the jurisdiction of a single spectrum-management agency,  reallocations of spectrum may require lengthy negotiations. Moreover,  decisions involving the reallocation of spectrum between federal and  nonfederal users, and thus between regulatory jurisdictions, can be even  more difficult. Some examples of protracted spectrum decisions both  within and across regulatory jurisdictions include:  The reallocation of spectrum in the 700 MHz band. In 1997, the Congress  directed FCC to reallocate to public safety services the 24 MHz of the  spectrum that will be recovered from the transition to digital television,  and to put up for auction the remaining recovered spectrum. In 1999, the  Congress directed that the proceeds from these auctions were to be  deposited with the Treasury by September 30, 2000. Auctions for spectrum  in the 700 MHz band have been rescheduled several times. Several mobile  telephone companies supported a postponement of these auctions. Those  in favor of postponing the auction believed that because it was unclear  when the spectrum would be vacated, it would be difficult for companies  to determine the value of the spectrum. On June 18, 2002, the Congress  passed legislation removing the former statutory auction deadlines but  requiring FCC to auction, before September 19, 2002, 18 MHz of spectrum,  some of which was desired by rural carriers. This auction was completed  in September 2002. The auction of the remaining spectrum in the 700 MHz  range has been postponed indefinitely.
The narrowbanding initiative for federal spectrum users. In 1992, the  Congress directed NTIA to adopt and implement a plan for federal  agencies with existing mobile radio systems to use more spectrum- efficient technologies. In 1993, NTIA responded to the Congress with a  report that included a plan for implementing narrowbanding—a  technology that would use about half as much bandwidth as agencies are  currently using. NTIA set interim deadlines for the narrowbanding  requirements, which are to be fully implemented by 2008. The plan  required that some agencies move to spectrum occupied by another  agency. As a result, the plan provided a time line according to which each  agency would adopt narrowbanding because, as NTIA officials pointed  out, the implementation of narrowbanding by any given agency depends,  in part, on whether the other agencies have adhered to the schedules laid  out by NTIA. We recently asked NTIA about the progress of agencies in  meeting their narrowbanding requirements. NTIA was not able to tell us  how many agencies have complied with the interim deadlines, because  some agencies had not yet responded to NTIA’s June 2002 request for  information on compliance with narrowbanding requirements. NTIA  officials noted that while they can legally remove frequency assignments  from spectrum users that are not complying with the plan, in reality it is  difficult for the agency to exercise its authority in overseeing the adoption  of narrowbanding.
Allocation of spectrum for 3G wireless services. Spectrum managers first  considered the need for spectrum to accommodate these new services in  1999, when FCC released its spectrum policy statement. In October 2000,  President Clinton directed that a plan be developed to select spectrum for  3G services, but this initial attempt was unsuccessful. In a letter in June  2001, FCC’s Chairman wrote to the Secretary of the Department of  Commerce, “It is apparent that additional time is necessary to allow the  Commission and the Executive Branch to complete a careful and complete  evaluation of the various possible options” for making spectrum available  for 3G. FCC’s Chairman stated that the public interest would best be  served by providing additional time for informed consideration, even if  this resulted in some delay in reaching allocation decisions. Finally, he  requested relief from the 2002 statutory deadline for spectrum to be  auctioned. A task force was established, which included officials at the  Department of Commerce, FCC, Department of Defense, and other federal  agencies. In July 2002 the task force released a study concluding that 90  MHz of spectrum could be allocated to 3G without disrupting  communications services critical to national security. The deadline set  for the band clearing to occur is now 2008, although certain provisions  need to be met before DOD would be expected to relinquish its portion of  those frequencies. On November 7, 2002, FCC officials released a Notice of  Proposed Rulemaking that suggests service rules for the reallocated  spectrum. FCC officials stated that they would likely adopt an order  establishing the service rules by mid-2003 and would likely hold an auction  in 2004. Despite these developments, FCC officials have stated that  additional spectrum would need to be allocated to fully support 3G  services.
section_title: FCC and NTIA Are Attempting to Work in a More Coordinated Fashion to Address Difficulties in Spectrum Management, but Jurisdictional Responsibilities Differ
paragraphs: Recognizing that the absence of a generally agreed upon national  spectrum strategy can make it difficult for FCC and NTIA to avoid  contentious, protracted negotiations when providing for future spectrum  needs, we recommended in our September 2002 report that the Secretary  of Commerce and FCC should establish and carry out formal, joint  planning activities to develop such a strategy to guide decisionmaking.  Both FCC and NTIA responded positively to this recommendation, and  they have recognized the need to address concerns about current  spectrum-management policies and procedures by establishing task forces  and working groups within their own agencies. For example, the FCC  Spectrum Policy Task Force addressed some of these issues and released  a report in November 2002, and NTIA held a Spectrum Summit in April  2002 to gather information from stakeholders on the current problems  with the spectrum-management process. In response to our previous  report, FCC stated that a cornerstone of both these efforts is to improve  coordination between FCC and NTIA, to conduct joint planning, and to  develop a national spectrum-management strategy. NTIA officials told us  that their request for funding for spectrum reform as part of the  President’s fiscal year 2003 budget is also a result of their view that the  United States needs to take a broad view of the organizational structure  and processes for spectrum management.
Despite the increased amount of communication between FCC and NTIA,  their different jurisdictional responsibilities appear likely to result in  piecemeal efforts that lack the coordination to facilitate major policy  changes. In particular, FCC and NTIA’s recent policy evaluations and  initiatives tend to focus on the issues applicable to the users under their  respective jurisdictions. Thus, while these current efforts may be  beneficial within the current regulatory environment, an analysis of  whether there is a need for comprehensive reforms—such as changes in  the structure of spectrum management—may best be undertaken by an  independent body.
section_title: Some Stakeholders Have Suggested That Changes to the Structure of Spectrum- Management Functions May Be Needed
paragraphs: As we discussed in our September 2002 report, the current structure of  spectrum-management functions within the U.S. government has been in  place for many years. In particular, the bifurcated system was put into  place with the Radio Act of 1927, and in 1934 the Federal Communications  Commission was created to, among other things, oversee nonfederal  licensing of spectrum. The federal oversight of spectrum has moved within  the executive branch several times and has been the responsibility of NTIA  since it was created in 1978. Although the organization of spectrum  management has been static for many years, the application of spectrum in  providing services has evolved dramatically. In particular, a plethora of  new services and applications has emerged in the past 25 years, including  various types of mobile telephone service, paging services, wireless video  and data services, wireless local area networks, and Internet access. On  the government side, the past 25 years have seen untold new wireless  applications for public safety, national defense, and other key missions.  Additionally, new technologies, such as ultrawideband and software- defined radio, would use radio spectrum in new ways.
Recognizing that the United States may not have an adequate regulatory  structure to address spectrum-management concerns, commercial and  government spectrum license holders, as well as other stakeholders, have  suggested various changes in the domestic spectrum-management  structure. The ideas range from temporary solutions to overarching  systemic changes, but they all aim at improving the efficiency of the way  spectrum is managed. Stakeholders’ proposals for improving the process  include:    Creation of spectrum allocation assessment commission: Several  stakeholders have suggested the creation of a politically independent  entity that would audit current spectrum allocations and make a  comprehensive reallocation proposal. Some have suggested using the Base  Realignment and Closure process as a model for creating an independent  commission to look at spectrum allocations and assignments.
Move NTIA out of the Department of Commerce: Some government  agencies that we interviewed suggested that NTIA would be better  positioned as a voice for all government spectrum users if it were moved  outside of the Department of Commerce. It has been suggested that  making NTIA either a commission or an executive office would provide it  with a level of independence it does not currently have within another  government agency. Eight out of 12 IRAC-member agencies that answered  this question on our survey were greatly or moderately supportive of  making NTIA an independent agency outside the Department of  Commerce.
Create a spectrum oversight committee: Along with several government  spectrum license holders and a commercial user, a majority of those on  our expert panel who responded to a poll felt that creation of a formal  entity to provide FCC/NTIA oversight may be appropriate. They said that  setting up an oversight committee would create an office where disputes  could be settled. It would also serve as a place to create a uniform  spectrum policy that both FCC and NTIA could follow.
Merging FCC and NTIA into one agency: Some expert panel members  suggested the merging of FCC and NTIA into one regulatory agency.  Merging the responsibilities would allow a single agency to create one  policy for the management of spectrum and create a single voice to  address problems when they arise between parties.
Undertake an independent review of spectrum-management practices:  Seven of our 10 panelists said they favored an independent review of  current spectrum-management practices, similar to that recently  completed in the United Kingdom.
section_title: Spectrum-Management Structures in Some Other Countries Differ from Those in the United States, but These Alternative Structures May Not Be Applicable in the United States
paragraphs: The structure for managing spectrum in the United States is unlike those  in most countries that we examined. According to information obtained  from interviews with spectrum managers in other countries, most of the  countries have a single government entity that manages spectrum for all  users. For example, Industry Canada makes all final decisions about  spectrum for all Canadian users, and its decisions are not subject to  judicial review. Similarly, in New Zealand, the Ministry of Economic  Development is responsible for both government and nongovernmental  users of spectrum. Also, some countries have committees or advisory  boards that analyze conflicting requests and help spectrum managers  make decisions. For example, the United Kingdom Spectrum Strategy  Committee prioritizes spectrum needs and makes final decisions when any  major conflicts arise. Also, the Radio Advisory Board of Canada attempts  to garner consensus on issues so that Industry Canada does not have to  analyze many different filings with opposing views.
While other countries have adopted alternative spectrum-management  systems, they may have limited applicability for the United States for a few  key reasons. First, the role of the military in the United States is unique in  the world. Second, the divided structure in the United States reflects the  President’s responsibility for national defense and the fulfillment of  federal agencies’ missions, along with the U.S. government’s long-standing  encouragement and recognition of private investment in developing  commercial radio and other communications services. While alternative  structures may not be fully pertinent to our domestic structure, it is  interesting to note how other countries have organized their spectrum- management functions. For more information on spectrum-management  structures in other countries, see appendix V.
section_title: In the United States, Commissions Have Been Used to Look at Major Policy Change When Complex Policy Disputes Arise
paragraphs: In the past, commissions have been established to look at certain difficult  policy issues. As table 3 shows, in the United States both the Congress and  the Executive Branch have created commissions to examine a variety of  issues.
To ensure that various views and opinions are incorporated, many of the  past commissions have been set up so that their members include a broad  variety of stakeholders. In a majority of the commissions highlighted in  table 3, the right to appoint commission members was divided between the  executive and legislative branches, and in several cases further divided in  the Congress between majority and minority party appointments in each  house. Furthermore, when creating commissions, the Congress has  chosen, at times, to stipulate certain requirements for panel members. For  example, the legislation setting up the Amtrak Reform Council stipulated  that presidential appointments should include representatives from both  labor and management. The commissions above were generally made up  of between 8 and 15 members.
In addition to the commissions discussed above, there is a historical  precedent for having a commission examine the spectrum-management  process; the First National Annual Radio Conference was established in  1922 by Secretary of Commerce Herbert Hoover. The group, made up of  manufacturers, broadcasters, amateur radio representatives, civilian and  military government radio communications personnel, and others, was  charged with studying radio interference caused by the rise of radio  broadcasting and the limitations of the Radio Act of 1912. The conference  made recommendations to alleviate the overcrowding of the radio waves.  Three subsequent conferences were held in each of the following years,  and legislation was introduced to implement various recommendations of  the conferences throughout this period. In 1927 a compromise was  reached that led to a bifurcated framework for the management of  radiofrequency spectrum by the federal government.
As spectrum management becomes more complex and difficult around the  world, several other countries we examined are also finding a need to  undertake a major reevaluation of their spectrum policies. Several  countries we reviewed are engaged in high-level examinations of their  spectrum-management systems. Canada is currently updating its 1993  Spectrum Policy Management Framework; spectrum managers there told  us that the review will take between 2 and 3 years. In the past few years  several other countries have completed comprehensive reviews of their  policies. Australia and the United Kingdom have each recently completed  a 1-year review and are in the process of addressing some of the  recommendations made in these studies. Officials in Finland, Italy, and  Japan also told us that they are currently involved in or have recently  completed some form of spectrum-management review.
section_title: Conclusions
paragraphs: The availability of spectrum for a myriad of applications is of central  importance to the U.S. economy and to the fulfillment of key government  functions. In the past, the spectrum-management structure in the United  States has served our interests well: spectrum for innumerable  applications has been allocated and assigned, government’s many  important missions are being fulfilled, and domestic wireless markets have  grown considerably. However, technology, consumer demand, and  government needs are growing rapidly. And as the world becomes more  globally connected, new spectrum needs are putting increased stress on  the spectrum-management structure. The need for attention to this  problem is becoming acute.
We found that many countries have been responding to pressing spectrum- management requirements in recent years by undertaking major reviews  of spectrum issues and by instituting new policies and approaches. In the  United States, numerous discussions and reviews are underway, and this  activity is playing a vital role in drawing attention to and stimulating  discussion of options for change to the current spectrum-management  system. While spectrum reform is increasingly being discussed, debated,  and reviewed, it does not appear likely that timely reforms can be agreed  upon amid the diversity of views held by stakeholders. Moreover, no single  agency has been given ultimate decisionmaking authority over all  spectrum in the United States or the authority to impose fundamental  reform. FCC’s recent Spectrum Policy Task Force recommendations  illustrate that even a major initiative such as this, when conducted by one  regulatory agency, will focus on policies and issues under the jurisdiction  of that agency. That is, despite the forward-looking nature of FCC’s  recommendations, these policies impact only procedures of FCC and the  stakeholders it oversees; none of the task force’s recommendations  addresses the overarching structure of spectrum management or the  possible need for comprehensive reform. As such, a major independent  examination of spectrum-management policies and structure is needed.
section_title: Recommendations for Executive Action
paragraphs: In order to develop solutions to key spectrum-management issues, this  report recommends that the Chairman of FCC and the Assistant Secretary  of Commerce for Communications and Information, in consultation with  officials from the Department of State, Office of Management and Budget,  Office of Science and Technology Policy, and pertinent congressional  committees, work together to develop and implement a plan for the  establishment of a commission that would conduct a comprehensive  examination of current U.S. spectrum management. This commission  would examine, among other things, whether structural reform of our  current system is needed. The commission should be independent and  should involve all relevant stakeholders—including commercial interests,  government agencies, regulators, and others—to ensure that the diversity  of views on key spectrum-management issues are represented. The review  should be time-limited and, if change is needed, have as its primary  objective the establishment of a framework to implement that change.  Although the commission could be established by statute, executive order,  or other means, a statutory basis for the commission may provide the most  appropriate framework for achieving a wide-ranging review of issues that  may ultimately need legislative solutions. In appendix IV, we have  presented possible issues and stakeholder concerns that a commission  could consider as part of its comprehensive examination.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the National Telecommunications and  Information Administration of the Department of Commerce, the  Department of State, and FCC for their review and comment. Both the  Department of Commerce and FCC stated that they are taking steps to  coordinate their spectrum-management processes and that each agency,  on its own, is making progress in developing spectrum policies that will be  more responsive to the rapidly changing environment. Regarding our  recommendation for an independent commission to evaluate the need for  overarching spectrum reform, both of these agencies stated that they  would take our recommendation into consideration. Additionally, the  Department of Commerce and FCC provided technical comments on our  report that were incorporated as appropriate. The comments of the  Department of Commerce appear in appendix VII and the comments of  FCC appear in appendix VIII. The Department of State did not provide  comments on this report.
section_title: Matter for Congressional Consideration
paragraphs: Because neither FCC nor the Department of Commerce specifically agreed  to implement our recommendation, the Congress may wish to consider  taking appropriate actions to address spectrum-management concerns.  For example, the Congress may consider holding hearings on this matter  or enacting legislation to establish an independent commission that would  conduct a comprehensive examination of current U.S. spectrum  management.
We are sending copies of this report to the appropriate congressional  committees. We are also sending this report to the Secretary of State, the  Chairman of the Federal Communications Commission, and the Secretary  of Commerce. We will also make copies available to others upon request.
In addition, the report will be available at no charge on the GAO Web site  at http://www.gao.gov. If you have any questions about this report, please  contact me at 202-512-2834 or guerrerop@gao.gov. Key contacts and major  contributors to this report are listed in appendix IX.
section_title: Appendix I: Scope and Methodology
paragraphs: To respond to the objectives of this report, we gathered information from  a variety of sources. In particular, we gathered information by (1)  reviewing economic, legal, and public policy material relevant to spectrum  issues; (2) interviewing regulatory agencies at state, local, and federal  levels; (3) interviewing experts familiar with spectrum issues; (4)  interviewing 17 companies that hold spectrum licenses in the United  States; (5) interviewing spectrum managers in 12 foreign countries as well  as other spectrum stakeholders in the United Kingdom and Canada; and  (6) convening an expert panel to discuss several spectrum-policy issues.
To better understand the regulatory process and the differences in how  spectrum is managed for commercial companies and government users,  we interviewed officials who oversee spectrum allocation at both the  Federal Communications Commission (FCC) and the National  Telecommunications and Information Administration (NTIA) and obtained  relevant documents from both agencies. To acquire a more in-depth  understanding of how spectrum is managed within government agencies,  we conducted interviews with officials at the Department of Justice (DOJ),  Federal Aviation Administration (FAA), Federal Emergency Management  Agency (FEMA), and Department of Defense (DOD). We also distributed a  survey to the Interdepartment Radio Advisory Committee (IRAC) member  agencies’ representatives, excluding NTIA and FCC. The survey asked  questions about federal agencies’ ability to meet mission needs, their  anticipated spectrum needs, and their views on several policy issues. Of  the 20 surveys we distributed at an IRAC meeting, 17 were returned to us.  At the state and local levels, we talked to a national trade association  representing public safety officials, as well as officials managing state and  local public safety systems.
To get a more thorough understanding of the spectrum auction process,  including how companies value spectrum and determine their bidding  strategy, we conducted interviews with two financial companies that  specialize in spectrum auction consulting and one that specializes in  bringing wireless technologies to market. We also interviewed two  academics who have written and published articles on the subject.
To better understand how companies value spectrum and whether the  cost of their spectrum is a significant factor in setting end-user prices and  determining the deployment of new products and services, we interviewed  representatives of 17 commercial companies that have spectrum licenses.  These companies provide services in both urban and rural markets. Of the  17 companies, 2 were radio or television broadcasters, 11 were wireless  communications companies, 2 provided services via satellite, 1 provided  local telephone service using wireless rather than wire connections, and 1  was a paging company. The selection of companies was based on those  discussed in an FCC report concerning wireless issues.
To obtain information about spectrum management in other countries, we  interviewed officials in Australia, Canada, Finland, France, Hong Kong,  Italy, Japan, Mexico, New Zealand, Spain, Sweden, and the United  Kingdom. The criteria we used to select the countries included geographic  size, gross national product per capita, population density, level of mobile  telephone penetration, primary methods for assigning spectrum, and  whether the country uses market incentives to encourage government  conservation of spectrum. In choosing the countries, we also consulted  with NTIA and Department of State officials. For all countries, we were  interested in learning about the regulatory structure governing spectrum  management. We asked about the basic aspects of their management of  the spectrum, including how the resource is allocated and assigned to  government and commercial users, the mechanisms and regulatory  structure they have in place for reaching agreement on spectrum- management issues, how they see the level of competition in their wireless  industry, and whether they have employed market-based mechanisms in  managing the spectrum. For Canada and the United Kingdom, we  conducted more in-depth case studies of spectrum management by  interviewing not only spectrum managers but also government users and  commercial service providers. In these two countries—as well as in the  United States—we interviewed officials who manage spectrum for air  traffic control, national law enforcement, and local emergency service. We  also interviewed commercial wireless providers. For many of the countries  studied, the information in this report is based on statements provided by  spectrum managers during interviews and could not always be verified  through documents or other means.
To determine the validity of our preliminary research findings, we  assembled an expert panel. To identify potential panelists with recognized  expertise in spectrum-management issues, we solicited recommendations  from officials at FCC and reviewed research on spectrum-management  issues. From a pool of over 35 potential panelists, we selected 10 panelists  who represented a cross-section of spectrum experts, including federal  regulators, government and commercial users, band managers, financial  analysts, economists, and engineers. The name and organizational  affiliation of each panel member is listed in appendix VI. During a day-long  meeting at GAO headquarters, the panelists discussed six topics that we  provided in advance: (1) spectrum assignment and payment methods, (2)  flexibility of use and secondary markets, (3) the scarcity of spectrum, (4)  incentives for improving the technical efficiency of spectrum use, (5) the  competitiveness of wireless and wireless equipment markets, and (6) ways  to balance the needs of commercial and government users. After  discussing each topic, we asked the panelists to answer specific questions  on an anonymous ballot. The meeting was recorded and transcribed to  ensure that we had accurately captured the panel members’ statements.
In addition to the information collected through the work efforts  described above, we also reviewed technical, legal and regulatory, and  economic research on relevant spectrum-management issues.
section_title: Appendix II: Stakeholders’ Views on Auctions and Spectrum Royalties
paragraphs: This appendix provides information on (1) the positive attributes of  auctions identified by stakeholders; (2) concerns about the effect of  auctions on consumer prices for wireless services, the rapidity of  deployment of new technology, and the ability of small business to  participate in the provision of wireless services; and (3) stakeholders’  views on the merits of spectrum royalties.
subsections: section_title: Stakeholders Identified Several Positive Attributes of Auctions
paragraphs: Wireless companies that we spoke with and members of our expert panel  generally perceive auctions to be an improvement over comparative  hearings and lotteries for the assignment of spectrum. Auctions are  generally perceived to be faster and more transparent than comparative  hearings. Also, auctions were seen as promoting economic efficiency by  assigning spectrum to the party that values it the most. Finally, in contrast  with comparative hearings and lotteries, auctions capture part of the value  of the spectrum for the government in the form of winning bids. The  companies that we spoke with generally characterized auctions as being  superior to comparative hearings. Some companies described auctions as  quick, efficient, certain, and the best available mechanism. Alternatively,  some companies described comparative hearings as slow, arbitrary, and  uncertain. Participants in our expert panel also were generally positive  about auctions. For example, one participant noted that no one has figured  out a better mechanism for the initial assignment of licenses.
section_title: Despite Success in Wireless Markets, Concerns Have Been Raised about Certain Possible Effects of Auctions
paragraphs: Despite the growth and competitiveness of wireless markets, some  concerns have been expressed about whether the use of auctions as the  primary spectrum-assignment method has had a detrimental effect on  certain economic factors. In particular, some observers are concerned that  the use of auctions will raise consumer prices for wireless services, will  slow the deployment of wireless networks, and will make it difficult for  smaller businesses to compete for wireless licenses.
The effect of auctions on consumer prices. Some concerns have been  raised that the price companies are paying for spectrum under auctions  could drive up end-user customer prices. Some economists suggest that  one-time license payments—such as those associated with auctions or  with participation in comparative hearings—should not influence  customer prices, because these fixed costs do not vary with a firm’s  output. As such, they do not influence a firm’s decisions about how to set  its prices; such decisions are based on the firms’ marginal, or incremental,  costs. However, other economists have pointed to reasons why auction  payments could influence consumer prices in certain cases. For example,  some or all companies might, because of an increased need to borrow  funds to participate in an auction, see their cost of financial capital rise.  Moreover, these economists argue that while firms may temporarily set  prices based on marginal costs, firms cannot survive in the long run  without considering fixed costs, and hence auction payments will be  reflected in consumer prices.
Views among those we spoke with on this issue were mixed. Officials at  six of the companies we spoke with said that the assignment mechanism  does not influence prices. Similarly, three of the panel members reported  that the price paid for spectrum had “little/no” influence on customer  prices. Additionally, two FCC studies that examined consumer prices for  wireless services found that the introduction of auctions for spectrum  assignment did not raise consumer prices. On the other side, officials at  eight companies we interviewed suggested that the assignment mechanism  does influence prices; three of these companies reported that they must  set prices high enough to cover their debt and maintain margins.  Additionally, four of our expert panelists said that spectrum price had  “some” influence, and three said it had a “great” influence on customer  prices.
While there is clear disagreement among those we spoke with about the  effect of auctions on consumer prices, the competitiveness of the market  is generally seen as a very important factor in determining consumer  prices. The companies that we spoke with overwhelmingly cited  competition as an important factor when setting consumer prices.  Competitive factors were more commonly cited as an important influence  on price than was the influence of auction payments. Similarly,  participants in our expert panel also indicated that competition was an  important consideration for companies when determining what prices  they would charge consumers.
The effect of auctions on the rate of infrastructure deployment. Some  observers argue that payment at auction for spectrum licenses would  encourage companies to deploy technologies and services faster, because  the companies would have devoted their own resources for the licenses  and would need to recoup the investment by using the spectrum in a  productive and innovative manner. Others, however, argue that the  auction payments for spectrum licenses could slow the deployment of new  technologies and services by diverting financial resources away from  direct investments in infrastructure.
Officials at nine of the companies we spoke with said that the assignment  mechanism can influence the rate of deployment of new technologies and  services, because, for example, high auction prices can affect the firm’s  access to financial capital. Alternatively, five companies said that the  assignment mechanism does not influence the deployment of new  technologies or services. Panel members’ views on whether the rate of  deployment of wireless infrastructure is affected by purchase of licenses  in an auction were also mixed. Six panelists generally reported that  payments for spectrum had “little/no” or only “some” influence on the  deployment of new wireless technology, while four panelists reported that  these payments could have a greater influence on the rate of deployment.  Finally, the United Kingdom’s National Audit Office found that while  companies paid unprecedented amounts for 3G spectrum in that country,  there was no strong evidence that the level of proceeds from the auction  would have a negative impact on the wider economic benefit of 3G.
The companies that we spoke with told us that a number of other issues  have an influence on the rate of deployment of wireless infrastructures, in  addition to the purchase of spectrum licenses through auctions. These  issues include (1) difficulty with citing cell towers because of problems  associated with local zoning; (2) FCC mandates for items such as  emergency 911 service, which require large financial investments that  divert resources away from the deployment of the firm’s network; and (3)  FCC procedures, such as licensing spectrum that is encumbered (that is,  currently used by another licensee), that increase business uncertainty.  Finally, the United Kingdom’s National Audit Office noted that the  remaining difficulties to be overcome for the roll-out of 3G services in that  country are mainly technical: for example, the development of suitable  base station and hand-set equipment.
The effect of auctions on the ability of small businesses to obtain  spectrum licenses. Another concern about the adoption of auctions for the  assignment of spectrum licenses is that smaller companies will not be able  to compete for licenses with larger businesses. FCC addressed this  concern in a few ways. FCC allowed partitioning of some licenses into  relatively small pieces to facilitate small business participation in wireless  markets. Additionally, for some auctions, FCC provided special bidding  credits, allowed long-term installment payments, or designated certain  licenses as available only for acquisition by smaller companies, in order to  facilitate their participation and increase their opportunity to acquire  spectrum licenses.
Among the companies and experts that we spoke with, several suggested  alternatives to the current spectrum-assignment mechanism to facilitate  small business participation. These alternatives included small geographic  areas, which can be better suited to the business models of small  companies, and revenue sharing. Alternatively, while FCC has taken steps  to promote small businesses in certain auctions, some observers do not  believe this necessarily leads to viable small business participation in  wireless markets. Those who take this view argue that certain wireless  services have large economies of scale in their provision because of the  large costs associated with constructing wireless networks.
section_title: Few Stakeholders Favor Royalty System of Spectrum Auctions
paragraphs: In response to concerns about auctions, some stakeholders have  suggested royalties as an alternative mechanism for assigning spectrum  licenses. With a royalty mechanism, a company would pay the government  a percentage of revenue on an ongoing basis, rather than pay the  government a one-time fee to obtain a spectrum license. For example,  Hong Kong spectrum managers reported that they used a royalty auction  for 3G spectrum in which companies bid on a percentage of their revenue  to be paid to the government. Spectrum managers in Hong Kong told us  that a royalty structure enables the financial risk associated with  purchasing spectrum at an auction to be shared between the government  and commercial sector.
We found little support for royalties among the companies that we spoke  with, the spectrum managers in other countries, or participants on our  expert panel. Officials at only four of the domestic companies that we  spoke with thought the royalty method merited consideration. These  companies told us that royalties—in lieu of upfront auction payments— could help small businesses enter the wireless market by reducing the  financial resources associated with acquiring spectrum licenses in an  auction. However, eight companies that we spoke with did not favor  royalties. Some of these companies noted that royalties would effectively  function as a tax that would raise consumer prices and possibly increase  business uncertainty. Participants on our expert panel were uniformly  opposed to a royalty mechanism. Finally, officials with most foreign  governments that we spoke with told us that their governments had  considered and decided against royalties or had not considered royalties  at all.
section_title: Appendix III: Technological Advancements Could Help to Relieve Spectrum Scarcity
paragraphs: Because spectrum is a finite resource and demand for it is rising, it is  increasingly scarce. The radiofrequency bands most usable for new  wireless services in land mobile radio, wireless telephony, and  ultrawideband applications are the most congested portions of the radio  spectrum. But advances in technology hold promise for enabling greater  efficiency in the use of this prime spectrum.
The move from analog to digital technologies has already greatly  conserved the use of prime spectrum and holds further promise for the  future. Digital technologies increase the amount of information that can be  transmitted within a given amount of bandwidth. For example, by using  certain digital techniques, wireless telephony networks can now handle  more calls in a given bandwidth than was possible with analog cellular.  These benefits are also spreading to other applications. Similarly, the  transition from analog to digital television will eventually release some  portion of the broadcast spectrum to be available for other uses. Federal  users are also required to adopt narrowbanding techniques by 2008—a  move that will economize on the use of spectrum.
Ultrawideband technologies also offer opportunities to conserve on  spectrum use, by allowing a given band to be allocated to multiple uses.  After a number of years of research and development in the use of  wideband transmission for surveillance, obstacle detection, and ground- penetrating radars, and after consultation with NTIA, FCC agreed to allow  experimental wideband systems on an unlicensed basis. Because these  technologies use low power over wide swaths of spectrum, they are able  to share bands currently in use by many federal and nonfederal systems  that are using higher power levels and compatible transmission  techniques.
In the more distant future, users and experts are looking to the  development of software-defined radios to more effectively use spectrum.  As many experts have noted, much of the radio spectrum is not actually  being used at a given time. Software-defined radio technology, in which a  radio receiver searches for unused frequencies at a given time and tunes to  an available channel, offers the opportunity to use temporarily unused  spectrum by allowing spectrum to be allocated to various uses and  assigned to various users dynamically—minute by minute. Software- defined radio technology promises to offer a way for numerous radio  systems that are operating in varied frequency bands and different modes  (push-to-talk, broadcast, secure, and so forth) to operate on a common  platform. Not only will software-defined radio allow spectrum to be  assigned on a minute-by-minute basis, but it may also help solve some of  the problems related to the interoperability of various systems, a well- recognized problem in public safety and search-and-rescue applications.
section_title: Appendix IV: Suggestions for Issues for Consideration by a Commission
paragraphs: This appendix discusses issues that would need to be considered in setting  up a commission if one is established. This is not intended to be an  exhaustive list of possible topics for consideration, nor should it be  interpreted as recommending any specific course of action for spectrum  management.
subsections: section_title: Commission Structure Considerations
paragraphs: When designing a commission to examine the U.S. spectrum-management  process, the following should be considered:    Appointment authority: Commissions often have both Congress and the  President designate members to serve. Several have gone further to  achieve political balance, allowing both majority and minority  congressional leadership to make appointments.
Federal Advisory Committee Act: Consideration should be given to  whether the commission will be established as a federal advisory  committee.
Eligibility: In order to ensure that all of the diverse stakeholders’ opinions  are heard, there should be broad representation on the commission. For  example, the commission should include representation from the  government, commercial, and technical sectors.
Staff, timeframe, and budget: The size and qualifications of the staff, the  budget for the commission, as well as the time frame of the commission’s  work will need to be considered.
Commission status: A decision on whether the commission should expire  upon the issuance of its report or have a predetermined recurring status  should be considered.
section_title: Potential Goals and Objectives of Commission
paragraphs: Promote technically efficient use of spectrum;    Promote economically efficient use of spectrum;    Ensure that government missions requiring spectrum are accomplished;    Promote growth of the private sector;    Minimize interference among users;    Maximize the rapidity with which spectrum management can respond to    Recommend future policy and management structures.
section_title: Possible Policies to Consider
paragraphs: Whether the current policies should be continued;    Whether mechanisms that create economic incentives to encourage users  to use spectrum more efficiently could be developed:  If it is appropriate to apply these mechanisms to all users or only to  subsets of users, including government users;    Possible mechanisms to consider include:  Requiring users to pay for spectrum licenses in the marketplace;  Allowing users to sell spectrum in the market place;  Allowing users to lease spectrum from other users;  Charging an incentive-based fee that is designed to mimic a market      where one does not exist;  Increasing the flexibility of use embedded in a license;  Providing more spectrum for experimental and unlicensed uses;  Increasing the use of band managers.
Increasing the information available to policy makers and regulators  regarding spectrum use by:    Auditing its use on a regular basis;    Measuring its value through some form of accounting.
Making spectrum conservation a high level policy goal throughout the    Funding research on technologies that are spectrally efficient;    Establishing rules for determining spectrum-use priorities;    Setting up a formal spectrum-planning process;    Determining whether there should be a major one-time reallocation of    Developing rules for reallocating spectrum both within and across  regulatory jurisdictions.
section_title: Potential Regulatory Structure Options to Explore
paragraphs: Determining whether the current regulatory structure should be    Creating a mechanism for better coordination of NTIA, FCC, and IRAC  functions by any of the following means:    Requiring agencies to develop a single spectrum plan that would be    Making coordination among spectrum-management agencies a critical  objective in the strategic plan of each agency;    Establishing other policies and procedures that require ongoing    Creating a single agency to manage spectrum; and    Letting the federal agencies manage their own spectrum.
section_title: Lessons Learned
paragraphs: When examining landmark commissions that led to government reforms in  the past, we have cited three main lessons learned that those looking to  examine the spectrum-management structure should keep in mind:    Successful commissions have established useful goals for what is to be  achieved and have had a narrow focus;    Reorganization efforts need to recognize the unique federal government  purpose/structure (that is, that policies have political, legal, and  organizational facets to them); and    Efforts have to be made for the congressional and executive branches to  reach agreement about the need for and type of reform. Furthermore, it is  best when the Congress and executive agencies work in cooperation to  implement these reforms.
section_title: Appendix V: More Details on Spectrum Management in Foreign Countries Studied
paragraphs: Each of the 12 foreign countries we studied was asked a variety of  questions relating to its management of the spectrum. We asked each  country general questions about its spectrum-management structure and  methods for resolving conflicts, about how it assigns spectrum to  government and commercial users, and for specific details of other  aspects of its spectrum-management system. Some of the information  gathered from these countries has been reported in the body of this report  and thus is not included in this appendix.
subsections: section_title: Spectrum Management and Conflict Resolution
paragraphs: Table 4 lists the government entities primarily responsible for the  management of the spectrum in each country.
We asked spectrum managers how they resolve conflicts that arise  regarding spectrum allocations and assignments. Many countries told us  that they have one agency that makes all final spectrum decisions. Other  countries reported that they have advisory boards or committees that help  resolve disputes. Table 5 summarizes responses to this question.
We asked spectrum managers whether spectrum users in their country  have been forced to move to different bands and if the government  provided funding for relocating users. Countries reported many examples  of moving certain users to make room for new services or uses of the  spectrum. These cases often involved moving government users out of  spectrum to make room for new technologies. Table 6 includes  information on government funding for moves, as well as other  information about funding arrangements.
We asked spectrum managers whether they were in the process of  completing or had recently completed a review of spectrum management  in their country. Some countries were undergoing or had recently  conducted comprehensive reviews and others were involved in more  focused studies. Table 7 summarizes the responses to our question on  spectrum-management reviews.
section_title: Appendix VI: Participants in GAO’s Expert Panel on Spectrum Issues
subsections: section_title: Rudy Baca
paragraphs: Vice President & Global Strategist,  Precursor Group (a company providing investment research)
section_title: Diane Cornell
section_title: Mark Crosby
paragraphs: President,  Access Spectrum (a company providing band-management services)
section_title: Michele Farquhar
paragraphs: Attorney, Hogan & Hartson (a law firm with expertise in government  regulation and policy)
section_title: Dale Hatfield
section_title: Glen Nash
section_title: Robert Pepper
section_title: Steven Price
section_title: David Salant
section_title: Fred Wentland
section_title: Appendix VII: Comments from the Department of Commerce
section_title: Appendix VIII: Comments from the Federal Communications Commission
section_title: Appendix IX: Key Contacts and Major Appendix IX: Key Contacts and Major Contributors Contributors
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, Steve Brown, Michael Clements,  Randall Fasnacht, Lynn M. Musser, Rebecca L. Medina, Hai Tran, Mindi  Weisenbloom, and Nancy Zearfoss made key contributions to this report.