Spectrum Management: FCC's Use and Enforcement of Buildout Requirements
Released: 2014-03-28T00:00:00

Letter

Background

Radio frequency spectrum is used to provide an array of commercial and governmental services, like mobile voice and data, air-traffic control, broadcast television and radio, and public safety activities. In the United States, responsibility for spectrum management is divided between two agencies: FCC and the Department of Commerce’s National Telecommunications and Information Administration (NTIA). FCC manages spectrum use for nonfederal users, including commercial, private, and state and local government users under authority provided in the Communications Act. NTIA manages spectrum for federal government users and acts for the President with respect to spectrum management issues.

FCC is an independent regulatory agency composed of five commissioners appointed by the President and confirmed by the Senate. The commissioners delegate many of FCC’s day-to-day responsibilities, including processing applications for licenses and analyzing consumer complaints, to the agency’s 7 bureaus and 10 offices. According to its fiscal year 2014 budget request, FCC has just over 1,700 full-time equivalent staff in Washington, D.C., and other locations; FCC requested $359 million for its fiscal year 2014 budget.

Among other duties, FCC bureaus responsible for granting spectrum licenses administer service rules that outline technical and operating requirements for spectrum licenses. Service rules may be set at the time FCC allocates spectrum into bands for a specific type of service or group of users. FCC develops rules through a process defined by the Administrative Procedure Act (APA). The APA process requires FCC to provide the public with notice of its proposed and final rules and with an opportunity to comment as the rules are developed. All comments and information gathered by FCC constitute the public record to support rulemakings and are electronically maintained in a docket. FCC maintains the dockets in an electronic system that is available to the public on its website.

After spectrum is allocated and service rules are set, depending on the type of service or user, one of four FCC bureaus assigns licenses to users (see table 2). For example, the Wireless Telecommunications Bureau (WTB) develops and executes policies and procedures for the licensing of all wireless services (except wireless public safety services), and the Media Bureau administers television and radio broadcast licenses.

Licenses for wireless services are assigned through competitive bidding (auctions) or administrative processes. The assignment process used depends in large part upon whether applications for licenses are mutually exclusive—that is, on whether granting a license to one entity would preclude granting a license to another entity for the same portion of the spectrum in the same geographic location.

For licenses that are mutually exclusive, FCC typically uses auctions to assign licenses for commercial wireless services. Auctions are a market-based mechanism used to assign a license to the entity that submits the highest bid. In the report, we refer to these licenses as market-based licenses.

For licenses that are not mutually exclusive, primarily public-safety and private-wireless licenses, FCC generally assigns licenses through administrative processes. For example, FCC distributes some licenses on a first-come, first-served basis, where licenses are assigned based on when the license applications were submitted. To maximize the number of spectrum users, FCC often requires license applicants to coordinate. License applicants retain a private third-party firm, known as a frequency coordinator, to select a frequency that minimizes interference to existing licensees. We refer to these licenses as site-based licenses.

FCC uses its ULS database to assign and track licenses for wireless services. ULS operates as a single licensing system used by FCC and licensees to apply for, modify, cancel, and take other actions on licenses for all wireless services in a uniform manner.

FCC Establishes Buildout Requirements for Most Wireless Services

FCC has established buildout requirements for most wireless services, including paging, cellular, land mobile radio, and wireless communications services (see appendix II). FCC officials said that the Commission makes every effort to ensure efficient use of each spectrum license, and, in line with these efforts, FCC uses buildout requirements to help ensure that spectrum is put to use. FCC establishes buildout requirements for wireless services through its rulemaking process, and the buildout requirement for each wireless service is tailored to the particular service. According to FCC officials, they take into account, when setting buildout requirements, (1) stakeholders’ comments about the proposed requirements in the notice of proposed rulemaking; (2) the characteristics of the relevant spectrum in terms of propagation of the signal through space and its interaction with obstacles, which could affect the infrastructure costs for the intended coverage; and (3) the types of service in adjacent spectrum, including considerations of harmful interference with those services.

Buildout requirements have three common features, which vary based on the differences in wireless services.

Type of requirement. This refers to the benchmark or outcome that a licensee must meet. There are three types of requirements. A population or geographic coverage requirement sets the percentage of the license’s population or geographic area, respectively, that must be covered by service. A construction requirement requires that the system operate consistent with the rules governing the service, specified in the license, by a specific time. Lastly, a “substantial service” requirement describes the level of service that must be provided in narrative terms rather than in absolute, numeric benchmarks, such as with a coverage requirement. When FCC establishes a substantial service requirement, it sometimes includes “safe harbors” in the rulemaking documents. Safe harbors illustrate specific ways that a licensee could demonstrate substantial service for a particular wireless service, such as constructing a certain number of point- to-point links or serving populations that are outside areas served by other licensees.

Number of benchmarks. This refers to whether the licensee must complete the buildout requirement by one deadline, or whether the licensee must complete multiple requirements in stages with corresponding deadlines. When FCC sets more than one benchmark and thus deadline for a license, it refers to the requirements as the interim and final requirements or as the first requirement, second requirement, and so forth.

Length of buildout period. This refers to the length of time from the grant of a license to the buildout deadline or deadlines.

We examined five wireless services, which have buildout requirements that vary in each of the features discussed above (see table 3). Licenses in these five services are subject to all three types of requirements described above. For example, FCC set a substantial service requirement for 39 GHz licenses. In the rulemaking proceeding for 39 GHz, FCC stated that setting a substantial service requirement would permit flexibility in licensees’ system design, as the types of possible service vary tremendously and may develop in unpredictable ways. For some services, FCC gave licensees the option to choose the type of requirement. For Broadband PCS, FCC set a population coverage requirement, but also provided the alternative of meeting a substantial service requirement. In terms of the number of benchmarks, FCC set two benchmarks for the Broadband PCS (depending on the license) and 220 MHz services and set a single benchmark for the other three services we selected. The lengths of the buildout period for the five services range from 12 months (for industrial/business private land mobile radio) to 10 years (for all three market-based services).

Under some circumstances, a particular license may not be subject to a buildout requirement, even if FCC established buildout requirements in the wireless-service rules for the license. For the three market-based services we examined, for example, a licensee can divide its license into smaller pieces by disaggregating or partitioning, which divides the assigned spectrum into smaller amounts of bandwidth or smaller geographical areas, respectively. In such cases, some of the resultant licenses may not have buildout requirements because the requirements are met by one of the other pieces of the original license. For example, for Broadband PCS licenses, parties seeking to disaggregate a license must decide which party will be responsible for meeting the buildout requirements or agree to share responsibility for meeting the requirements. Additionally, fixed-microwave and private land-mobile-radio licenses that authorize certain temporary or itinerant use of the spectrum, such as construction work or event planning, would not normally include a buildout requirement, since the license does not permit any long-term or ongoing operations.

In other circumstances, licenses for industrial/business private land mobile radio and fixed microwave site-based services can authorize the use of multiple frequencies. For industrial/business private land-mobile- radio licenses, for example, the purpose of authorizing multiple frequencies is to improve the efficiency of a multi-user system in which users can use any available channel; it is similar to a multi-lane highway in which cars can use any lane. In such cases, FCC sets a buildout requirement for each frequency authorized by the license. If a licensee fails to construct for a given frequency, FCC automatically terminates the authorization to use that frequency as of the buildout deadline. If all the frequencies for a license are terminated, FCC will terminate the license.

FCC Enforces Buildout Requirements through Automated Processes and Staff Reviews and Followed Its Process for Selected Wireless Services

FCC Enforces Buildout Requirements Primarily in Response to Licensee Actions

To enforce buildout requirements for wireless services, FCC requires licensees to self certify that they met buildout requirements and automatically terminates licenses that fail to do so, in line with FCC rules. Through ULS—the computerized system FCC and licensees use to process and track licenses for all wireless services—licensees submit notifications to inform FCC that a requirement is met. However, if the licensee does not notify FCC that it met a buildout requirement in a timely manner, FCC takes steps through ULS to terminate the license. Specifically, ULS is programmed to automatically carry out steps to terminate a license. Thirty days after a buildout deadline, ULS puts a license into “termination pending” mode. FCC releases a weekly public notice of all the market-based and site-based licenses that entered termination-pending mode. If a licensee does not file a petition for reconsideration within 30 days of the public notice demonstrating that it timely met the requirement, ULS will automatically terminate the license effective as of the buildout deadline. Once terminated, the license is then made available for re-assignment or re-auction.

Beyond the automated steps involving the termination of licenses discussed above, FCC primarily enforces buildout requirements for wireless services by responding to information provided by licensees. In particular, licensees submit information to FCC in ULS through filings, which FCC responds to through automatic processes or staff reviews, depending on the type of filing. While FCC responds to licensee filings, it does not actively monitor licensee performance on buildout requirements for wireless services; that is, FCC does not send teams out to determine the extent of a licensee’s buildout. Through ULS, FCC officials told us they have the ability to examine outcomes related to the buildout requirements. While FCC enforces buildout requirements for individual licenses, it does not maintain a comprehensive program that monitors overall licensee compliance with buildout requirements within a service or across services.

Automatic processes. For licensee filings that do not require evaluation, FCC automates the responses to be carried out in ULS. In general, two specific filings—the required notification for site-based services and request to cancel a license—are automatically reviewed in ULS. According to FCC officials, no formal review is needed for required notifications for site-based licenses because the licensee is certifying that it met the conditions laid out in the license. In addition, a licensee may apply to cancel a license at any time, including before or after a buildout requirement is due. Unless a licensee has other pending applications, an application to cancel a license is automatically approved.

Staff reviews. In contrast, some licensee filings require evaluation, so FCC staff must review these notifications and requests. In particular, FCC staff review is required for notifications for market-based licenses (that is, licenses assigned through auctions), as well as all requests for extensions and requests to accept late-filed required notifications.

Required notification. As with site-based services, a market-based licensee must file a required notification to notify FCC that it met its buildout requirement. Compared to the specific parameters set in site-based licenses, FCC officials said that market-based licenses tend to give licensees more flexibility in how to use spectrum or deploy service; therefore, FCC requires additional documentation—like information on the technology used in a system—to help assess whether a licensee met its buildout requirement. FCC specifies what additional documentation is required in the rules for a wireless service or a public notice. For example, Broadband PCS licensees must submit maps and other supporting documents showing compliance with the 5- and 10- year benchmarks. FCC can also ask a licensee to send additional information if needed to determine if the licensee met the buildout requirement.

Request for an extension. A licensee can also request an extension of the buildout deadline. A request for an extension must be filed before the licensee reaches the buildout deadline for a license. The criteria for when extension requests may be granted are laid out in regulation. For example, FCC will not grant an extension request where delay has been caused solely by a failure to obtain financing. In general, the regulation states that FCC may grant an extension request if the licensee shows that its failure to meet a buildout deadline is due to causes beyond its control. For example, extension requests can be granted for issues such as a lack of available equipment for a band or interference problems with other spectrum users. FCC staff review each request to determine whether an extension is justified. If an extension request is granted, FCC changes the buildout deadline for a license in ULS, but if the request is dismissed, the original buildout deadline stands. If a licensee still needs additional time after being granted an extension, the licensee can request an additional extension.

Beyond individual licensee requests, FCC can grant blanket extensions when warranted for a wireless service or group of licenses. According to FCC officials, FCC has considered a blanket extension for most or all of the licenses in a service in cases where it has observed a relatively high number of extension requests. A licensee or stakeholder may also ask FCC to consider a blanket extension. FCC granted a blanket extension of the 5-year buildout requirement for 220 MHz phase II licenses. When the buildout requirements for these licenses started to come due in 2004, numerous licensees filed extension requests. Licensees and others said that there was insufficient equipment to provide voice communications in the 220 MHz band, so licensees collectively would not be able to meet their buildout requirements. In the order granting the extension, FCC stated that a 3-year extension was warranted because, among other reasons, it would provide time for the equipment market to develop.

Waiver or petition for reconsideration. Licensees can also file requests to submit late-filed required notifications in limited situations. Specifically, a licensee can file a waiver request or petition for reconsideration if it met a buildout requirement but did not file a required notification on time. For example, if the license has entered termination-pending mode, a licensee can file a petition for reconsideration within 30 days of being listed in the weekly public notice to prevent the license from terminating. In the petition, a licensee must provide the date on which it met the buildout requirement, any supporting documentation required by the rules, and the reason the notification was not filed on time. To be granted a waiver, a licensee must submit any required documentation to demonstrate how it met the buildout requirement and must meet the wavier standard set forth in FCC rules.

Figure 1 provides further information on the timing of filings related to buildout requirements.

Industry associations and licensees we interviewed generally thought FCC’s enforcement process works well. Many stakeholders we interviewed said that FCC’s self-certification process is appropriate. For example, one expert, three licensees, and officials from an industry association indicated that the public, transparent nature of the required notifications makes self-certification an effective way to enforce buildout requirements. One expert said that self-certification is the most efficient method for FCC to collect and manage buildout information, as licensees are in the best position to gather and report this information. Moreover, a few licensees and industry associations indicated no other approach would be feasible given the high volume of wireless-service licenses and FCC resource constraints. Furthermore, most of the industry associations and licensees we interviewed said that FCC’s ULS system is easy to use. For example, one licensee said that the mechanics of uploading information in ULS for required notifications and requests for extension are straightforward.

FCC Followed Its Enforcement Process for Selected Wireless Services, Although a Few Delays Could Pose Problems for Some Licensees

For the five wireless services we reviewed, buildout requirements were met for many licenses, and when buildout requirements were not met, FCC generally terminated the licenses. Across the five services, we found that buildout requirements were met for 75 percent of licenses (19,582 of 26,217). For 3 of the 5 services we examined, buildout requirements were met for a majority of licenses (see table 4). For the other services, buildout requirements were met for half of the 39 GHz licenses and 19 percent of 220 MHz licenses. When licensees did not meet the buildout requirements, FCC generally proceeded as expected by terminating the licenses. A few of our selected services have a relatively high percent of licenses terminated because licensees did not meet their buildout requirements due to special circumstances. For example, FCC terminated 21 percent of the fixed microwave licenses we examined, but we found that a single licensee held nearly all—1,955 of 2,179—of the terminated licenses.

However, buildout requirements were not met for some licenses, and the licenses were not terminated—that is, licenses in the “other outcomes” category in table 4. In two services—fixed microwave and private land mobile radio—there were mixed outcomes because licenses can authorize use of multiple frequencies. Such licenses can be terminated, in part, with the remainder being active or having no requirements. For example, a licensee could meet the requirement for some frequencies but not others, resulting in the termination of some frequencies but not the license; there were 1,216 fixed-microwave (12 percent) and 13 private land-mobile-radio (less than 1 percent) licenses with this outcome. Also, a licensee could have some frequencies terminated and not have a buildout requirement for other frequencies; 66 fixed-microwave licenses (1 percent) and 17 private land-mobile-radio licenses (less than 1 percent) fit this description.

The remaining licenses in the other-outcomes category are instances where a buildout requirement was not met but a license remained active after the buildout deadline, mostly for good reasons. Examining ULS license data and other FCC documents, we found that there were reasonable explanations—like a licensee canceling a license during the automatic termination process or filing a required notification that FCC has yet to approve or dismiss—for why most of these licenses were not terminated on the buildout deadline. For example, we found that 106 fixed-microwave licenses in the other-outcomes category were canceled during the automatic termination process—that is, within 60 days of the buildout deadline. For the 220 MHz phase II licenses with other outcomes, 110 licenses were canceled during the automatic termination process, and 24 licenses had pending required notifications in ULS. While there were good reasons why most licenses remained active, there were a few instances where ULS contained no explanation. For the Broadband PCS licenses, for example, ULS did not contain information explaining why 16 licenses were not terminated on the buildout deadline. The automatic termination process in ULS did not occur until 2006, after the buildout deadlines for the 16 Broadband PCS licenses. Therefore, FCC officials said that while these licenses were terminated automatically by rule on the deadline, ULS was not updated to reflect the termination for several months after their buildout deadlines.

Lastly, some licenses with buildout requirements did not reach their buildout deadlines; as a result, FCC did not have to enforce the buildout requirements for these licenses. A license could not reach its buildout deadline for three reasons. First, the license could be canceled by the licensee on or before the buildout deadline. A license can be canceled by a licensee, for example, if it ceases operations and no longer needs the license. Second, FCC could terminate a license before its buildout deadline if the licensee fails to fulfill a condition of the license or violates a rule. Third, the license could expire on or before the buildout deadline. For example, a buildout deadline could be extended past the license expiration date and the licensee could fail to renew the license. The number of licenses in this category varies by service, though a higher percentage of market-based licenses did not reach their buildout deadline compared to site-based licenses.

As discussed above, FCC’s enforcement of buildout requirements also involves granting or dismissing extension requests. Across the 5 wireless services we examined, 9 percent of licenses had an extension request. However, this percentage varied substantially across the services (see table 5). Extensions were requested for all of the 39 GHz licenses and half of the 220 MHz phase II licenses. Our analysis of FCC and licensee documents for both services indicated that buildout was largely impeded by lack of available equipment. As shown in table 4 above, both these services also had a relatively high percent of licenses terminated for not meeting buildout requirements. By contrast, less than 1 percent of fixed- microwave and private land-mobile-radio licenses requested extensions. One fixed-microwave licensee we interviewed said that it typically constructs the infrastructure for a new license within 2 to 4 months, so it has not needed to request an extension of the 18-month buildout requirement.

We found that FCC granted most extension requests it received for the five wireless services we examined, as shown in table 6. FCC officials said that the Commission seeks to be aggressive but pragmatic in its enforcement of buildout requirements and is flexible on deadlines when it needs to be. FCC officials said that the high rate is due in part to high- quality extension requests. More specifically, they said a licensee typically takes steps before submitting a request—through both internal work and informal discussions with FCC staff—to determine whether it is likely to receive an extension and thus worth the resources to seek an extension. Due to this upfront work, FCC officials said that licensees are likely to submit high-quality extension requests and refrain from submitting unjustified extension requests, which leads to a high percentage of granted requests.

Not surprisingly, we also found that buildout requirements were more likely to be met when all extension requests for a license were granted (see table 7). For Broadband PCS, buildout requirements were met for 84 percent of licenses with granted extension requests while buildout requirements were met for 40 percent of licenses with dismissed extension requests. For 39 GHz, the difference is starker, as buildout requirements were met for 63 percent of licenses with granted extension requests, and buildout requirements were not met for any of the licenses with both granted and dismissed extension requests. Two of the 39 GHz licensees we interviewed said they benefitted from being granted an extension, as the additional time enabled both licensees to meet the buildout requirements for many of their licenses.

Many experts, licensees, and industry associations we interviewed said that extensions can be beneficial, but some concerns were raised. Some licensees and industry associations we interviewed said that extensions of buildout requirements can provide needed flexibility and be in the public interest. Officials from one industry association said that licensees sometimes encounter an unexpected problem—such as interference with other licensees—and need more time to complete the buildout. Officials from a few industry associations said that extensions provide flexibility when a company has a problem that calls for an extension, especially if a large amount of capital has been invested in the buildout. However, a few licensees and industry associations said that FCC can be inconsistent in granting extensions or that the threshold used to grant extensions was unclear. One licensee and officials from two industry associations, for example, said that FCC has granted many extensions in the past but is now less willing to do so. With respect to the guidance on extensions, officials from one industry association said that FCC’s process provides no certainty as to whether a licensee will get an extension, as they felt that the threshold FCC uses to grant extensions is not clear. FCC officials stated that they review requests for extensions on a case-by-case basis and analyze whether each request meets the legal standard necessary to receive an extension. They added that because the facts are different for each case, an outside party or licensee might observe that the outcomes for extensions were inconsistent, even when the criteria are consistent. Moreover, a few experts had negative opinions on the frequency with which extensions are granted. One expert said that FCC’s extensions have set a precedent of extending buildout requirements, which has created an impression that the requirements are not necessarily enforced. Similarly, according to another expert, while the extensions that FCC grants seem reasonable, granting extensions can undermine the purpose of the buildout requirements.

Though infrequent, instances involving FCC delays in reviewing filings— both required notifications and extension requests—can pose problems for licensees. As noted above, we found that 24 220 MHz phase II licenses had filed required notifications that were waiting to be approved or dismissed by FCC. Nineteen of these pending required notifications were filed 4 or more years ago. A few licensees we interviewed said that such delays in processing required notifications for market-based wireless services can create uncertainty. For example, two licensees said that FCC delays in approving a required notification could cause problems or delay the selling or leasing of a license. For extension requests, another licensee said that delays in FCC’s response creates risks for licensees and can cause a licensee to expedite construction and spend additional money in case the extension is not granted and the original buildout deadline stands. FCC officials said that they aim to complete reviews as quickly as possible, but do not have a target time for completing reviews. For required notifications, they added that the time needed to complete a review varies depending on the volume of licenses in a service (as many required notifications could be submitted at the same time), the staff resources available, whether a notification contains sufficient information, and what other priorities face FCC or WTB at a given time. For requests for extensions, FCC officials said reviews can take more time compared to other filings as FCC must determine whether the request meets the criteria for an extension and often has to ask a licensee for additional information to better understand the request, among other things. For the 19 filings that have been pending for 4 or more years mentioned above, FCC noted that all these filings aim to demonstrate that the licensees are providing substantial service, and the filings remain pending due to resource limitations, workload priorities, and novel policy, legal, and technical issues the filings present.

Stakeholders Generally Support Buildout Requirements but Identified Changes and Alternative Tools That They Thought Could Better Meet Goals

Most Selected Stakeholders Supported Buildout Requirements but Thought the Requirements More Effectively Met Some Goals Than Others

Nearly all licensees and industry associations we interviewed said that they support FCC’s having buildout requirements for wireless services because the requirements help ensure that spectrum will be put to use. In particular, all 10 licensees we spoke with said that they support having buildout requirements for spectrum licenses. Licensees mostly said that the buildout requirements are effective in preventing spectrum warehousing by making licensees accountable for putting the spectrum to use within a specified time frame. For example, one licensee elaborated that there needs to be some kind of buildout requirement in place or the potential for companies to hold spectrum without providing service would increase. Similarly, the majority of industry associations that we spoke with—6 out of 9—support buildout requirements for the same reasons that the licensees cited. However, one association that opposed buildout requirements said the requirements are cumbersome for licensees.

Officials at another industry association were ambivalent, saying that the effectiveness of buildout requirements depends on the type of wireless service, as the requirements make more sense for site-based wireless services than market-based wireless services.

In contrast, spectrum policy experts we spoke with were more mixed in their opinions, with most experts being either ambivalent about or unsupportive of buildout requirements. Two experts who opposed buildout requirements said that there are better alternatives for promoting spectrum efficiency, such as spectrum sharing and encouraging more industry competition. Five experts said that they were ambivalent about the requirements for several reasons, including that the requirements are set too weak or undermined by FCC’s granting extensions; as previously mentioned, extensions were requested for 9 percent of licenses we examined, and FCC granted 74 percent of these extension requests. In addition, three experts said that the presence of buildout requirements can lower auction revenues collected by FCC. According to one expert, buildout requirements could force a licensee to deploy a network that might not be the most efficient, which could lower the licensee’s expected profits and thus willingness to pay for the license. Only one expert specifically supported buildout requirements without qualification, stating that the requirements make licensees consider whether they will put the wireless license to use before they decide to acquire it.

Beyond these broader stakeholder opinions on buildout requirements, stakeholder opinions on the effectiveness of buildout requirements in meeting commonly cited goals for the requirements were more varied. Of four goals commonly cited for buildout requirements, stakeholders tended to report that buildout requirements are effective in meeting two of these goals: encouraging licensees to provide service in a timely manner and preventing warehousing of spectrum. The stakeholders had mixed views on the effectiveness of buildout requirements in meeting the other two goals: promoting innovative services and promoting services to rural areas.

Encouraging licensees to provide service in a timely manner. Many of the stakeholders whom we interviewed said that the buildout requirements were effective in meeting this goal. More specifically, 9 of 10 licensees and 7 of 9 industry associations said that the requirements were effective in meeting this goal because, for example, they impose construction deadlines that require licensees to put the spectrum to use or surrender the license. In contrast, experts were mixed in their opinions, with 4 of 9 experts saying the requirements were ineffective. For example, one expert said that buildout requirements are not effective in encouraging timely service because FCC does not set buildout requirements that are overly onerous in terms of how long licensees have to meet benchmarks.

Preventing the warehousing of spectrum. Many stakeholders said that the buildout requirements were effective in meeting this goal. In particular, 7 of 10 licensees and 6 of 9 industry associations said that buildout requirements are effective, while experts were mixed. One licensee we interviewed said that buildout requirements can create legitimate pressure for licensees to use the spectrum or offer it for lease or sale in the secondary market, through which FCC enables licensees to lease or sell portions of the licensed spectrum rights to others. In contrast, 4 of 9 experts said that buildout requirements are ineffective or neither effective nor ineffective in helping FCC meet this goal. For example, one expert said that despite having buildout requirements, FCC’s enforcement gives licensees an opportunity to take their time in putting the licensed spectrum to use because the licensees can apply for waivers and extensions and the buildout requirements themselves are not very strict. However, licensees and experts we interviewed generally said they did not believe that spectrum warehousing is a major problem, in their experience. One licensee, for example, said that it does not have an incentive to warehouse spectrum because of high consumer demand for its services.

Promoting the provision of innovative services throughout the license areas. All three groups of stakeholders were mixed in their views on the effectiveness of buildout requirements in promoting innovative services. Licensees and industry associations mostly reported that they thought buildout requirements were neither effective nor ineffective in meeting this goal, and a majority of the experts said that buildout requirements are ineffective in promoting innovative services. For example, three licensees said that innovative services are not directly related to buildout requirements because market forces, such as consumer demand and competition, are what drive innovation. Moreover, two licensees and three experts said that buildout requirements could actually be counter-productive by causing licensees to use older or less innovative technologies to deploy service more quickly.

Encouraging the provision of services to rural areas. Stakeholders were mixed in their views about whether buildout requirements help promote services in rural areas. For example, four licensees said that the buildout requirements were effective while four said they were ineffective, and five experts said that the requirements were effective while two experts said they were ineffective. The licensees and industry association representatives noted that building out to rural areas is difficult and expensive and the high costs associated with construction in these areas are rarely recovered by providing service to sparsely populated areas with few customers. A few stakeholders across all three groups added that geographic coverage requirements are more effective in promoting rural service than population coverage requirements. For example, one industry association said that geographic coverage requirements better promote rural buildout, particularly for licenses covering large geographic areas; if a large geographic-area license has a population coverage requirement, a licensee might be able to meet the requirement by serving the relatively densely populated areas and leaving the rural areas unserved.

Stakeholders Identified a Variety of Changes and Alternative Tools That They Thought Could Better Meet Commonly Cited Goals for Buildout Requirements Changes to Buildout

Requirements

While buildout requirements are generally supported, some stakeholders we spoke with said that the requirements were not effective in meeting some of the commonly cited goals, in particular promoting innovative services and services to rural areas, as discussed above. Therefore, 22 of 28 stakeholders we spoke with identified changes that they said could improve the effectiveness of buildout requirements for wireless services to meet the goals identified above, in particular for market-based services. The most frequently mentioned changes or enhancements include the following:

More clarity. Four licensees, two industry associations, and three experts said additional clarity could make buildout requirements more effective. The four licensees, for example, reported that more clarity in the service rules could allow both FCC and licensees to better meet goals by removing uncertainty. Specifically, stakeholders said more clarity could be provided through greater detail about what could constitute substantial service or about the engineering parameters licensees should use in their required notifications. According to one licensee, any clarification on a required process or rule is helpful, and for buildout requirements, more specific guidance might help eliminate some back and forth needed for FCC to approve a required notification. FCC officials said that the Commission sets specific requirements for waivers and extension requests, as well as specific buildout requirements, and that it reviews licensee notifications and requests on a case-by-case basis.

More robust and transparent enforcement. Three industry associations, two experts, and a licensee said that the self- certification process, while efficient and appropriate, could be bolstered by more visible enforcement, such as using spot checks to verify licensees’ required notifications. For example, one expert said that to ensure effectiveness of the buildout requirements, FCC could conduct random spot checks to see that licensees are providing services upon meeting the buildout requirement. Similarly, to increase transparency, an industry association said that FCC could better educate licensees about the administrative aspects of filing requests or notifications and then conduct spot checks and issue fines if licensees are not providing services. These licensees and industry associations also said that more consistent enforcement entails more transparency and consistency in FCC’s processes for granting extensions and waivers.

Different penalties. Some stakeholders—two licensees and two experts—said that FCC could change the penalty for not meeting a buildout requirement. Many licensees, industry associations, and experts said that the penalty of license termination was too strict. Specifically, officials from one industry association said that with termination, licensees face the loss of all their investment in constructing infrastructure if they have to surrender the license for not meeting buildout requirements. Some of these stakeholders favored a use-it-or-share-it approach whereby a licensee would have to make spectrum for which it did not meet a buildout requirement available to others through leasing or sharing. According to one expert, use it or share it could create opportunities for other users to benefit by using spectrum that is lying fallow more immediately, even if only temporarily, or providing a stronger incentive for a licensee to make secondary market arrangements to put spectrum to use.

More opportunities to align licensees’ goals with buildout requirements. Two licensees and one industry association noted that FCC’s buildout requirements do not necessarily align with a licensee’s business plans, particularly for market-based services. Two licensees said FCC could provide more upfront feedback to licensees on whether a licensee’s plan to meet a buildout requirement would be accepted by the Commission. These licensees said that through such early interaction with FCC, licensees might invest in building their systems and meet buildout requirements in tandem, rather than potentially having to invest in additional infrastructure simply to meet a buildout requirement to save a license. For example, one licensee said it currently has to consider two parallel tracks—its business plan and FCC buildout requirements—when building a system, a situation that can increase costs and make buildout less efficient. The licensee believed it could more efficiently construct its system if these two tracks could be brought closer together early in the license term. FCC officials told us that licensees can engage with FCC to obtain informal guidance before filing notifications to discuss the sufficiency of their plans and avoid potential problems. One industry association also said that FCC could provide licensees with additional ways to demonstrate meeting a buildout requirement, beyond a single requirement or safe harbor for substantial service, to distinguish licensees that are warehousing spectrum from those who are working to put it to use.

Alternative Tools

In addition to changes to buildout requirements, stakeholders from each of the three groups we spoke with identified alternatives to buildout requirements that they said could better meet the four commonly cited goals, including provision of innovative services and service to rural areas. We also identified additional support for stakeholder-identified tools and other tools through a review of our previous reports on spectrum management and comments filed in response to FCC proceedings related to buildout requirements for spectrum licenses. Some alternative tools could be used in place of buildout requirements, and others could complement the buildout requirements with the intent to better meet the goals and promote efficient use of spectrum. Table 8 summarizes the alternatives to buildout requirements that stakeholders identified as tools that could better meet each of the four commonly cited goals.

Secondary markets. FCC enables licensees to make transactions through secondary markets, such as leasing spectrum rights to other licensees; this process facilitates licensees selling or leasing unneeded spectrum rights by negotiating their own terms. Three licensees and two experts said that these transactions could promote the provision of timely service by allowing for accelerated transactions to a licensee that wants to deploy wireless services sooner and without the additional time needed for FCC review of the transaction. Some of these licensees and experts also said that this alternative may help better meet the goal of preventing spectrum warehousing by allowing a licensee, which does not want to deploy service in the spectrum in the near future, to recover costs by leasing or selling the spectrum rights to others that want to put the spectrum to use more immediately.

Reliance on market forces. A few licensees and experts said that relying more on market forces could help spur competition and ultimately encourage licensees to provide timely and innovative services. FCC already relies on market forces to some degree by, for example, auctioning licenses. Three licensees and two experts we spoke with said that FCC could further implement or bolster policies to promote competition that better motivate licensees to build or expand their networks and provide services more quickly than buildout requirements alone. Furthermore, one expert said that FCC already promotes competition among existing licensees as well as encouraging entry for others through the auctioning process, so buildout requirements are not needed in settings where there is sufficient competition to encourage licensees to acquire and put spectrum to use.

Flexible-use licenses. With traditional licenses, the use or service is limited to the specific terms of the license (e.g., broadcast a television signal in a specific geographic market), but flexible-use licenses allow for a wider array of uses without having to seek additional FCC authorization. Therefore, several stakeholders we spoke with said that FCC could do more to allow flexible-use licenses and that this might speed up wireless service deployment and help meet the goal of promoting timely service. FCC officials said that the Commission does propose to issue flexible-use licenses when circumstances permit but that flexible-use licenses are not appropriate for allowing certain services in specific bands, such as broadcast services in a mobile wireless band, or when technical limitations of a band limits flexibility. According to stakeholders, flexible-use licenses could also help promote innovative services. One licensee, for example, said that flexible- use licenses allow it to update its networks and technology without changing bands or asking FCC to modify licenses.

Spectrum sharing. Through our interviews and review of two FCC proceedings, three experts and one licensee reported that enabling spectrum sharing may encourage licensees to put licensed spectrum to use while allowing them to increase efficiency in their business plans. This cooperative use of spectrum, with multiple users agreeing to access the same spectrum at different times or locations, could allow licensees to provide service more quickly and help prevent warehousing of spectrum. For example, one licensee said that having a spectrum-sharing policy would be a good supplement to buildout requirements; specifically, if a licensee does not meet its buildout requirements, FCC could require that the licensee negotiate sharing or leasing for the unused part of the license to help put it to use in timely manner. Similarly, one expert said sharing could enable others to put spectrum to use in cases where the licensee is not ready to use the spectrum, thus putting the spectrum to use more quickly, and might help discourage licensees from warehousing spectrum.

Smaller license areas. Through our interviews and review of FCC proceedings, two licensees and two experts we spoke with said smaller geographic area licenses could better encourage service to rural areas. One licensee said that for market-based services, auctioning smaller-sized licenses could allow entities, such as rural wireless licensees, to bid on the specific areas they want to serve. One industry association commented that a larger inventory of smaller, and likely more affordable, licenses might attract the small and rural providers that best know and can best serve rural areas. Also, as previously discussed, another industry association commented that licensing exclusively by larger blocks could disfavor competition and discourage deployment of services in rural and less densely populated areas.

Subsidies. Through interviews, two licensees and two experts said that using subsidies would be a more effective way to help promote service to rural areas. One example of a subsidy is the Universal Service Fund, in which FCC establishes programmatic goals and distributes a subsidy to assist in efforts to increase nationwide access to advanced wireless services. Two experts said that the buildout requirements are vague and represent a crude and untargeted approach to addressing a specific goal like promoting services to underserved and unserved areas in rural locations. For example, one expert said that while a specially designed buildout requirement may be effective in prompting a licensee to provide service to rural areas, using a subsidy to procure an entity that is willing to provide service would be a more direct and effective way to meet the goal. One licensee said that buildout requirements have a limited ability to promote service to rural areas since it is often not economical for a licensee to build a system in areas that are sparsely populated; in these cases, subsidies can better encourage licensees to serve these areas.

Spectrum usage fees. A few licensees we interviewed said spectrum usage fees may be a good alternative to buildout requirements to help prevent spectrum warehousing, particularly for licenses not obtained through auctions. Usage fees could help encourage licensees to use spectrum more efficiently or pursue sharing opportunities once they bear the opportunity cost of letting licensed spectrum sit idle. For example, one licensee said that if spectrum is made available for free, a licensee may have less incentive to put it to use or use it efficiently compared to a licensee that bought its spectrum at auction. For this reason, a few licensees noted that when FCC began using auctions to assign spectrum, there was a debate about whether buildout requirements were needed for auctioned licenses since those who paid to acquire spectrum have demonstrated their commitment to use the spectrum by paying for it.

Agency Comments

We provided a draft of this report to FCC for review and comment. FCC provided technical comments that we incorporated throughout the report as appropriate.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Chairman of the Federal Communications Commission and the appropriate congressional commitees. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov.

If you or 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. GAO staff who made key contributions to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

This report examines Federal Communications Commission (FCC) buildout requirements for wireless services and the efficient use of spectrum. In particular, this report provides information on (1) the buildout requirements established by FCC for spectrum licenses for wireless services, (2) the extent that FCC follows its process to enforce buildout requirements for wireless services, and (3) stakeholder opinions on the extent that goals for buildout requirements have been met.

To describe FCC buildout requirements for wireless services, we reviewed FCC regulations and guidance on buildout requirements for services that use spectrum. We also interviewed FCC officials to understand which services have buildout requirements, the general process used to set buildout requirements for a service, and what factors FCC considers when setting buildout requirements for a service. According to FCC, the Wireless Telecommunications Bureau (WTB) is responsible for granting and monitoring licenses for wireless services that use spectrum. For this review, we focused on guidance and processes related to buildout requirements for licenses for wireless services, which amounts to nearly 2 million licenses.

To describe FCC’s enforcement process, we reviewed FCC regulations and guidance to determine the steps FCC takes to monitor and enforce buildout requirements for wireless services. In addition, we interviewed FCC officials to learn about different parts of the enforcement process to determine licensee responsibilities and actions, FCC responsibilities and actions, and which FCC actions are automated in the Universal Licensing System (ULS) licensing database.

To examine FCC’s enforcement of buildout requirements for wireless services, we selected five wireless services and analyzed data on them from FCC’s ULS database. We selected the five services to ensure variety in type of service or use, type of buildout requirement (e.g., population coverage or substantial service), how licenses were assigned (e.g., auctions), and the number of licenses in the service. We also considered recommendations from FCC officials and other interviewees when selecting among wireless services. As a result, we selected three market-based services—broadband personal communications service (PCS), 220 megahertz (MHz) phase II, and 39 gigahertz (GHz)—and two site-based services—industrial/business private land mobile radio below 700 MHz and fixed microwave. Tables 1 and 3 in the report provide information on how each selected service aligns with the criteria we used to select wireless services. The results of the data analysis for these five services are not generalizable to other wireless services.

For the five selected wireless services, we analyzed data for licenses that would have buildout requirements on or before December 31, 2012. We picked December 31, 2012, to allow sufficient time after the buildout deadline for any licensee or FCC action—such as FCC review of a licensee’s notification that it met the requirement—to occur and be entered in ULS. For the market-based services, we included all licenses that would have a buildout requirement on or before December 31, 2012, based on the auction dates for the licenses and the length of the buildout requirement in regulation. For example, we included Broadband PCS licenses awarded at auctions between 1995 and 2007; since these licenses have a 5-year buildout requirement, the buildout deadlines fell between 2000 and 2012. For site-based services, we similarly sought to include licenses that would have buildout requirements due on or before December 31, 2012. However, due to the high volume of licenses in these two services, we limited our analysis to new licenses that would have a buildout requirement during calendar year 2012; that is, we did not include modifications to existing licenses, for which FCC also includes buildout requirements. Private land-mobile-radio licenses below 700 MHz, for example, have a 12-month buildout requirement, so we included new licenses granted during calendar year 2011 that would have a buildout deadline during calendar year 2012. Appendix III contains additional information on the number and type of licenses in each wireless service included in our analysis, such as the auction numbers and dates for market-based services.

For each service, we analyzed license data to determine the outcomes of buildout requirements and examine FCC’s enforcement of buildout requirements. We used license and application data from the ULS public access downloads as of September 1, 2013. In particular, we examined (1) the number of licenses that did and did not have buildout requirements; (2) the outcomes for licenses that had buildout requirements; (3) the number of licenses with requests for extensions; and (4) for licenses with requests, whether the request was granted or dismissed.

With respect to the outcomes for licenses that had buildout requirements, we examined the number of licenses in each wireless service that: met the requirement, including whether it met the requirement on did not meet the requirement and was terminated; did not meet the requirement and remained active after the did not reach the buildout deadline, meaning that the license was (1) canceled on or before the buildout deadline, (2) otherwise terminated before the buildout deadline, or (3) expired on or before the buildout deadline.

For licenses with outcomes that did not appear to align with FCC’s enforcement process, we conducted additional research to understand the circumstances for these licenses. Specifically, (1) licenses that met the buildout requirement late and (2) licenses that did not meet the requirement and were not terminated on the buildout deadline. For these licenses, we reviewed additional information using ULS’s online license search to determine whether FCC followed its enforcement processes. We also asked FCC officials about the general circumstances surrounding these licenses. Overall, a small percentage of licenses had one of these outcomes.

Since some licenses had more than one buildout requirement and thus could have more than one outcome, we developed rules to classify these licenses. For market-based licenses with more than one buildout requirement on or before December 31, 2012, we generally classified the license’s buildout outcome by the outcome for the second buildout requirement. For example, if a first buildout requirement was met but the license was canceled before the second buildout requirement, we classified the outcome as “canceled on or before buildout requirement.” However, to be classified as “met,” both the first and second requirement had to be met for a license. For the site-based services, a license can authorize multiple frequencies, and each frequency could have a buildout requirement. For each site-based license, we assessed the outcomes for all frequencies and used this information to report an outcome for the license. For example, if the buildout requirements were met for all frequencies, we classified the outcome as “met.” If the buildout requirements were met for some frequencies but not met for other frequencies (meaning that those frequencies were terminated), we classified the license as “some met/some not met.” When examining extension requests for licenses in all five services, we assessed whether any extension request was filed for the license.

Based on interviews with FCC officials, as well as reviewing system documentation and electronic data testing, we determined that these data were sufficiently reliable for our purposes. Appendix III contains detailed results of the analysis of ULS data for each of the five selected wireless services.

To assess the effectiveness of FCC’s enforcement, we also selected and interviewed a sample of industry associations and licensees. We conducted semi-structured interviews with industry associations and licensees to gather their opinions on FCC’s enforcement process, including the clarity of FCC guidance on buildout requirements, the timeliness of FCC responses to licensee requests and other applications, and their experiences with ULS. We selected both industry associations and licensees to cover the five selected wireless services, and we further selected licensees to ensure variety in licensee type and size. The opinions from these industry associations and licensees are not generalizable.

To gather stakeholder opinions on the effectiveness of buildout requirements, we selected and interviewed a sample of industry stakeholders, including spectrum policy experts, industry associations, and licensees. To determine the goals for buildout requirements, we reviewed statute, FCC documents from recent rulemakings, and other FCC budget and performance documents to identify frequently cited goals for buildout requirements. In addition to the general goal of promoting efficient or productive use of spectrum, we identified the following four goals: encouraging licensees to provide service in a timely manner, promoting the provision of innovative services throughout the encouraging provision of services to rural areas, and preventing the warehousing of spectrum.

We conducted semi-structured interviews with stakeholders to gather their opinions on the extent that buildout requirements meet each of the four goals as well as reasons or examples to support these opinions (see table 9). We also asked what changes, if any, could make buildout requirements more effective and what alternative tools FCC could use to more directly or better meet the four goals. To select experts, we included individuals based on participation in recent GAO reviews on spectrum policy, publications on spectrum policy, and recommendations from other interviewees. In particular, we sought to interview individuals who appeared at least twice across the criteria or participated in at least two recent GAO reviews. We selected industry associations and licensees as described above. The views of the selected stakeholders we interviewed are not generalizable.

To supplement these interviews, we reviewed our previous reports on spectrum management and filings in two recent FCC proceedings that sought comments on buildout requirements for wireless services. We identified and reviewed filings in the dockets for the following two proceedings: 07-293, In the Matter of Establishment of rules and policies for the Digital Audio Radio Satellite Service in the 2310-2360 MHz Frequency Band and 12-268, In the Matter of Expanding the Economic and Innovation Opportunities of Spectrum Through Incentive Auctions. For each proceeding, we reviewed filings made by licensees, industry associations, and other companies and associations and summarized opinions on whether buildout requirements are effective and any changes that could be made to improve buildout requirements.

Appendix II: Buildout Requirements for Spectrum Licenses

Appendix III: Outcomes of Buildout Requirements for Selected Wireless Services

Tables 24 to 37 provide results from our analysis of FCC’s ULS data for licenses for five selected wireless services. Among other things, these tables tabulate the number of licenses by auction, buildout requirement outcomes (e.g., whether a license met the buildout requirement), and extension request outcomes. Appendix I contains information on the scope and methodology of this analysis.

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov.

Staff Acknowledgments

In addition to the contact person named above, Michael Clements, Assistant Director; Richard Brown; Stephen Brown; Andy Clinton; Leia Dickerson; Mya Dinh; Bert Japikse; Joanie Lofgren; Joshua Ormond; Amy Rosewarne; Hai Tran; and Elizabeth Wood made key contributions to this report.