Spectrum Management: Federal Relocation Costs and Auction Revenues
Released: 2013-05-22T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Allocating radio-frequency spectrum is a challenging task because of competing commercial and government demands. In 2006, FCC auctioned spectrum licenses in the 1710-1755 MHz band that had previously been allocated for federal use. To meet the continued demand for commercial wireless services, NTIA assessed the viability of reallocating the 1755-1850 MHz band to commercial use; this band is currently assigned to more than 20 federal users, including DOD. In March 2012, NTIA reported that it would cost $18 billion over 10 years to relocate most federal operations from the band, raising questions about whether relocating federal users is a sustainable approach.

GAO was directed to review the costs to relocate federal spectrum users and revenues from spectrum auctions. This report addresses (1) estimated and actual relocation costs, and revenue from the previously auctioned 1710-1755 MHz band; (2) the extent to which DOD followed best practices to prepare its preliminary cost estimate for vacating the 1755-1850 MHz band; and (3) existing government or industry forecasts for revenue from an auction of the 1755-1850 MHz band. GAO reviewed relevant reports; interviewed DOD, FCC, NTIA, and OMB officials and industry stakeholders; and analyzed the extent to which DOD's preliminary cost estimate met best practices as identified in GAO's Cost Estimating and Assessment Guide (Cost Guide). FCC agreed with the report's findings and DOD, FCC, and NTIA provided technical comments that were incorporated as appropriate.

section_title: What GAO Found
paragraphs: Some federal agencies underestimated the costs to relocate communication systems from the 1710-1755 megahertz (MHz) band, although auction revenues appear to exceed relocation costs by over $5 billion. As of March 2013, actual relocation costs have exceeded estimated costs by about $474 million, or 47 percent. The National Telecommunications and Information Administration (NTIA) expects agencies to complete the relocation effort between 2013 and 2017, with a final relocation cost of about $1.5 billion. Actual relocation costs have exceeded estimated costs for various reasons, including unforeseen challenges and some agencies not following NTIA's guidance for developing cost estimates. However, the Department of Defense (DOD) expects to complete its relocation for about $71 million less than its estimate of about $355 million. NTIA and the Office of Management and Budget (OMB) are taking steps to ensure that agencies improve their cost estimates by, for example, preparing a cost estimation template and guidelines for reporting reimbursable costs. The auction of spectrum licenses in the 1710-1755 MHz band raised almost $6.9 billion.

DOD's preliminary cost estimate for relocating systems out of the 1755-1850 MHz band substantially or partially met GAO's best practices for cost estimates, but changes in key assumptions may affect future costs. Adherence with GAO's Cost Guide reduces the risk of cost overruns and missed deadlines. GAO found that DOD's preliminary estimate of $12.6 billion substantially met the comprehensive and well-documented best practices. For instance, it included complete information about systems' life cycles, and the baseline data were consistent with the estimate. However, GAO found that some information on the tasks required to relocate some systems was incomplete. GAO also determined that DOD's estimate partially met the accurate and credible best practices. For example, DOD applied appropriate inflation rates and made no apparent calculation errors. However, DOD did not complete some sensitivity analyses and risk assessments at the program level, and not at all at the summary level. DOD officials said that changes to key assumptions could substantially change relocation costs. Most importantly, decisions about which spectrum band DOD would relocate to are still unresolved, and relocation costs vary depending on the proximity to the 1755-1850 MHz band. Nevertheless, DOD's preliminary cost estimate was consistent with its purpose--informing the decision-making process to make additional spectrum available for commercial wireless services.

No government revenue forecast has been prepared for a potential auction of the 1755-1850 MHz band, and a variety of factors could influence auction revenues. One private sector study in 2011 forecasted $19.4 billion in auction revenue for the band, assuming that federal users would be cleared and the nationwide spectrum price from a previous auction, adjusted for inflation, would apply to this spectrum. Like for all goods, the price of spectrum, and ultimately the auction revenue, is determined by supply and demand. The Federal Communications Commission (FCC) and NTIA jointly influence the amount of spectrum allocated to federal and nonfederal users (the supply). The potential profitability of a spectrum license influences its demand. Several factors would influence profitability and demand, including whether the spectrum is cleared of federal users or must be shared.

section_title: Letter
paragraphs: As the demand for and use of smart phones, tablets, and other wireless  devices continues to grow and new mission needs unfold among federal  government agencies, nearly all parties are becoming increasingly  concerned about the availability of radio frequency spectrum to meet  future commercial and federal needs. Federal users require spectrum for  national defense, homeland security, and other vital mission activities.  While the national interest may be served by a robust commercial  wireless broadband system, the federal government also needs spectrum  to support critical missions, including military operations, testing, and  training at home and around the world. Thus, balancing competing  industry and government demands for a limited amount of spectrum,  today and in the future, is a challenging and complex task.

To address these challenges, current and past administrations and  Congresses, the Federal Communications Commission (FCC), and other  stakeholders have proposed various policy, economic, and technological  solutions to address the availability and efficient use of spectrum. For  example, in 2010, the Obama administration issued a presidential  memorandum directing the National Telecommunications and Information  Administration (NTIA) within the Department of Commerce to collaborate  with FCC to develop a plan and a timetable to make 500 megahertz  (MHz) of federally and nonfederally allocated spectrum available for  wireless broadband use in the next 10 years. The majority of this freed- up spectrum would likely be auctioned and licensed for mobile broadband  and other high-value commercial uses. As part of this effort, NTIA led an  8-month interagency evaluation process to determine whether it would be  possible to repurpose 95 MHz in the 1755-1850 MHz band for  commercial wireless services. The 1755-1850 MHz band is ideally suited  for both commercial and federal users because its radio wave  characteristics enable highly mobile, yet reliable communication links.  Within the United States, this band is currently allocated exclusively to the  federal government, particularly for defense purposes, such as military  tactical communications, air combat training, and space systems.

In March 2012, NTIA reported that the preliminary cost estimate to  relocate most federal operations from the 1755-1850 MHz band would be  about $18 billion over 10 years. Approximately $12.6 billion of this  estimate was attributed to relocating military systems. The report was  largely based on inputs from the federal agencies using the band,  including the Department of Defense (DOD). NTIA’s analysis showed that  while there are significant challenges to overcome, it might be possible to  free up all 95 MHz of spectrum in the 1755-1850 MHz band. The report  describes the required conditions to ensure no loss of critical capabilities  for the more than 20 federal agencies operating a variety of systems in  that band at any given time across the nation. Relocating to other parts  of the radio frequency spectrum means that many of these existing  systems would need to be redesigned. The high cost and lengthy time to  implement this relocation has raised questions about whether an auction  of spectrum licenses in the 1755-1850 MHz band would cover those  expenses, as required by federal law,such as sharing spectrum between commercial and federal users, would  better achieve spectrum policy goals.   and whether other approaches,  Because of the importance of this issue to private and public interests in  the United States, the Senate Armed Services Committee directed us to  review the historical differences between estimated federal relocation  costs and actual auction revenue, and assess whether the cost of  vacating or sharing subsets of the 1755-1850 MHz band is sufficiently  captured in preliminary cost estimates. To address these issues, we examined (1) the differences, if any, between estimated and actual  federal relocation costs and revenue from the auction of the 1710-1755  MHz band, (2) the extent to which DOD followed best practices to prepare  its preliminary cost estimate for vacating the 1755-1850 MHz band and  the limitations, if any, of its analysis, and (3) what government or industry  revenue forecasts exist for an auction of the 1755-1850 MHz band, and  what factors, if any, could influence the actual auction revenue. We  provided a preliminary briefing to your offices on February 25, 2013; this  report formally transmits our findings.

To examine the differences between federal relocation costs and revenue  from the auction of the 1710-1755 MHz band, we reviewed recent NTIA  spectrum relocation reports, including NTIA’s annual progress reports for  the 1710-1755 MHz transition; FCC spectrum auction data as of  December 2012; and the Office of Management and Budget’s (OMB)  2007 report to Congress on Agency Plans for Spectrum Relocation  Funds. To assess the reliability of the relocation cost and auction revenue  data, we reviewed documentation related to the data, compared the data  to other sources, including government reports, and discussed the data  with FCC and NTIA officials. We did not evaluate the accuracy of  individual agencies’ relocation cost data, as this was outside the scope of  our review. Based on this review, we determined that the FCC and NTIA  data were sufficiently reliable for the purposes of our report. To determine  the number of auctions involving the relocation of federal agencies to new  spectrum frequencies, we reviewed FCC auction data and NTIA reports,  and interviewed officials from FCC, NTIA, OMB, and the Congressional  Budget Office (CBO); the Advanced Wireless Services-1 (AWS-1) auction  involving the 1710-1755 MHz band was the only spectrum auction  involving federal agencies with significant, known relocation costs.

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and  Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009). auctions involving the relocation of federal agencies, (2) spectrum  valuation and revenues from the sale of spectrum licenses, and (3)  relocation costs. We also interviewed officials from CBO and OMB, and  stakeholders with knowledge of spectrum licensing issues, including  industry and policy experts. For more details on our scope and  methodology, see appendix I.

We conducted this performance audit from September 2012 to May 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The radio frequency spectrum is the resource that makes possible  wireless communication and supports a vast array of commercial and  government services. Federal, state, and local agencies use spectrum to  fulfill a variety of government missions, such as national defense, air- traffic control, weather forecasting, and public safety. DOD uses spectrum  to transmit and receive critical voice and data communications involving  military tactical radio, air combat training, precision-guided munitions,  unmanned aerial systems, and aeronautical telemetry and satellite  control, among others. The military employs these systems for training,  testing, and combat operations throughout the world. Commercial entities  use spectrum to provide a variety of wireless services, including mobile  voice and data, paging, broadcast television and radio, and satellite  services.

In the United States, responsibility for spectrum management is divided  between two agencies: FCC and NTIA. FCC manages spectrum for  nonfederal users, including commercial, private, and state and local  government users, under the Communications Act. NTIA manages  spectrum for federal government users and acts for the President with  respect to spectrum management issues as governed by the National  Telecommunications and Information Administration Organization Act.

FCC and NTIA manage the spectrum through a system of frequency  allocation and assignment.

Allocation involves segmenting the radio spectrum into bands of  frequencies that are designated for use by particular types of radio  services or classes of users. (Fig. 1 illustrates examples of allocated  spectrum uses, including DOD systems using the 1755-1850 MHz  band.) In addition, spectrum managers specify service rules, which  include the technical and operating characteristics of equipment.

Assignment, which occurs after spectrum has been allocated for  particular types of services or classes of users, involves providing  users, such as commercial entities or government agencies, with a  license or authorization to use a specific portion of spectrum. FCC  assigns licenses within frequency bands to commercial enterprises,  state and local governments, and other entities. Since 1994, FCC has  used competitive bidding, or auctions, to assign certain licenses to  commercial entities for their use of spectrum. Auctions are a market- based mechanism in which FCC assigns a license to the entity that  submits the highest bids for specific bands of spectrum. NTIA  authorizes spectrum use through frequency assignments to federal  agencies. More than 60 federal agencies and departments combined  have over 240,000 frequency assignments across all spectrum bands,  although 9 departments, including DOD, hold 94 percent of all  frequency assignments for federal use.

Pub. L. No. 103-66, § 6001,107 Stat. 312 (1993) (OBRA-93) amended by Pub. L. No.  105-33, § 3002, 111 Stat. 251(1997) (BBA-97), codified as amended at 47 U.S.C. § 923. enforcement purposes, may not be compatible with commercial  technology, and therefore agencies have to work with vendors to develop  equipment that meets mission needs and operational requirements.

In 2004, the Commercial Spectrum Enhancement Act (CSEA) established  a Spectrum Relocation Fund, funded from auction proceeds, to cover  the costs incurred by federal entities that relocate to new frequency  assignments or transition to alternative technologies. OMB administers  the Spectrum Relocation Fund in consultation with NTIA. CSEA  streamlined the process by which federal agencies are reimbursed for  relocation costs and requires FCC to notify NTIA at least 18 months in  advance of beginning an auction of new licenses of spectrum identified  for reallocation from federal to nonfederal use. It also requires NTIA to  provide estimated cost and transition timing data to FCC, Congress, and  GAO at least 6 months prior to the auction, and requires that auctions  recover at least 110 percent of these estimated costs. CSEA was  amended by the Middle Class Tax Relief and Job Creation Act of 2012,  further easing relocation by (1) allowing agencies to use some of the  funding for advance planning and system upgrades, (2) extending the  reimbursement scheme to sharing as well as relocation expenses, and (3)  requiring agencies to submit transition plans for relocation (or sharing) for  interagency management review of the costs and timelines associated  with the relocation.

The auction of spectrum licenses in the 1710-1755 MHz band was the  first with relocation costs to take place under CSEA. CSEA designated  1710-1755 MHz as “eligible frequencies” for which federal relocation  costs could be paid from the Spectrum Relocation Fund, which is funded   Twelve federal agencies  by the proceeds from the auction of the band.previously operated communications systems in this band, including  DOD. NTIA and FCC jointly reallocated the 1710-1755 MHz band for  nonfederal use, and FCC designated the spectrum for Advanced Wireless  Services (AWS). In September 2006, FCC concluded the AWS-1  auction of licenses in the 1710-1755 MHz band. In accordance with  CSEA, a portion of the auction proceeds associated with the 1710-1755  MHz band is currently being used to pay spectrum relocation expenses.

In addition to the 1710-1755 MHz band, the wireless industry has  expressed interest in the 1755-1850 MHz band, largely because the band  offers excellent radio wave propagation, enabling mobile communication  links. The federal government has studied the feasibility of relocating  federal agencies from the 1755-1850 MHz band on several occasions.  For example, in March 2001, NTIA issued a report examining the  potential to accommodate mobile wireless services in the broader 1710- 1850 MHz band. The report was largely based on input from other federal  agencies, including a DOD study. NTIA found that unrestricted sharing of  the 1755-1850 MHz band was not feasible and that considerable  coordination between industry and DOD would be required before any  wireless systems could operate alongside federal systems in the band. In  August 2001, we also found that more analysis was needed to support  spectrum use decisions in the 1755-1850 MHz band, largely because  major considerations either were not addressed or were not adequately  addressed in DOD’s study. These considerations included complete  technical and operation analyses of anticipated spectrum interference;  cost estimates supporting DOD reimbursement claims; spectrum  requirements supporting future military operations; programmatic,  budgeting, and schedule decisions needed to guide analyses of  alternatives; and potential effects of U.S. reallocation decisions upon  international agreements and operations. At the end, a decision was  made to reallocate just the 1710-1755 MHz band to minimize the impact  on federal capabilities. Activity surrounding the rest of the band (i.e., the  1755-1850 MHz band) did not resurface until October 2010 when NTIA’s  Fast Track study identified the band for possible reallocation.

In June 2010, the administration issued a presidential memorandum titled  “Unleashing the Wireless Broadband Revolution” directing NTIA to  collaborate with FCC to make a total of 500 MHz of federal and  nonfederal spectrum available for wireless broadband within 10 years.  Responding to the President’s initiative, in October 2010, NTIA published  a plan and timetable to make available 500 MHz of spectrum for wireless  broadband. This plan and timetable specified that candidate bands would  be prioritized for detailed evaluation to determine the feasibility of  vacating the bands to accommodate wireless services. In January 2011,  NTIA selected the 1755-1850 MHz band as the priority band for detailed  evaluation for relocation. DOD and other affected agencies provided NTIA  their input on the spectrum feasibility study for the 1755-1850 MHz band,  and NTIA subsequently issued its assessment of the viability for  accommodating commercial wireless broadband in the band in March  2012. Most recently, the President’s Council of Advisors on Science and Technology published a report in July 2012 recommending specific steps  to ensure the successful implementation of the President’s 2010  memorandum. The report found, for example, that clearing and vacating  federal users from certain bands was not a sustainable basis for spectrum  policy largely because of the high cost to relocate federal agencies and  disruption to federal missions. The report recommended new policies to  promote the sharing of federal spectrum. The sharing approach has been  questioned by CTIA–The Wireless Association and its members, which  argue that cleared spectrum and an exclusive-use approach to spectrum  management has enabled the U.S. wireless industry to invest hundreds of  billions of dollars to deploy mobile broadband networks resulting in  economic benefits for consumers and businesses.

section_title: Some Agencies Underestimated 1710- 1755 MHz Band Relocation Costs, Although Auction Revenues Appear to Exceed Those Costs
subsections: section_title: Some Federal Agencies Underestimated Relocation Costs
paragraphs: Actual costs to relocate communications systems for 12 federal agencies  from the 1710-1755 MHz band have exceeded original estimates by  about $474 million, or 47 percent, as of March 2013. Table 1 compares  estimated relocation costs with the actual costs based on funds  transferred to federal agencies in support of the 1710-1755 MHz band  relocation effort. OMB and NTIA officials expect the final relocation cost to  be about $1.5 billion compared with the original estimate of about   $1 billion. In addition, NTIA expects agencies to complete the relocation  effort between 2013 and 2017.

The original transfers from the Spectrum Relocation Fund to agency  accounts were made in March 2007. Subsequently, some agencies  requested additional monies from the Spectrum Relocation Fund to cover  relocation expenses. Agencies requesting the largest amounts of  subsequent transfers include the Department of Justice ($294 million), the  Department of Homeland Security ($192 million), and the Department of  Energy ($35 million). Total actual costs for the 1710-1755 MHz transition  exceeded estimated costs, as reported to Congress in 2007, for many  reasons, including:

Unforeseen challenges: Agencies encountered various unforeseen  challenges when relocating systems out of the 1710-1755 MHz band.  For example, according to NTIA officials, one agency needed to  upgrade its radio towers to comply with new standards adopted after  the towers were built. The agency requested additional monies from  the Spectrum Relocation Fund to cover the cost of upgrading its  towers, which had not been part of the agency’s original relocation  estimate.

Unique issues posed by specific equipment location: According to  NTIA, some federal government communications systems are located  in remote areas. One agency requested additional monies from the  Spectrum Relocation Fund to use a helicopter to replace a fixed  microwave system located on a mountain-top, which exceeded its  original cost estimate.

Administrative issues associated with transition time frame:  NTIA officials told us that some agencies experienced higher than  expected labor costs during the transition period, partly to  accommodate auction winners’ requests to vacate the spectrum as  quickly as possible.

Costs associated with achieving comparable capability: Some  communications systems are unique to federal agencies, making  them difficult to upgrade or relocate. In some instances, agencies  were using analog radio systems throughout the 1710-1755 MHz  band and the digital technology needed to achieve comparable  capability was not available prior to vacating the band. When the  technology did become available, some agencies found they needed  additional funds to procure it, according to OMB officials. For  example, we previously reported that the Department of Justice  requested funds exceeding its estimate to develop new technology  that would operate using the new spectrum and match its current  capabilities.

Some agencies might not have followed guidance: Some  agencies may not have properly followed OMB and NTIA guidance in  preparing their original cost estimates. For instance, Immigration and  Customs Enforcement (ICE) did not detail its estimated costs by  equipment, location, systems, or frequency as suggested by NTIA’s  guidance. Instead, the agency provided a lump sum estimate for its  spectrum relocation costs. We previously reported that ICE officials  did not identify a significant number of relocation expenses in the  agency’s original transfer request, including costs associated with  additional equipment, offices, and systems, among other items.  Moreover, according to OMB staff, the agency’s initial estimate was  based on an inadequate inventory of deployed systems.

To date, the Department of the Navy has initiated the process to return about $65 million  to the Spectrum Relocation Fund, as its relocation costs may end up being less than  expected. The Department of the Navy is still in the process of finalizing relocation of its  systems, and the exact amount of any money that may be returned will not be known until  the relocation is complete. re-tune fixed microwave systems from the 1710-1755 MHz band into the  adjacent 1755-1850 MHz band, and it assumed exclusion zones— geographic areas where commercial licensees could not operate—around  16 DOD sites to prevent interference from commercial users. DOD also  estimated a cost of an additional $100 million if precision guided  munitions operations needed to be relocated from the 1755-1850 MHz  band. Subsequently, in 2001, NTIA reported additional cost estimates  reflecting several other options under consideration. One option, which  was not evaluated by DOD, included a preliminary cost figure of $1.6  billion. This estimate was based on eliminating some of the 16 exclusion  zones around DOD sites and, therefore, relocating additional systems  that were not included in the original estimate of $38-138 million,  according to NTIA. In December 2006, NTIA reported that DOD’s  estimate to relocate systems would be about $355.4 million. This estimate  reflected a new set of assumptions, such as maintaining exclusion zones  at 2 of the 16 DOD sites and relocating fixed microwave systems to the  1755-1850 MHz portion of the band or to other federal bands.

Both NTIA and OMB are taking steps to ensure that agencies improve  their cost estimates for a future relocation from the 1755-1850 MHz band.  For example, according to NTIA and OMB officials, the agencies  prepared a cost estimation template and guidelines for reimbursable  costs as part of the process to estimate relocation costs for the 1755- 1850 MHz band. The Middle Class Tax Relief and Job Creation Act of  2012 expanded the types of costs for which federal agencies can receive  payments from the Spectrum Relocation Fund. The act permits agencies  to receive funds for costs associated with planning for FCC auctions and  studies or analyses conducted in connection with relocation or sharing of  spectrum, including coordination with auction winners. In November 2012, OMB issued guidance to federal agencies to clarify allowable pre- auction costs and other requirements that are eligible to receive  payments from the Spectrum Relocation Fund.stated that they are optimistic that by providing pre-auction planning funds  to agencies, future cost estimates will improve.

section_title: Auction Revenues Appear to Exceed Agency Relocation Costs
paragraphs: The Advanced Wireless Services auction of the 1710-1755 MHz band  raised almost $6.9 billion in gross winning bids from the sale of licenses  to use these frequencies.actual relocation costs suggests that the auction of the 1710-1755 MHz  band raised $5.4 billion for the U.S. Treasury. This number reflects the  difference between the $6.9 billion auction revenue and the approximately  $1.5 billion estimated final federal relocation cost. As mentioned above,  NTIA reports that it expects agencies to complete the relocation effort  between 2013 and 2017; therefore the final net revenue amount may  change. For example, some agencies have returned or plan to return  excess relocation funds to the Spectrum Relocation Fund.

section_title: DOD’s Preliminary Cost Estimate Substantially or Partially Met GAO’s Identified Best Practices, but Changes in Assumptions May Affect Future Costs
subsections: section_title: DOD’s Preliminary Cost Estimate for Relocating from the 1755-1850 MHz Band Substantially or Partially Met GAO’s Identified Best Practices
paragraphs: To prepare the preliminary cost estimate portion of its study to determine  the feasibility of relocating DOD’s 11 major radio systems from the 1755- 1850 MHz band, DOD officials said the agency implemented the following  methodology:

DOD’s Cost Assessment and Program Evaluation (CAPE) groupthe effort and provided guidance to management at the respective  military services regarding the data needed to support each system’s  relocation cost estimate and how they should be gathered to maintain  consistency across the services. The guidance used by CAPE was  based on guidance and assumptions provided by NTIA.

Certified cost estimators at each of the services’ Cost Centers worked  closely with the various program offices to collect the necessary  technical and cost data. The cost estimators compiled and reviewed  the program data, identified the appropriate program content affected  by each system’s relocation, developed cost estimates under the  given constraints and assumptions, and internally reviewed the  estimates consistent with their standard practices before providing  them to CAPE to include in the overall estimate.

CAPE staff reviewed the services’ estimates to ensure they adhered  to the provided guidelines for accuracy and consistency, and obtained  DOD management approval on its practices and findings.

According to DOD officials, CAPE based this methodology on the cost  estimation best practices it customarily employs, revising those practices  to suit the study requirements as outlined by NTIA.

We reviewed DOD’s preliminary cost estimation methodology and  evaluated it against GAO’s Cost Estimating and Assessment Guide (Cost  Guide), which also identifies cost estimating best practices, including  those used throughout the federal government and industry. The best  practices identified in the Cost Guide help ensure that cost estimates are  comprehensive, well-documented, accurate, and credible. These  characteristics of cost estimates help minimize the risk of cost overruns,  missed deadlines, and unmet performance targets:

A comprehensive cost estimate ensures that costs are neither omitted  nor double counted.

A well-documented estimate is thoroughly documented, including  source data and significance, clearly detailed calculations and results,  and explanations for choosing a particular method or reference.

An accurate cost estimate is unbiased, not overly conservative or  overly optimistic, and based on an assessment of most likely costs.

A credible estimate discusses any limitations of the analysis from  uncertainty or biases surrounding data or assumptions.

When applying GAO’s identified best practices to DOD’s methodology,  we took into account that DOD officials developed the preliminary cost  estimate for relocation as a less rigorous, “rough order of magnitude” cost  estimate, not a budget-quality cost estimate. The nature of a rough- order-of-magnitude estimate means that it is not as robust as a detailed,  budget quality life-cycle estimate and its results should not be considered  or used with the same level of confidence. Because of this, we performed  a high-level analysis of DOD’s preliminary cost estimate and  methodology, and did not review all supporting data and analysis.

When we reviewed DOD’s preliminary cost estimation methodology and  evaluated it against the Cost Guide’s best practices, we found that DOD’s  methodology substantially met the comprehensive and well-documented  characteristics of reliable cost estimates, and partially met the accurate  and credible characteristics, as shown in table 2.

Overall, we found that DOD’s cost estimate was consistent with the  purpose of the feasibility study, which was to inform the decision making  process to reallocate 500 MHz of spectrum for commercial wireless  broadband use. Additionally, we found that DOD’s preliminary cost- estimation methodology substantially met both the comprehensive and  well-documented characteristics. As noted in the table above, we  observed that DOD’s estimate included complete information about  systems’ life cycles and was generally well-documented. However, these  characteristics were not fully met because we found that information on  the tasks required to relocate some systems was incomplete, and that  documentation for some programs was not sufficient to support a rough- order-of-magnitude estimate. We also determined that DOD’s preliminary  cost-estimation methodology partially met the accurate and credible  characteristics. We found that DOD properly applied appropriate inflation  rates and made no apparent calculation errors, and that the estimated  costs agree with DOD’s prior relocation cost estimate for this band  conducted in 2001. However, DOD did not fully or substantially meet the  accurate and credible characteristics because it was not clear if the  estimate considered the most likely costs and because some sensitivity  analyses and risk assessments were only completed at the program level  for some programs, and not at all at the summary level.

section_title: As the Assumptions Supporting DOD’s Cost Estimate for Relocating from the 1755-1850 MHz Band Change, Costs May Also Change
paragraphs: Even though DOD’s preliminary cost estimate substantially met some of  our best practices, as the assumptions supporting the estimate change  over time, costs may also change. According to DOD officials, any  change to key assumptions about the bands to which systems would  move and the relocation start date could substantially change relocation  costs. Because decisions about the spectrum bands to which the various  systems would be reassigned and the time frame for relocation have not  been made yet, DOD based its current estimate on the most likely  assumptions, provided by NTIA, some of which have already been proven  inaccurate or are still undetermined. For example:

Relocation bands: Decisions about which comparable or alternate  spectrum bands federal agencies, including DOD, should relocate to  are still unresolved. According to DOD officials, equipment relocation  costs vary significantly depending on the relocation band’s proximity  to the current band. Moving to bands further away than the assumed  relocation bands could increase costs relative to moving to closer  bands with similar technical characteristics. In addition, congestion, in  both the 1755-1850 MHz band and some of the potential alternate  spectrum bands to which federal systems might be moved,  complicates relocation planning. According to DOD officials, many of  the federal radio systems relocated from the 1710-1755 MHz band  were simply re-tuned or compressed into the 1755-1850 MHz band,  adding to the complexity of systems and equipment requiring  relocation from this band since 2001. Also, DOD officials said that  some of the potential spectrum bands to which DOD’s systems could  be relocated are themselves either already congested or the systems  are incompatible unless other actions are also taken. For example,  cost estimates for several of DOD’s systems assumed that these  systems would be relocated into the 2025-2110 MHz band, and  operate within this band on a primary basis. However, this band is  currently allocated to commercial electronic news gathering systems  and other commercial and federal systems, and while the band is not  currently congested, it does not support compatible coexistence  between DOD systems and commercial electronic news gathering  systems. To accommodate military systems within this band, FCC  would need to withdraw this spectrum from commercial use to allow  NTIA to provide DOD primary status within this band, or FCC would  have to otherwise ensure that commercial systems operate on a non- interference basis with military systems. FCC has not initiated a  rulemaking procedure to begin such processes.

Relocation start date: DOD’s cost estimate assumed relocation  would begin in fiscal year 2013, but no auction has been approved, so  relocation efforts have not begun. According to DOD officials, a  change in the start date creates uncertainty in the cost estimate  because new equipment and systems continue to be deployed in and  designed for this band, and older systems are retired. This changes  the overall profile of systems in the band, a change that can alter the  costs of relocation. For example, a major driver of the cost increase  between DOD’s 2001 and 2011 relocation estimates for the 1755- 1850 MHz band was the large increase in the use of the band,  including unmanned aerial systems. DOD deployed these systems  very little in 2001, but their numbers had increased substantially by  2011. Conversely, equipment near the end of its life cycle when  DOD’s 2011 relocation cost estimate was completed may be retired or  replaced outside of relocation efforts, which could decrease relocation  costs.

Inflation: DOD appropriately used 2012 inflation figures in its  estimate, assuming that relocation would begin in fiscal year 2013. As  more time elapses before the auction occurs, the effect of inflation will  increase the relocation costs each year.

According to DOD, the preliminary cost estimate is not as robust as a  detailed, budget-quality lifecycle estimate. A budget-quality estimate is  based on more fully formed assumptions for specific programs. DOD  officials said that for a spectrum relocation effort, a detailed, budget- quality cost estimate would normally be done during the transition- planning phase once a spectrum auction has been approved and would  be based on the requirements for the specific auction and relocation  decisions.

section_title: No Government Revenue Forecasts Exist for a Potential Auction of the 1755- 1850 MHz Band, and a Variety of Factors Could Influence Auction Revenues
subsections: section_title: Federal Agencies Have Not Produced a Revenue Forecast for the 1755-1850 MHz Band
paragraphs: No official government revenue forecast has been prepared for a potential  auction of 1755-1850 MHz band licenses, but some estimates might be  prepared once there is a greater likelihood of an auction. Officials we  spoke with at CBO, FCC, NTIA, and OMB confirmed that none of these  agencies has produced a revenue forecast thus far. Officials at these  agencies knowledgeable about estimating spectrum-license auction  revenue said that because the value of licensed spectrum varies greatly  over time and the information on factors that might influence the spectrum  auction revenues is not yet available, it is too early to produce meaningful  forecasts for a potential auction of the 1755-1850 MHz band. Moreover,  CBO only provides written estimates of potential receipts when a  congressional committee reports legislation invoking FCC auctions. OMB  would estimate receipts and relocation costs as part of the President’s  Budget; OMB analysts would use relocation cost information from NTIA to  complete OMB’s estimate of receipts. The potential for large differences  between CBO and OMB forecasts exist, as well. For example, in the past,  CBO and OMB have produced very different estimates of potential FCC  auction receipts at approximately the same time with access to the same  data, underscoring how differing assumptions can lead to different  results.

Although no official government revenue forecast exists, an economist  with the Brattle Group, an economic consulting firm, published a revenue  forecast in 2011 for a potential auction of the 1755-1850 MHz band that   We did not evaluate  forecasted revenues of $19.4 billion for the band. the accuracy of this revenue estimate. Like all forecasts, the Brattle  Group study was based on certain assumptions. For example, it assumed  that the band would generally be cleared of federal users. It also  assumed the AWS-1 average nationwide price of $1.03 per “MHz-pop” as  a baseline price for spectrum allocated to wireless broadband services.In addition, the study adjusts the price of spectrum based on the following  considerations:  Increase in the quantity of spectrum using elasticity of demand. As the  supply of spectrum for commercial wireless broadband services  increases, the price and value of spectrum is expected to fall. The  elasticity of demand is used to make adjustments for the increased  supply of spectrum.

Differences in capacity and quality of spectrum using value weights.

According to the study, wireless broadband spectrum is generally thought to have a  price elasticity of around -1.2, which implies that a 1 percent increase in the base supply  of spectrum should result in a 1.2 percent decrease in its price. because traditional, two-way communications, such as mobile phone  services, are typically provided over paired bands of spectrum.  Similarly, a greater value weight is given to bands of spectrum with no  restrictions on use, or encumbrances. Fewer restrictions would  increase the capacity or the types of services for a given spectrum  band.

The study also assumes that the 1755-1780 MHz portion of the band is  paired with the 2155-2180 MHz band, which various industry  stakeholders currently support. For spectrum services that require two- way communications, pairing bands allows them to be used more  efficiently by diminishing interference from incompatible adjacent  operations. In addition, the study assumed the 95 MHz of spectrum between 1755 and 1850 MHz would be auctioned as part of a total of 470  MHz of spectrum included in six auctions sequenced 18 months apart  and spread over 9 years with total net receipts of $64 billion. Thus, the  forecast also took into account when the spectrum would be reallocated  for commercial services.

section_title: A Variety of Factors Ultimately Influence Auction Revenue
paragraphs: Like all goods, the price of licensed spectrum, and ultimately the auction  revenue, is determined by supply and demand. This fundamental  economic concept helps to explain how the price of licensed spectrum  could change depending on how much spectrum is available now and in  the future, and how much licensed spectrum is demanded by the wireless  industry for broadband applications. Government agencies can influence  the supply of spectrum available for licensing and the characteristics of  those licenses, whereas expectations about profitability determine  demand for spectrum in the marketplace.

Supply. FCC and NTIA, with direction from Congress and the President,  jointly influence the amount of spectrum allocated for federal and  nonfederal users, including the amount to be shared by federal and  nonfederal users. In 2010, the President directed NTIA to work with FCC  to make 500 MHz of spectrum available for use by commercial broadband  services within 10 years. This represents a significant increase in the  supply of spectrum available for licensing in the marketplace. As with all  economic goods, with all other things being equal, the price and value of  spectrum licenses are expected to fall as additional supply is introduced.  However, at this time, the answers to key questions about the reallocation  of the 1755-1850 MHz band are unknown. Expectations about exactly  how much spectrum is available for licensing now and how much will be  available in the future would influence how much wireless companies  would be willing to pay for spectrum licensed today.

Demand. The expected, potential profitability of a spectrum license  influences the level of demand for it. As with all assets, companies base  their capital investment decisions on the expected net return, or profit,  over time of their use. The same holds true for spectrum. Currently, the  demand for licensed spectrum is increasing, and a primary driver of this  increased demand is the significant growth in the use of commercial- wireless broadband services, including third and fourth generation  technologies that are increasingly used for smart phones and tablet  computers. Below are some of the factors that would influence the  demand for licensed spectrum:

Clearing versus Sharing: Spectrum is more valuable, and companies  will pay more to license it, if it is entirely cleared of incumbent federal  users, giving them sole use of licensed spectrum; spectrum licenses  are less valuable if access must be shared. Sharing could potentially  have a big impact on the price of spectrum licenses, especially if a  sharing agreement does not guarantee service when the licensee  would need it most. For example, knowing in advance that service  would be unavailable once a month at 3 a.m. may not significantly  influence price, but if the times when the service will be unavailable  are unknown, the effect on price could be significant. In 2012, the  President’s Council of Advisors on Science and Technology  advocated that sharing between federal and commercial users  become the new norm for spectrum management, especially given  the high cost and lengthy time it takes to relocate federal users and  the disruptions to agencies’ missions.

Certainty and Timing: Another factor that affects the value of licensed  spectrum is the certainty about when it becomes available. Seven  years after the auction of the 1710-1755 MHz band, federal agencies  are still relocating systems. According to an economist with whom we  met, one lesson from the 1710-1755 MHz relocation effort is that  uncertainty about the time frame for availability reduces the value of  the spectrum. Any increase in the probability that the spectrum would  not be cleared on time would have a negative impact on the price  companies are willing to pay to use it. As such, the estimated 10-year  timeframe to clear federal users from the entire 1755-1850 MHz band,  and potential uncertainty around that time frame, could negatively  influence demand for the spectrum. The 2012 amendments to the  CSEA include changes designed to reduce this uncertainty by  requiring federal agencies that will be relocating (or sharing spectrum)  to submit transition plans with timelines for specific geographic  locations, with interagency review of those plans aimed at ensuring  timely relocation (or sharing) arrangements.

Available Wireless Services: Innovation in the wireless broadband  market is expected to continue to drive demand for wireless services.  For example, demand continues to increase for smart phones and  tablets as new services are introduced in the marketplace. These  devices can connect to the Internet through regular cellular service  using commercial spectrum, or they can use publicly available  (unlicensed) spectrum via Wi-Fi networks to access the Internet.  The value of the spectrum, therefore, is determined by continued  strong development of and demand for wireless services and devices,  and the profits that can be realized from them.

section_title: Agency Comments
paragraphs: We provided a draft of this report to the Department of Commerce  (Commerce), DOD, FCC, and OMB for review and comment. FCC agreed  with the report’s findings, and Commerce, DOD, and FCC provided  technical comments that we incorporated as appropriate. FCC’s written  comments appear in appendix II. OMB did not provide comments.

We are sending copies of this report to the Secretary of Commerce, the  Secretary of Defense, the Chairman of the Federal Communications  Commission, the Director of the Office of Management and Budget, and  the appropriate congressional committees. In addition, the report will be  available at no charge on GAO’s website at http://www.gao.gov.

If you or members of your staff have any questions about this report,  please contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. Major contributors to this report  are listed in appendix III.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to examine (1) the differences, if any,  between estimated and actual federal relocation costs and auction  revenues from the 1710-1755 MHz band; (2) the extent to which the  Department of Defense (DOD) followed best practices to prepare its  preliminary cost estimate for vacating the 1755-1850 MHz band, and any  limitations of its analysis; and (3) what government or industry revenue  forecasts for the 1755-1850 MHz band auction exist, if any, and what  factors, if any, could influence actual auction revenue.

To examine the differences, if any, between estimated and actual federal  relocation costs and auction revenues from the 1710-1755 MHz band, we  reviewed spectrum auction data published by the Federal  Communications Commission (FCC) and federal relocation cost data  from the National Telecommunication and Information Administration’s  (NTIA) annual 1710-1755 MHz band relocation progress reports,  published yearly since 2008. We narrowed our review of past spectrum  auctions to the 1710-1755 MHz relocation after reviewing FCC auction  data and NTIA reports describing other spectrum relocations and auctions  involving federal agencies, and interviews with knowledgeable FCC,  NTIA, Office of Management and Budget (OMB), and Congressional  Budget Office (CBO) officials. The Advanced Wireless Services-1 (AWS- 1) auction involving the 1710-1755 MHz band is the only spectrum  auction involving federal agencies with significant, known relocation  costs. In addition, it is the only relocation involving DOD radio  communication systems. To assess the reliability of FCC auction and  NTIA relocation cost data, we reviewed documentation related to the  data; compared it to other sources, including other government reports;  and discussed the data with FCC and NTIA officials. We did not evaluate  the accuracy of individual agencies’ relocation cost data, as this was  outside the scope of our review. Based on this review, we determined that  the FCC and NTIA data were sufficiently reliable for the purposes of our  report.

To determine the extent to which DOD followed best practices to prepare  its preliminary cost estimate for vacating the 1755-1850 MHz band, we  assessed DOD’s preliminary cost estimate against the best practices in  GAO’s Cost Estimating and Assessment Guide (Cost Guide), which has  been used to evaluate cost estimates across the government. These  best practices help ensure cost estimates compiled at different stages in  the cost estimating process are comprehensive, well-documented  accurate, and credible. To develop our assessment, we interviewed DOD  officials, including in the agency’s Cost Assessment and Program  Evaluation (CAPE) group that led the cost estimation effort, regarding  their data collection and cost estimation methodologies and the findings  reported in DOD’s feasibility study. We also reviewed electronic source  documentation supporting the estimate with a CAPE official. After  completing this review, a GAO cost analyst developed an assessment  using our 5-point scale (not met, minimally met, partially met, substantially  met, and met) and a second analyst verified the assessment. DOD’s  preliminary cost estimate was a rough-order-of-magnitude estimate;  consequently, it did not contain all the information expected of a  complete, budget-quality cost estimate. Therefore, we performed a high- level analysis to determine whether DOD’s reported estimated costs  considered all the potential factors that could influence those relocation  costs. To identify any limitations affecting DOD’s estimate, we interviewed  DOD officials responsible for developing the department’s preliminary  cost estimate. We also interviewed NTIA and OMB officials  knowledgeable about the intended purpose of the estimate to discuss  how the estimate should be used and any factors that would affect the  reliability of the estimate.

Bazelon, Expected Receipts From Proposed Spectrum Auctions (July 2011). the sale of spectrum licenses, and (3) relocation costs. We discussed  factors affecting spectrum auction revenue with CBO and OMB officials,  industry and policy experts, and obtained input from CTIA—The Wireless  Association, the association representing the wireless industry.

We conducted this performance audit from September 2012 to May 2013  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient appropriate evidence and provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Comments from the Federal Communications Commission

section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Michael Clements, Assistant  Director; Stephen Brown; Jonathan Carver; Leia Dickerson; Jennifer  Echard; Emile Ettedgui; Colin Fallon; Bert Japikse; Elke Kolodinski;  Joshua Ormond; Jay Tallon; and Elizabeth Wood made key contributions  to this report.


Question-summary annotations: questions: question: How did DOD's preliminary cost estimate for relocating systems line up with GAO's best practices for cost estimates?
answer: DOD's preliminary cost estimate for relocating systems out of the 1755-1850 MHz band substantially or partially met GAO's best practices for cost estimates, but changes in key assumptions may affect future costs.

question: What does adhering to GAO's cost guide do?
answer: Adherence with GAO's Cost Guide reduces the risk of cost overruns and missed deadlines.

question: What did GAO find in DOD’s preliminary estimate that was favorable to see regarding best practices?
answer: GAO found that DOD's preliminary estimate of $12.6 billion substantially met the comprehensive and well-documented best practices. For instance, it included complete information about systems' life cycles, and the baseline data were consistent with the estimate. GAO also determined that DOD's estimate partially met the accurate and credible best practices. For example, DOD applied appropriate inflation rates and made no apparent calculation errors. Nevertheless, DOD's preliminary cost estimate was consistent with its purpose--informing the decision-making process to make additional spectrum available for commercial wireless services.
child_questions: question: What did GAO find lacking in DOD's preliminary cost estimate?
answer: However, GAO found that some information on the tasks required to relocate some systems was incomplete. However, DOD did not complete some sensitivity analyses and risk assessments at the program level, and not at all at the summary level. Most importantly, decisions about which spectrum band DOD would relocate to are still unresolved, and relocation costs vary depending on the proximity to the 1755-1850 MHz band.

questions: question: What has no government revenue forecast been prepared for?
answer: No government revenue forecast has been prepared for a potential auction of the 1755-1850 MHz band, and a variety of factors could influence auction revenues.

question: What did one private sector study in 2011 forecast?
answer: One private sector study in 2011 forecasted $19.4 billion in auction revenue for the band, assuming that federal users would be cleared and the nationwide spectrum price from a previous auction, adjusted for inflation, would apply to this spectrum.

question: What is the price of spectrum determined by?
answer: Like for all goods, the price of spectrum, and ultimately the auction revenue, is determined by supply and demand.
child_questions: question: What is the amount of spectrum determined by?
answer: The Federal Communications Commission (FCC) and NTIA jointly influence the amount of spectrum allocated to federal and nonfederal users (the supply). The potential profitability of a spectrum license influences its demand.

question: What is the demand for spectrum determined by?
answer: Several factors would influence profitability and demand, including whether the spectrum is cleared of federal users or must be shared.

questions: question: Why is allocating radio-frequency spectrum a challenging task?
answer: Allocating radio-frequency spectrum is a challenging task because of competing commercial and government demands.

question: What did FCC auction in 2006?
answer: In 2006, FCC auctioned spectrum licenses in the 1710-1755 MHz band that had previously been allocated for federal use.

question: How was the continued demand met for commercial wireless services by NTIA?
answer: To meet the continued demand for commercial wireless services, NTIA assessed the viability of reallocating the 1755-1850 MHz band to commercial use; this band is currently assigned to more than 20 federal users, including DOD.
child_questions: question: What did NTIA report?
answer: In March 2012, NTIA reported that it would cost $18 billion over 10 years to relocate most federal operations from the band, raising questions about whether relocating federal users is a sustainable approach.

questions: question: What was GAO asked to review?
answer: GAO was directed to review the costs to relocate federal spectrum users and revenues from spectrum auctions.

question: What does GAO's report address?
answer: This report addresses (1) estimated and actual relocation costs, and revenue from the previously auctioned 1710-1755 MHz band; (2) the extent to which DOD followed best practices to prepare its preliminary cost estimate for vacating the 1755-1850 MHz band; and (3) existing government or industry forecasts for revenue from an auction of the 1755-1850 MHz band.
child_questions: question: How did GAO get information for its report?
answer: GAO reviewed relevant reports; interviewed DOD, FCC, NTIA, and OMB officials and industry stakeholders; and analyzed the extent to which DOD's preliminary cost estimate met best practices as identified in GAO's Cost Estimating and Assessment Guide (Cost Guide).

question: What were the responses to GAO's report?
answer: FCC agreed with the report's findings and DOD, FCC, and NTIA provided technical comments that were incorporated as appropriate.