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Testimony: 

Before the Committee on Commerce, Science, and Transportation United 
States Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EST: 

Tuesday, March 14, 2006: 

Telecommunications: 

Options for and Barriers to Spectrum Reform: 

Statement of JayEtta Z. Hecker, Director, Physical Infrastructure 
Issues: 

GAO-06-526T: 

GAO Highlights: 

Highlights of GAO-06-526T, testimony before the Committee on Commerce, 
Science, and Transportation, United States Senate: 

Why GAO Did This Study: 

The radio-frequency spectrum is used to provide an array of wireless 
communications services that are critical to the U.S. economy and 
various government missions, such as national security. With demand for 
spectrum exploding, and most useable spectrum allocated to existing 
users, there is growing concern that the current spectrum management 
framework might not be able to respond adequately to future demands. 
This testimony, which is based on previous GAO reports, provides 
information on (1) the extent to which the Federal Communications 
Commission (FCC) has adopted market-based mechanisms for commercial 
use, (2) the extent to which market-based mechanisms have been adopted 
for federal government users of spectrum, (3) options for improving 
spectrum management, and (4) potential barriers to spectrum reform. 

What GAO Found: 

FCC is incrementally adopting market-based approaches for managing the 
commercial use of spectrum. Market-based mechanisms can help promote 
the efficient use of spectrum by invoking the forces of supply and 
demand. For example, although FCC currently employs largely a command-
and-control process for spectrum allocation, it has provided greater 
flexibility within certain spectrum bands. In addition, FCC began using 
auctions to assign spectrum licenses for commercial uses in 1994. 
Finally, FCC has taken steps to facilitate greater secondary market 
activity, which may provide an additional mechanism to promote the 
efficient use of spectrum. 

While some countries have adopted market-based mechanisms to encourage 
the efficient use of spectrum by government agencies, the Department of 
Commerce’s National Telecommunications and Information Administration 
(NTIA) has not adopted similar mechanisms for federal government use in 
the United States. NTIA imposes fees designed to recover only a portion 
of its cost to administer spectrum management, rather than fees that 
would more closely resemble market prices and thus encourage greater 
spectrum efficiency among government users; currently, NTIA does not 
have authority to impose fees that exceed its spectrum management 
costs. However, adopting market-based mechanisms for federal government 
use of spectrum might be difficult or undesirable in some contexts 
because of the primacy of certain government missions, the lack of 
flexibility in use of spectrum for some agencies, and the lack of 
financial incentives for government users. 

Industry stakeholders and experts have identified a number of options 
for improving spectrum management. The most frequently cited options 
include (1) extending FCC’s auction authority, (2) reexamining the use 
and distribution of spectrum, and (3) ensuring clearly defined rights 
and flexibility in commercial spectrum bands; there was no consensus on 
these options, except for extending FCC’s auction authority. Given the 
success of FCC’s use of auctions and the overwhelming support for 
extending FCC’s auction authority, GAO suggested that the Congress 
consider extending FCC’s auction authority beyond 2007. Congress 
extended FCC’s auction authority to 2011 with the passage of the 
Deficit Reduction Act of 2005. 

The current spectrum management framework may pose barriers to reform, 
since neither FCC nor NTIA has been given ultimate decision-making 
authority over all spectrum use, or the authority to impose fundamental 
reform, such as increasing the reliance on market-based mechanisms. 
Under the divided management framework, FCC manages spectrum for 
nonfederal users, including commercial uses, while NTIA manages 
spectrum for federal government users. As such, FCC and NTIA have 
different perspectives on spectrum use. Further, spectrum management 
issues and major reform cross the jurisdictions of both agencies. Thus, 
contentious and protracted negotiations arise over spectrum management 
issues. 

What GAO Recommends: 

In previous reports, GAO recommended that (1) the Secretary of Commerce 
and FCC should jointly develop a national spectrum plan to guide 
decision making, and (2) the relevant administrative agencies and 
congressional committees work together to develop and implement a plan 
for the establishment of an independent commission that would conduct a 
comprehensive examination of current spectrum management. To date, 
these recommendations have not been implemented. 

www.gao.gov/cgi-bin/getrpt?GAO-06-526T. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact JayEtta Z. Hecker at 
(202) 512-2834 or heckerj@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Committee: 

We appreciate the opportunity to provide testimony on spectrum reform 
issues. As you know, the radio-frequency spectrum is used to provide an 
array of wireless communications services that are critical to the U.S. 
economy and various government missions, such as national security. 
Demand for radio-frequency spectrum has exploded over the past several 
decades as new technologies and services have been--and continue to be-
-brought to the market in the private sector, and new mission needs 
unfold among government users. As a result, nearly all parties are 
becoming increasingly concerned about the availability of spectrum for 
future needs because most of the usable spectrum in the United States 
has already been allocated to existing services and users. Compounding 
this concern is evidence that some of the spectrum is currently 
underutilized. Many parties believe that spectrum management reform-- 
such as greater reliance on market-based mechanisms that invoke the 
forces of demand and supply--is essential to meeting the growing and 
unpredictable demand for spectrum. 

My statement today will identify (1) the extent to which the Federal 
Communications Commission (FCC) has adopted market-based mechanisms for 
commercial uses of spectrum,[Footnote 1] (2) the extent to which market-
based mechanisms have been adopted for federal government use of 
spectrum, (3) options for improving spectrum management, and (4) 
potential barriers to spectrum reform. My comments are based on our 
body of work on spectrum management, including our recently issued 
report to this Committee;[Footnote 2] these reports were prepared in 
accordance with generally accepted government auditing standards. 

In summary: 

* FCC is incrementally adopting market-based approaches to managing the 
commercial use of spectrum. Market-based mechanisms can help promote 
the efficient use of spectrum by invoking the forces of supply and 
demand--that is, they provide users an incentive to use the spectrum as 
efficiently as possible. Examples of market-based mechanisms include 
introducing flexibility in the use of spectrum, using auctions to 
assign licenses, and enhancing the use of secondary markets as a means 
for companies to obtain access to spectrum. FCC has adopted these 
mechanisms for commercial uses. For example, although FCC currently 
employs largely a command-and-control process for spectrum allocation, 
it has provided greater flexibility within certain spectrum bands. In 
addition, FCC began using auctions to assign spectrum licenses for 
commercial uses in 1994. According to industry stakeholders, FCC's 
implementation of auctions is seen as an improvement over comparative 
hearings and lotteries, the primary assignment mechanisms employed in 
the past. Finally, FCC has taken steps to facilitate greater secondary 
market activity, which may provide an additional mechanism to promote 
the efficient use of spectrum. 

* While some countries have adopted market-based mechanisms to 
encourage the efficient use of spectrum by government agencies, the 
Department of Commerce's National Telecommunications and Information 
Administration (NTIA) has not adopted similar mechanisms for federal 
government use in the United States. NTIA imposes fees that recover 
only a portion of its cost to administer spectrum management, rather 
than incentive-based fees--that is, fees that more closely resemble 
market prices and thus encourage greater spectrum efficiency among 
government users; currently, NTIA does not have authority to impose 
fees that exceed its spectrum management costs. However, adopting 
market-based mechanisms for federal government use of spectrum might be 
difficult or undesirable in some contexts because of the primacy of 
certain government missions, the lack of flexibility in use of spectrum 
for some agencies, and the lack of financial incentives for government 
users. 

* As we reported in December 2005, industry stakeholders and experts 
have identified a number of options for improving spectrum management. 
The most frequently cited options include (1) extending FCC's auction 
authority, (2) reexamining the use and distribution of spectrum, and 
(3) ensuring clearly defined rights and flexibility in commercially 
licensed spectrum bands; there was no consensus on these options, 
except for extending FCC's auction authority. Given the success of 
FCC's use of auctions and the overwhelming support for extending FCC's 
auction authority, we suggested that the Congress consider extending 
FCC's auction authority beyond the 2007 expiration date. Congress 
extended FCC's auction authority to 2011 with the passage of the 
Deficit Reduction Act of 2005.[Footnote 3] 

* The current management framework may pose barriers to reform since, 
while two agencies have been given responsibility for aspects of 
spectrum management, neither has been given ultimate decision-making 
authority over all spectrum use or the authority to impose fundamental 
reform, such as increasing the reliance on market-based mechanisms. 
Under this divided management framework, FCC manages spectrum for 
nonfederal users while NTIA manages spectrum for federal government 
users. However, spectrum management issues and major reform cross the 
jurisdictions of both agencies. To address these barriers, we have 
previously recommended that (1) the Secretary of Commerce and FCC 
establish and carry out formal, joint planning activities to develop a 
national spectrum plan to guide decision making; and (2) the relevant 
administrative agencies and congressional committees work together to 
develop and implement a plan for the establishment of a commission that 
would conduct a comprehensive examination of current spectrum 
management.[Footnote 4] To date, these recommendations have not been 
implemented. 

Background: 

The radio-frequency spectrum is the part of the natural spectrum of 
electromagnetic radiation lying between the frequency limits of 9 
kilohertz and 300 gigahertz.[Footnote 5] It is the medium that makes 
wireless communications possible and supports a vast array of 
commercial and governmental services. Commercial entities use spectrum 
to provide a variety of wireless services, including mobile voice and 
data, paging, broadcast radio and television, and satellite services. 
Additionally, some companies use spectrum for private tasks, such as 
communicating with remote vehicles. Federal, state, and local agencies 
also use spectrum to fulfill a variety of government missions. For 
example, state and local police departments, fire departments, and 
other emergency services agencies use spectrum to transmit and receive 
critical voice and data communications, and federal agencies use 
spectrum for varied mission needs such as national defense, law 
enforcement, weather services, and aviation communication. 

Spectrum is managed at the international and national levels. The 
International Telecommunication Union (ITU), a specialized agency of 
the United Nations, coordinates spectrum management decisions among 
nations. Spectrum management decisions generally require international 
coordination, since radio waves can cross national borders. Once 
spectrum management decisions are made at the ITU, regulators within 
each nation, to varying degrees, will follow the ITU decisions. In the 
United States, responsibility for spectrum management is divided 
between two agencies: FCC and NTIA. FCC manages spectrum use for 
nonfederal users, including commercial, private, and state and local 
government users under authority provided in the Communications Act. 
NTIA manages spectrum for federal government users and acts for the 
President with respect to spectrum management issues.[Footnote 6] FCC 
and NTIA, with direction from the Congress, jointly determine the 
amount of spectrum allocated to federal and nonfederal users, including 
the amount allocated to shared use. 

Historically, concern about interference or crowding among users has 
been a driving force in the management of spectrum.[Footnote 7] FCC and 
NTIA work to minimize interference through two primary spectrum 
management functions--the "allocation" and the "assignment" of radio 
spectrum. Specifically: 

* Allocation involves segmenting the radio spectrum into bands of 
frequencies that are designated for use by particular types of radio 
services or classes of users. For example, the frequency bands between 
88 and 108 megahertz (MHz) are allocated to FM radio broadcasting in 
the United States. In addition to allocation, FCC and NTIA also specify 
service rules, which include the technical and operating 
characteristics of equipment. 

* Assignment, which occurs after spectrum has been allocated for 
particular types of services or classes of users, involves providing a 
license or authorization to use a specific portion of spectrum to 
users, such as commercial entities or government agencies. FCC assigns 
licenses for frequency bands to commercial enterprises, state and local 
governments, and other entities, while NTIA makes frequency assignments 
to federal agencies. 

When FCC assigns a portion of spectrum to a single entity, the license 
is considered exclusive. When two or more entities apply for the same 
exclusive license, FCC classifies these as mutually exclusive 
applications--that is, the grant of a license to one entity would 
preclude the grant to one or more other entities. For mutually 
exclusive applications, FCC has primarily used three assignment 
mechanisms--comparative hearings, lotteries, and auctions. FCC 
historically used comparative hearings, which gave competing applicants 
a quasi-judicial forum in which to argue why they should be awarded a 
license instead of other applicants. In 1981, partially in response to 
the administrative burden of the comparative hearing process, the 
Congress authorized the use of lotteries, which allowed FCC to randomly 
select licenses from the qualified applicant pool. [Footnote 8] The 
Congress provided FCC with authority to use auctions to assign mutually 
exclusive licenses for certain subscriber-based wireless services in 
the Omnibus Budget Reconciliation Act of 1993.[Footnote 9] Auctions are 
a market-based mechanism in which FCC assigns a license to the entity 
that submits the highest bid for specific bands of spectrum. As of 
November 30, 2005, FCC has conducted 59 auctions for over 56,000 
licenses to select between competing applications for the same license, 
which have generated over $14.5 billion for the U.S. Treasury. However, 
only a very small portion of total licenses has been auctioned. (See 
fig. 1.) 

Figure 1: Percent of Licenses Auctioned: 

[See PDF for image] 

Notes: 

To calculate the percentage of licenses that have been auctioned, we 
divided the number of auctioned licenses by the number of licenses 
included in FCC's three spectrum license databases. 

Licenses can vary considerably in terms of bandwidth, as well as the 
geographic area and population covered. 

[End of figure] 

In some frequency bands, FCC authorizes unlicensed use of spectrum-- 
that is, users do not need to obtain a license to use the 
spectrum.[Footnote 10] Rather, an unlimited number of unlicensed users 
can share frequencies on a non-interference basis. Thus, the assignment 
process does not apply to the use of unlicensed devices. However, 
manufacturers of unlicensed equipment must receive authorization from 
FCC before operating or marketing an unlicensed device. 

FCC Has Adopted Several Market-Based Mechanisms for Commercial Uses: 

To promote the more efficient use of spectrum, FCC is incrementally 
adopting market-based approaches to spectrum management. For instance, 
FCC has introduced some flexibility in the spectrum allocation process, 
although it remains largely a command-and-control process. In addition, 
in 1994, FCC instituted auctions to assign certain spectrum licenses. 
According to industry stakeholders, FCC's use of auctions is seen as an 
improvement over comparative hearings and lotteries, the primary 
assignment mechanisms employed in the past. Finally, FCC has taken 
steps to facilitate greater secondary market activity, which may 
provide an additional mechanism to promote the more efficient use of 
spectrum. 

FCC Has Introduced Some Flexibility in the Spectrum Allocation Process 
but Allocation Remains Largely a Command-and-Control Process: 

FCC currently employs largely a command-and-control process for 
spectrum allocation.[Footnote 11] That is, FCC applies regulatory 
judgments to determine and limit what types of services--such as 
broadcast, satellite, or mobile radio--will be offered in different 
frequency bands by geographic area. In addition, for most frequency 
bands FCC allocates, the agency issues service rules to define the 
terms and conditions for spectrum use within the given bands. These 
rules typically specify eligibility standards as well as limitations on 
the services that relevant entities may offer and the technologies and 
power levels they may use. These decisions can constrain users' ability 
to offer services and equipment of their choosing. 

However, FCC has provided greater operational and technical flexibility 
within certain frequency bands. For example, FCC's rules for Commercial 
Mobile Radio Service (CMRS), which include cellular and Personal 
Communications Services (PCS), are considered less restrictive. Under 
these rules, wireless telephony operators are free to select 
technologies, services, and business models of their choosing. FCC has 
not provided comparable flexibility in other bands.[Footnote 12] For 
example, spectrum users have relatively little latitude for making 
similar choices in frequency bands allocated to broadcast television 
services. 

Further, the Spectrum Policy Task Force Report, a document produced by 
FCC staff, identified two alternatives to the command-and-control 
model: the "exclusive, flexible rights" model, and the "open-access" 
model.[Footnote 13] The exclusive, flexible rights model provides 
licensees with exclusive, flexible use of the spectrum and transferable 
rights within defined geographic areas. This is a licensed-based 
approach to spectrum management that extends the existing allocation 
process by providing greater flexibility regarding the use of spectrum, 
and the ability to transfer licenses or to lease spectrum usage rights. 
The open-access model allows a potentially unlimited number of 
unlicensed users to share frequency bands, with usage rights governed 
by technical standards, but with no rights to interference protection. 
This approach does not require licenses, and as such is similar to 
FCC's Part 15 rules (which govern unlicensed use in the 900 MHz, 2.4 
GHz, and 5.8 GHz bands)--where cordless phones and Wi-Fi technologies 
operate. Both models allow flexible use of spectrum, so that users of 
spectrum, rather than FCC, play a larger role in determining how 
spectrum is ultimately used. FCC's Spectrum Policy Task Force 
recommended a balanced approach to allocation--utilizing aspects of the 
command-and-control; exclusive, flexible rights; and open-access 
models. FCC is currently using elements of these two alternatives 
models, although it primarily employs the command-and-control model. 

FCC's Use of Auctions for Commercial Licenses Is Seen as an Improvement 
Over Past Assignment Mechanisms: 

In 1994, FCC began using auctions--a market-based mechanism that 
assigns a license to the entity that submits the highest bid for 
specific bands of spectrum. FCC's implementation of auctions mitigates 
a number of problems associated with comparative hearings and 
lotteries--the two primary assignment mechanism employed until 1993. 
For example: 

* Auctions are a relatively quick assignment mechanism. With auctions, 
FCC reduced the average time for granting a license to less than 1 year 
from the initial application date, compared to an average time of over 
18 months with comparative hearings. 

* Auctions are administratively less costly than comparative hearings. 
Entities seeking a license can reduce expenditures for engineers and 
lawyers arising from preparing applications, litigating, and lobbying; 
and FCC can reduce expenditures associated with reviewing and analyzing 
applications. 

* Auctions are a transparent process. FCC awards licenses to entities 
submitting the highest bid rather than relying on possibly vague 
criteria, as was done in comparative hearings. 

* Auctions are effective in assigning licenses to entities that value 
them the most. Alternatively, with lotteries, FCC awarded licenses to 
randomly-selected entities. 

* Auctions are an effective mechanism for the public to realize a 
portion of the value of a national resource used for commercial 
purposes. Entities submitting winning bids must remit the amount of 
their winning bid to the government, which represents a portion of the 
value that the bidder believes will arise from using the spectrum. 

As we reported in December 2005, many industry stakeholders we 
contacted, and panelists on our expert panel, stated that auctions are 
more efficient than previous mechanisms used to assign spectrum 
licenses.[Footnote 14] For example, among our panelists, 11 of 17 
reported that auctions provide the most efficient method of assigning 
licenses; no panelist reported that comparative hearings or lotteries 
provided the most efficient method. Of the remaining panelists, several 
suggested that the most efficient mechanism depended on the service 
that would be permitted with the spectrum.[Footnote 15] 

FCC Has Acted to Facilitate Secondary Market Transactions: 

While FCC's initial assignment mechanisms provide one means for 
companies to acquire licenses, companies can also acquire licenses or 
access to spectrum through secondary market transactions. Through 
secondary markets, companies can engage in transactions whereby a 
license or use of spectrum is transferred from one company to another. 
These transactions can incorporate the sale or trading of licenses. In 
some instances, companies acquire licenses through the purchase of an 
entire company, such as Cingular's purchase of AT&T Wireless. 
Ultimately, FCC must approve transactions that result in the transfer 
of licenses from one company to another. 

Secondary markets can provide several benefits. First, secondary 
markets can promote more efficient use of spectrum. If existing 
licensees are not fully utilizing the spectrum, secondary markets 
provide a mechanism whereby these licensees can transfer use of the 
spectrum to other companies that would utilize the spectrum. Second, 
secondary markets can facilitate the participation of small businesses 
and introduction of new technologies. For example, a company might have 
a greater incentive to deploy new technologies that require less 
spectrum if the company can profitably transfer the unused portion of 
the spectrum to another company through the secondary market. Also, 
several stakeholders with whom we spoke noted that secondary markets 
provide a mechanism whereby a small business can acquire spectrum for a 
geographic area that best meets the needs of the company. 

In recent years, FCC has undertaken actions to facilitate secondary- 
market transactions. FCC authorized spectrum leasing for most wireless 
radio licenses with exclusive rights and created two categories of 
spectrum leases: Spectrum Manager Leasing--where the licensee retains 
legal and working control of the spectrum--and de Facto Transfer 
Leasing--where the licensee retains legal control but the lessee 
assumes working control of the spectrum. FCC also streamlined the 
procedures that pertain to spectrum leasing. For instance, the Spectrum 
Manager Leases do not require prior FCC approval and de Facto Transfer 
Leases can receive immediate approval if the arrangement does not raise 
potential public interest concerns.[Footnote 16] While FCC has taken 
steps to facilitate secondary market transactions, some hindrances 
remain. For example, some industry stakeholders told us that the lack 
of flexibility in the use of spectrum can hinder secondary market 
transactions. 

Market-Based Mechanisms Have Not Been Adopted for Federal Government 
Use of Spectrum: 

In some countries, spectrum managers have adopted market-based 
mechanisms to encourage the efficient use of spectrum by government 
agencies. In the United States, NTIA has not adopted incentive-based 
fees for federal government users of spectrum; rather, NTIA applies 
fees that recover only a portion of the cost of administering spectrum 
management. Additionally, adopting market-based mechanisms for 
government use of spectrum might be difficult or undesirable in some 
contexts because of the primacy of certain government missions, the 
lack of flexibility in use of spectrum for some agencies, and the lack 
of financial incentives for government users. 

Incentive-Based Fees Have Not Been Used to Promote Spectrum Efficiency 
Among Federal Government Users of Spectrum in the United States: 

Spectrum managers in some countries have adopted market-based 
mechanisms for government users of spectrum. For example, in Australia, 
Canada, and the United Kingdom, spectrum managers have implemented 
incentive-based fees for government users of spectrum. Incentive-based 
fees are designed to promote the efficient use of spectrum by 
compelling spectrum users to recognize the value to society of the 
spectrum that they use. In other words, these fees mimic the functions 
of a market. These incentive-based fees differ from other regulatory 
fees that are assessed only to recover the cost of the government's 
management of spectrum. 

In the United States, NTIA has not adopted incentive-based fees, or 
other market-based mechanisms, for federal government users of 
spectrum. Currently, NTIA charges federal agencies spectrum management 
fees, which are based on the number of assignments authorized to each 
agency. In our 2002 report, we noted that, according to NTIA, basing 
the fee on the number of assignments, rather than the amount of 
spectrum used per agency, better reflects the amount of work NTIA must 
do for each agency.[Footnote 17] Moreover, NTIA stated that this fee 
structure provides a wider distribution of costs to agencies. However, 
NTIA's fee does not reflect the value of the spectrum authorized to 
each agency, and thus it is not clear how much this encourages the 
efficient use of spectrum by federal agencies. The fee also recovers 
only a portion of the cost of administering spectrum management. NTIA 
does not currently have the authority to impose fees on government 
users that exceed its spectrum management costs.[Footnote 18] 

Applying Market-Based Mechanisms to Federal Government Users May Not Be 
Effective in All Contexts: 

Applying market-based mechanisms might be difficult or undesirable for 
federal government users in some situations. The purpose of market- 
based mechanisms is to provide users with an incentive to use spectrum 
as efficiently as possible. However, the characteristics of government 
use of spectrum impose challenges to the development and implementation 
of market-based mechanisms for federal government users, and in some 
situations, make implementation undesirable. For example: 

* Primacy of certain federal government missions. Because of the 
primacy of certain federal government missions--such as national 
defense, homeland security, and public safety--imposition of market- 
based mechanisms for use of the spectrum to fulfill these missions 
might not be desirable. In fact, NTIA officials have told us that the 
agency rarely revokes the spectrum authorization of another government 
agency because doing so could interfere with the agency's ability to 
carry out important missions. 

* Lack of flexibility in use of spectrum. Market-based mechanisms can 
create an incentive to use spectrum more efficiently only if users can 
actually choose to undertake an alternative means of providing a 
service. In some situations, federal government agencies do not have a 
viable alternative to their current spectrum authorization. For 
example, spectrum used for air traffic control has been allocated 
internationally for the benefit of international air travel. Thus, the 
Federal Aviation Administration has little ability to use spectrum 
differently than prescribed in its current authorizations. In 
situations such as this, market-based mechanisms would likely prove 
ineffective. 

* Lack of financial incentives. If federal government users can obtain 
any needed funding for spectrum-related fees through the budgetary 
process, market-based mechanisms are not likely to be effective. 
However, imposing fees will make the cost visible to agency managers, 
thus providing them information they need if they are to manage 
spectrum use more efficiently. Whether more efficient spectrum use 
actually occurs will depend in part on whether agencies receive 
appropriations for the full amount of the fees or only for some 
portion. If agencies do not receive appropriations for the full amount, 
some pressure will be created, but it will not be as strong as the 
private sector's profit motive. 

Industry Stakeholders and Panelists Suggested Several Options to 
Improve Spectrum Management: 

As we reported in December 2005, industry stakeholders and panelists on 
our expert panel offered a number of options for improving spectrum 
management.[Footnote 19] The most frequently cited options include (1) 
extending FCC's auction authority, (2) reexamining the distribution of 
spectrum--such as between commercial and government use--to enhance the 
efficient and effective use of this important resource, and (3) 
ensuring clearly defined rights and flexibility in commercially 
licensed spectrum bands. There was no consensus on these options for 
improvements among stakeholders we interviewed and panelists on our 
expert panel, except for extending FCC's auction authority. 

Extend FCC's Auction Authority: 

Panelists on our expert panel and industry stakeholders with whom we 
spoke overwhelmingly supported extending FCC's auction authority. For 
example, 21 of 22 panelists on our expert panel indicated that the 
Congress should extend FCC's auction authority beyond September 2007-- 
the date auction authority was set to expire at the time of our expert 
panel. Given the success of FCC's use of auctions and the overwhelming 
support among industry stakeholders and experts for extending FCC's 
auction authority, we suggested that the Congress consider extending 
FCC's auction authority. In February 2006, the Congress extended FCC's 
auction authority to 2011 with the passage of the Deficit Reduction Act 
of 2005.[Footnote 20] 

While panelists on our expert panel overwhelmingly supported extending 
FCC's auction authority, a majority also suggested modifications to 
enhance the use of auctions.[Footnote 21] However, there was little 
consensus on the suggested modifications. The suggested modifications 
fall into the following three categories: 

* Better define license rights. Some industry stakeholders and 
panelists indicated that FCC should better define the rights 
accompanying spectrum licenses, as these rights can significantly 
affect the value of a license being auctioned. For example, some 
industry stakeholders expressed concern with FCC assigning overlay and 
underlay rights to frequency bands when a company holds a license for 
the same frequency bands.[Footnote 22] 

* Enhance secondary markets. Industry stakeholders we contacted and 
panelists on our expert panel generally believed that modifying the 
rules governing secondary markets could lead to more efficient use of 
spectrum. For example, some panelists on our expert panel said that FCC 
should increase its involvement in the secondary market. These 
panelists thought that increased oversight could help to both ensure 
transparency in the secondary market and also promote the use of the 
secondary market. Additionally, a few panelists said that adoption of a 
"two-sided" auction would support the efficient use of spectrum. With a 
two-sided auction, FCC would offer unassigned spectrum, and existing 
licensees could make available the spectrum usage rights they currently 
hold. 

* Reexamine existing small business incentives. The opinions of 
panelists on our expert panel and industry stakeholders with whom we 
spoke varied greatly regarding the need for and success of FCC's 
efforts to promote economic opportunities for small businesses. For 
example, some panelists and industry stakeholders do not support 
incentive programs for small businesses. These panelists and industry 
stakeholders cited several reasons for not supporting these incentives, 
including (1) the wireless industry is not a small business industry; 
(2) while the policy may have been well intended, the current program 
is flawed; or (3) such incentives create inefficiencies in the market. 
Other industry stakeholders suggested alternative programs to support 
small businesses. These suggestions included (1) having licenses cover 
smaller geographic areas, (2) using auctions set aside exclusively for 
small and rural businesses, and (3) providing better lease options for 
small and rural businesses. Finally, some industry stakeholders with 
whom we spoke have benefited from the small business incentive 
programs, such as bidding credits,[Footnote 23] and believe that these 
incentives have been an effective means to promote small business 
participation in wireless markets. 

Reexamine the Use and Distribution of Spectrum: 

Panelists on our expert panel suggested a reexamination of the use and 
distribution of spectrum to ensure the most efficient and effective use 
of this important resource. One panelist noted that the government 
should have a good understanding of how much of the spectrum is being 
used. To gain a better understanding, a few panelists suggested that 
the government systematically track usage, perhaps through a "spectrum 
census." This information would allow the government to determine if 
some portions of spectrum were underutilized, and if so, to make 
appropriate allocation changes and adjustments.[Footnote 24] 

A number of panelists on our expert panel also suggested that the 
government evaluate the relative allocation of spectrum for government 
and commercial use as well as the allocation of spectrum for licensed 
and unlicensed purposes. While panelists thought the relative 
allocation between these categories should be examined, there was 
little consensus among the panelists on the appropriate allocation. For 
instance, as shown in figure 2, 13 panelists indicated that more 
spectrum should be dedicated to commercial use, while 7 thought the 
current distribution was appropriate; no panelists thought that more 
spectrum should be dedicated to government use. Similarly, as shown in 
figure 3, nine panelists believed that more spectrum should be 
dedicated to licensed uses, six believed more should be dedicated to 
unlicensed uses, and five thought the current balance was appropriate. 

Figure 2: Panelists' Views on the Allocation of Spectrum between 
Commercial and Government Use: 

[See PDF for image] 

[End of figure] 

Figure 3: Panelists' Views on the Allocation of Spectrum between 
Licensed and Unlicensed Use: 

[See PDF for image] 

[End of figure] 

Ensure Clearly Defined Rights and Flexibility: 

Similar to a suggested modification of FCC's auction authority, some 
panelists on our expert panel suggested better defining users' rights 
and increasing flexibility in the allocation of spectrum. Better 
defining users' rights would clarify the understanding of the rights 
awarded with any type of license, whether the licensees acquired the 
license through an auction or other means. In addition, some panelists 
stated that greater flexibility in the type of technology used--and 
service offered--within frequency bands would help promote the 
efficient use of spectrum. In particular, greater flexibility would 
allow the licensee to determine the efficient and highly valued use, 
rather than relying on FCC-based allocation and service rules. However, 
some panelists on our expert panel and industry stakeholders with whom 
we spoke noted that greater flexibility can lead to interference, as 
different licensees provide potentially incompatible services in close 
proximity.[Footnote 25] Thus, panelists on our expert panel stressed 
the importance of balancing flexibility with interference protection. 

The Current Framework for Spectrum Management May Pose Barriers to 
Reform: 

Under the current management framework, neither FCC nor NTIA has been 
given ultimate decision-making authority over all spectrum use or the 
authority to impose fundamental reform, such as increasing the reliance 
on market-based mechanisms. FCC manages spectrum for nonfederal users 
while NTIA manages spectrum for federal government users.[Footnote 26] 
As such, FCC and NTIA have different perspectives on spectrum use. FCC 
tends to focus on maximizing public access to and use of the spectrum. 
Alternatively, NTIA tends to focus on protecting the federal 
government's use of the spectrum from harmful interference, especially 
in areas critical to national security and public safety. Further, 
despite increased communication between FCC and NTIA, the agencies' 
different jurisdictional responsibilities appear to result in piecemeal 
efforts that lack the coordination to facilitate major spectrum reform. 
For example, FCC's and NTIA's recent policy evaluations and 
initiatives--the FCC Spectrum Policy Task Force and the Federal 
Government Spectrum Task Force, respectively--tend to focus on the 
issues applicable to the users under their respective 
jurisdictions.[Footnote 27] 

Major spectrum reform must ultimately address multidimensional 
stakeholder conflicts. One source of conflict relates to balancing the 
needs of government and private-sector spectrum users. Government users 
have said that because they offer unique and critical services, a 
dollar value cannot be placed on the government's provision of spectrum-
based services. At the same time, private-sector users have stated that 
their access to spectrum is also critical to the welfare of society, 
through its contribution to a healthy and robust economy. A second 
source of conflict relates to balancing the needs of incumbent and new 
users of spectrum. Since most useable spectrum has been allocated and 
assigned, accommodating new users of spectrum can involve the 
relocation of incumbent users. While new users of spectrum view 
relocations as essential, incumbent users often oppose relocations 
because the moves may impose significant costs and disrupt their 
operations. A third source of conflict relates to existing technology 
and emerging technology. Some new technologies, such as ultra 
wideband,[Footnote 28] may use the spectrum more efficiently, thereby 
facilitating more intensive use of the spectrum. However, users of 
existing technology, both commercial and government, have expressed 
concern that these new technologies may create interference that 
compromises the quality of their services. 

The current spectrum management framework may pose a barrier to 
spectrum reform because neither FCC nor NTIA has ultimate authority to 
impose fundamental reform and these stakeholder conflicts cross the 
jurisdictions of both FCC and NTIA. As such, contentious and protracted 
negotiations arise over spectrum management issues. We previously made 
two recommendations to help further the reform process. First, we 
recommended that the Secretary of Commerce and FCC should establish and 
carry out formal, joint planning activities to develop a national 
spectrum plan to guide decision making.[Footnote 29] Additionally, we 
also recommended that the relevant administrative agencies and 
congressional committees work together to develop and implement a plan 
for the establishment of an independent commission that would conduct a 
comprehensive examination of current spectrum management.[Footnote 30] 
To date, neither recommendation has been implemented. 

Concluding Observations: 

With authorization from Congress, FCC has taken several steps to 
implement a more market-oriented approach to spectrum management. In 
recent years, FCC has taken actions to facilitate secondary-market 
transactions. FCC authorized spectrum leasing for most wireless radio 
licenses with exclusive rights and also streamlined the procedures that 
pertain to spectrum leasing. In addition, FCC has conducted 59 auctions 
for a wide variety of spectrum uses, including personal communications 
services and broadcasting. FCC's auctions have contributed to a vibrant 
commercial wireless industry. The Congress' recent decision to extend 
FCC's auction authority was, in our opinion, a positive step forward in 
spectrum reform. However, more work is needed to ensure the efficient 
and effective use of this important national resource. To help reform 
spectrum management, we have previously recommended that (1) the 
Secretary of Commerce and FCC should establish and carry out formal, 
joint planning activities to develop a national spectrum plan to guide 
decision making; and (2) the relevant administrative agencies and 
congressional committees work together to develop and implement a plan 
for the establishment of a commission that would conduct a 
comprehensive examination of current spectrum management.[Footnote 31] 
To date, these recommendations have not been implemented. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 
respond to any questions you or other Members of the Committee may have 
at this time. 

Contact and Acknowledgments: 

For questions regarding this testimony, please contact JayEtta Z. 
Hecker on (202) 512-2834 or heckerj@gao.gov. Individuals making key 
contributions to this testimony include Amy Abramowitz, Michael 
Clements, Nikki Clowers, Eric Hudson, and Mindi Weisenbloom. 

FOOTNOTES 

[1] FCC manages spectrum use for nonfederal users, including 
commercial, private, and state and local government users. 

[2] GAO, Telecommunications: Strong Support for Extending FCC's Auction 
Authority Exists, but Little Agreement on Other Options to Improve 
Efficient Use of Spectrum, GAO-06-236 (Washington, D.C.: Dec. 20, 
2005); GAO, Telecommunications: Comprehensive Review of U.S. Spectrum 
Management with Broad Stakeholder Involvement is Needed, GAO-03-277 
(Washington, D.C.: Jan. 31, 2003); and GAO, Telecommunications: Better 
Coordination and Enhanced Accountability Needed to Improve Spectrum 
Management, GAO-02-906 (Washington, D.C.: Sept. 30, 2002). 

[3] Pub. L. No. 109-171, §3003, 120 Stat. 4 (2006). 

[4] GAO-02-906 and GAO-03-277. 

[5] Radio signals travel through space in the form of waves. These 
waves vary in length, and each wavelength is associated with a 
particular radio frequency. Radio frequencies are grouped into bands 
and are measured in units of Hertz. The term kilohertz refers to 
thousands of Hertz, megahertz (MHz) to millions of Hertz, and gigahertz 
to billions of Hertz. 

[6] The Department of State also plays a role in spectrum management by 
coordinating and mediating the U.S. position and leading the nation's 
delegation to international conferences on spectrum management. 

[7] Interference occurs when two or more radio signals interact in a 
manner that disrupts the transmission and reception of messages. 

[8] In 1981, Congress added Section 309(i) to the Communications Act to 
give FCC the authority to assign a broad range of licenses by lottery. 
The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 260, 
tit. III, § 3002, terminated FCC's authority to assign licenses by 
lotteries, except with respect to licenses for non-commercial broadcast 
stations and public broadcast stations. See, 47 U.S.C. § 309(i)(5) and 
47 U.S.C. § 397(6). 

[9] 47 U.S.C. § 309(j). In subsequent years, the Congress has modified 
and extended FCC's auction authority, including exempting some licenses 
from competitive bidding, such as licenses for public safety radio 
services and noncommercial educational broadcast services. 

[10] Traditional unlicensed devices are low-powered equipment that 
operate in a limited geographic range, such as cordless phones, baby 
monitors, garage door openers, and wireless access to the Internet. 

[11] NTIA employs a similar process for federal government spectrum 
users. 

[12] In some instances, statutory restrictions are an impediment to 
granting greater flexibility. 

[13] For more information on these alternative spectrum management 
models, including the perceived advantages and disadvantages of each, 
see GAO-06-236. 

[14] See GAO-06-236. We convened, in collaboration with the National 
Academies, two panels of experts to discuss spectrum allocation and 
assignment issues and options to improve spectrum management. The 
panelists convened at the National Academies on August 9, 2005, and 
August, 10, 2005. A total of 23 panelists participated on our two 
expert panels. For more information on the expert panels, see GAO-06-
236. 

[15] For example, some panelists did not support using auctions to 
assign spectrum licenses for public safety services. 

[16] The public interest concerns arise as a result of FCC policies 
pertaining to (1) eligibility and use of the license and spectrum, (2) 
foreign ownership limitations, (3) designated entity and entrepreneur 
benefits, and (4) competition. See Promoting Efficient Use of Spectrum 
Through Elimination of Barriers to the Development of Secondary 
Markets, WT Docket No. 00-230, Second Report and Order, Order on 
Reconsideration, and Second Further Notice of Proposed Rulemaking, 19 
FCC Rcd. 17503 (2004). 

[17] GAO-02-906. 

[18] In its 2005 program assessment of NTIA, OMB noted that NTIA does 
not currently have sufficient mechanisms in place to ensure efficient 
and effective federal spectrum use. OMB further notes that NTIA lacks 
the authority to implement market-based or other incentives to promote 
efficient and effective use of the federal spectrum among federal 
agencies. According to OMB, NTIA plans to study incentives to promote 
the more efficient and effective use of spectrum and seek authority to 
implement incentives, as appropriate. 

[19] GAO-06-236. 

[20] Pub. L. No. 109-171. 

[21] Fifteen of twenty-two panelists suggested modifications to enhance 
the use of auctions. 

[22] Underlay rights allow unlicensed users to operate in the same 
spectrum bands as licensees, as long as the unlicensed users do not 
cause undue interference for licensees. For example, ultra-wideband 
technology operates at very low power levels over a very wide range of 
spectrum, and thus might avoid interfering with licensed spectrum users 
in the same spectrum bands. Overlay rights allow unlicensed users to 
operate in licensed spectrum bands during times or in geographic areas 
where licensees are not using the spectrum. 

[23] A bidding credit is a percentage discount applied to the high bid 
amount if the bidder meets designated entity criteria established in 
the auction rules. In February 2006, FCC issued a notice of proposed 
rule making to consider whether its general competitive bidding rules 
should be modified. 

[24] In February 2006, the Technology CEO Council released a report 
entitled, Freeing Our Unused Spectrum: Toward a 21st Century Telecom 
Policy (Washington, D.C.: Feb. 2006). This report included 
recommendations for FCC and NTIA to examine how efficiently spectrum 
bands are being used and encourage more efficient use of bands that are 
not found to be used efficiently. 

[25] With the current allocation process, FCC attempts to keep 
incompatible service separated to avoid interference. With licensees 
exerting greater control, this protection could be reduced. 

[26] In some countries, a single government entity regulates spectrum 
for all users. For example, Industry Canada has exclusive spectrum 
management responsibility in Canada. 

[27] At a recent NTIA-sponsored workshop addressing spectrum 
management, the topics discussed included issues relevant for both FCC 
and NTIA, and the participants included spectrum managers from several 
government agencies, as well as FCC officials, commercial users, and 
other experts. 

[28] Ultra wideband devices emit a low-power signal over large swaths 
of spectrum. 

[29] GAO-02-906. 

[30] GAO-03-277. 

[31] GAO-02-906 and GAO-03-277.