GAO-03-277, Telecommunications: Comprehensive Review of U.S. Spectrum Management with Broad Stakeholder Involvement Is Needed


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entitled 'Telecommunications: Comprehensive Review of U.S. Spectrum 
Management with Broad Stakeholder Involvement Is Needed' which was 
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Report to Congressional Requesters:



United States General Accounting Office:



GAO:



January 2003:



Telecommunications:



Comprehensive Review of U.S. Spectrum Management with Broad Stakeholder 

Involvement Is Needed:



GAO-03-277:



GAO Highlights:



Highlights of GAO-03-277, a report to Congressional requesters



Why GAO Did This Study:



The radiofrequency spectrum—a natural resource used for wireless 

communications—is a critical input to various commercial and government 

functions. Because of expanding commercial and government demand for 

spectrum, there is increasing debate on how best to manage this 

resource to meet current and future needs. GAO was asked to examine 

whether future spectrum needs can be met, given the current regulatory 

framework; what benefits and difficulties have arisen with the 

application of market mechanisms to spectrum management; and what 

barriers exist to reforming spectrum management. 



What GAO Found:



In the past, the United States relied primarily on a command and 

control approach to spectrum management, wherein the federal 

government largely dictated the use of spectrum. This approach 

generally met commercial and government users’ needs for spectrum. 

However, increased use of commercial wireless services, such as mobile 

telephones, and expanding government agency missions have created 

growing demand for spectrum resources. GAO found that concerns exist 

as to whether the current spectrum-management approach can adequately 

meet future needs for spectrum.



The United States and most other countries that GAO spoke with are 

incrementally adopting market-based mechanisms for spectrum 
management. 

By invoking the forces of supply and demand, market-based mechanisms 

can 

help promote the efficient use of spectrum, especially in an 

environment 

with increasing and unpredictable demand. A prominent example of a 

market-based mechanism is the requirement for commercial spectrum 

users 

to bid at auction for the right to use spectrum. However, because 

of 

mission and system requirements, there is some question as to whether 

these mechanisms can or should be applied to certain government 

functions. Also, legal and technical limitations can, in some 

instances, hinder the application of these mechanisms to commercial 

users.



GAO found several barriers to reforming spectrum management in the 

United States. While active dialogue among key stakeholders is 

ongoing, differing priorities have led to little consensus on 

appropriate reforms. In addition, the current spectrum-management

structure—with multiple agency jurisdictions and a slow 

decisionmaking process—has hindered consideration of whether 

fundamental reform is needed. In the past, commissions—such as the 

Defense Base Closure and Realignment Commission—have been used to 

look at major policy change when complex problems arise.



What GAO Recommends:



GAO recommends that the Chairman of FCC and the Assistant Secretary 

of Commerce for Communications and Information, in consultation 

with other agencies and congressional committees, develop a plan 

for the establishment of an independent commission with wide 

representation to determine whether overarching spectrum management 

reform is needed. GAO received comments from FCC and NTIA stating 

that they would take this recommendation into consideration. Because 

the agencies did not specifically agree to implement our 

recommendation, we have added a matter for congressional 

consideration regarding the establishment of such an independent 

commission.



www.gao.gov/cgi-bin/getrpt?GAO-03-277 



To view the full report, including the scope and methodology, 

click on the link above. For more information, contact Peter 

Guerrero at (202) 512-2834 or guerrerop@gao.gov.



Contents:



Letter:



Results in Brief:



Background:



Concerns Exist That Future Needs for Spectrum Will Be Difficult to 

Meet:



Many Countries Are Adopting Market-Based Mechanisms to Help Meet Future 

Spectrum Needs:



Market Mechanisms May Not Be Effective in All Contexts and May Be 

Difficult to Implement:



Diversity of Views among Stakeholders and Current Regulatory Structure 

Are Barriers to Meeting Future Spectrum Needs:



Conclusions:



Recommendations for Executive Action:



Agency Comments:



Matter for Congressional Consideration:



Appendix I: Scope and Methodology:



Appendix II: Stakeholders’ Views on Auctions and Spectrum 

Royalties:



Stakeholders Identified Several Positive Attributes of Auctions:



Despite Success in Wireless Markets, Concerns Have Been Raised about 

Certain Possible Effects of Auctions:



Few Stakeholders Favor Royalty System of Spectrum Auctions:



Appendix III: Technological Advancements Could Help to 

Relieve Spectrum Scarcity:



Appendix IV: Suggestions for Issues for Consideration by a Commission:



Commission Structure Considerations:



Potential Goals and Objectives of Commission:



Possible Policies to Consider:



Potential Regulatory Structure Options to Explore:



Lessons Learned:



Appendix V: More Details on Spectrum Management in Foreign Countries 

Studied:



Appendix VI: Participants in GAO’s Expert Panel on Spectrum 

Issues:



Appendix VII: Comments from the Department of Commerce:



Appendix VIII: Comments from the Federal Communications Commission:



Appendix IX: Key Contacts and Major Contributors:



GAO Contacts:



Staff Acknowledgments:



Tables:



Table 1: Market-Based Mechanisms Adopted by Countries for Both 

Government and Commercial Users:



Table 2: Market-Based Mechanisms Adopted by Countries for Commercial 

Users Only:



Table 3: Examples of Commissions Examining Major Policy Issues:



Table 4: National Spectrum Regulators:



Table 5: Spectrum-Decision Authority and Techniques for Resolving 

Disagreements Regarding Spectrum Management:



Table 6: Funding for Relocation:



Table 7: Spectrum-Management Reviews:



Figures:



Figure 1: Number of Mobile Telephone Minutes Used per Month, on 

Average, 1996-2001, in Billions:



Figure 2: Countries Studied as Part of GAO’s Review:



Abbreviations:



3G: third-generation wireless services

CSIS: Center for Strategic and International Studies

DOD: Department of Defense

DOJ Department of Justice 

FAA: Federal Aviation Administration 

FEMA: Federal Emergency Management Agency

FCC: Federal Communications Commission

IRAC: Interdepartment Radio Advisory Committee

ITU: International Telecommunication Union

MHz: Megahertz

NTIA: National Telecommunications and Information 

 Administration:



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Contents:



United States General Accounting Office:



Washington, DC 20548:



January 31, 2003:



The Honorable Conrad Burns

The Honorable Ernest F. Hollings

The Honorable Daniel K. Inouye

The Honorable John F. Kerry

United States Senate:



The radiofrequency spectrum is a natural resource that is used to 

provide an array of wireless communications services critical to the 

U.S. economy and to a variety of government functions, such as 

scientific research, national defense, homeland security, and other 

public safety activities. As new technologies and services are brought 

to market in the private sector and new mission needs unfold among 

government users of spectrum, nearly all parties are becoming 

increasingly concerned about the availability of spectrum for future 

needs, because most of the usable spectrum in the United States has 

already been allocated. Along with this concern, there is a growing 

view that current spectrum management in the United States may not be 

able to respond adequately to the rapidly changing needs and competing 

demands of spectrum users.



To promote a more efficient use of spectrum, many countries, including 

the United States, are incrementally adopting market-oriented 

approaches to spectrum management. Examples of these approaches include 

requiring commercial spectrum users to bid at auction for the right to 

use spectrum, charging spectrum users market-based fees to use 

spectrum, and allowing greater flexibility in how spectrum is used. 

However, market-oriented mechanisms are not universally supported among 

interested parties. As a result, increasing debate is emerging on how 

best to manage this scarce spectrum resource to meet critical 

commercial and government needs, both now and in the future.



As agreed with your offices, this is our final report in response to 

your request that we study a variety of spectrum-management issues. Our 

first report, released in September 2002, provided an overview of the 

development of the legal and regulatory framework for spectrum 

management at the federal level and assessed key issues associated with 

spectrum management at federal agencies.[Footnote 1] That report 

contained four recommendations: (1) that the Chairman of the Federal 

Communications Commission (FCC) and the Secretary of Commerce, who 

oversees the National Telecommunications and Information 

Administration (NTIA), jointly develop a clearly defined national 

spectrum strategy; (2) that the Secretary of State, the Secretary of 

Commerce, and the Chairman of FCC jointly review the adequacy of the 

preparation process for the 2003 World Radiocommunication Conference; 

(3) that the Secretary of Commerce direct NTIA to analyze the human 

capital needs of federal agencies for spectrum management, as well as 

develop a strategy for addressing any identified shortcomings; and (4) 

that the Secretary of Commerce develop a strategy for enhancing its 

oversight of federal agencies’ use of spectrum. FCC, NTIA, and the 

Department of State generally agreed that these recommendations should 

be implemented.



This report builds on that effort by examining market-oriented 

approaches to spectrum management and other issues. Specifically, this 

report discusses (1) concerns about whether future spectrum needs can 

be met, given the current regulatory framework; (2) the advantages of 

market-based mechanisms and how they have been applied to help meet 

future spectrum needs; (3) whether there are difficulties with using 

market-based mechanisms; and (4) if it is found that fundamental 

spectrum reform is needed, whether the current regulatory environment 

is conducive to facilitating such reform. In addition, in appendix II 

we provide information on certain stakeholders’ views on auctions and 

spectrum royalties.



To respond to these objectives, we reviewed a broad array of technical, 

economic, and legal research related to spectrum management. For 

example, we reviewed spectrum-management reports completed by several 

foreign governments. In addition, we interviewed experts on spectrum 

issues and officials from companies and from government agencies, 

including FCC and NTIA. We also conducted semistructured interviews and 

analyzed the results of these interviews with spectrum-management 

officials in 12 other countries: Australia, Canada, Finland, France, 

Hong Kong,[Footnote 2] Italy, Japan, Mexico, New Zealand, Spain, 

Sweden, and the United Kingdom. We selected these countries based on 

their geographic size, gross national product per capita, population 

density, level of mobile telephone penetration, primary methods for 

assigning spectrum, and whether the country uses market incentives to 

encourage government conservation of spectrum. For Canada and the 

United Kingdom, which have both recently adopted certain market-based 

mechanisms, we conducted more in-depth case studies of spectrum-

management practices, interviewing not only spectrum managers but also 

government users and commercial firms. We also surveyed representatives 

to the Interdepartment Radio Advisory Committee (IRAC), which 

represents 20 federal agencies that use spectrum, regarding their 

spectrum use and their views on certain policy issues. Finally, we 

invited 10 experts to participate in an expert panel (see app. VI for a 

list of panel members). These experts participated in a day-long 

conference at GAO and discussed a series of issues on spectrum-

management concerns. For more detailed information on how we chose the 

countries we reviewed, the panelists we invited to serve on the expert 

panel, and other aspects of our research methodology, see appendix I. 

We conducted our review from January 2002 through December 2002 in 

accordance with generally accepted government auditing standards.



Results in Brief:



Today, there are considerable concerns about whether the current 

regulatory framework will be able to provide future access to spectrum 

to meet the needs of commercial and government users. In the past, 

commercial wireless providers’ access to spectrum has accommodated 

rapid growth and competition in wireless markets. Additionally, most of 

the government spectrum users we spoke with and surveyed said they have 

had access to sufficient spectrum to meet the critical mission needs of 

their agencies. Looking to the future, however, commercial wireless 

markets are expected to continue to grow, and new services and 

technologies may require additional spectrum as well. Likewise, the 

events of September 11, 2001, highlighted the importance of wireless:



communications for homeland security and national defense; federal 

government and public safety users have stated that these events 

exacerbated their already growing needs for spectrum. The rapid growth 

and evolution of the wireless sector has led many experts and industry 

participants to question whether a spectrum-management structure that 

relies largely on “command and control” methods--that is, policies 

wherein government largely dictates the use of spectrum--can adequately 

address today’s complex issues. Recently, there have been numerous 

forums, initiatives, and hearings to address spectrum issues. It 

appears that many parties believe there are significant challenges to 

meeting the growing demands for spectrum within the current regulatory 

framework and are seeing spectrum-management reform as essential.



Spectrum managers as well as many experts we interviewed identified a 

variety of advantages to implementing market mechanisms as part of 

spectrum-management policies. In the past 10-15 years, the United 

States and several other countries have adopted certain market-based 

mechanisms as part of the spectrum-management structure. These 

mechanisms are generally designed to allow the normal workings of the 

marketplace--that is, the forces of supply and demand that promote 

economic and technical efficiency--to have a greater impact on spectrum 

decisions than was typically the case in the past. In part, the intent 

of employing these policies is to improve the efficiency of spectrum 

use. Some countries have implemented market-based mechanisms for both 

government and commercial users, while others have adopted these tools 

solely for commercial users.



While many of the experts we spoke with believe that the adoption of 

market-based mechanisms may help to address future demands for 

spectrum, the application of these methods may not be desirable or 

effective in certain contexts. Charging government users for the 

spectrum they use could, in theory, encourage more efficient use, but 

because of the primacy of certain government functions--such as 

homeland security and national defense--it may not be desirable. 

Further, some observers believe that, in practice, fees charged to 

government users will not, in all cases, be effective in promoting 

efficiency in spectrum use. One difficulty can arise when government 

use, such as air traffic control, is dictated by international spectrum 

allocations that limit the ability of certain government spectrum users 

to change their spectrum use in response to assessed fees. Also, 

applying a market-based mechanism in the case of government services 

that have no commercial corollary--and therefore no observable price--

can be difficult. Additionally, some users and experts believe that 

increasing flexibility in commercial spectrum use--a commonly discussed 

market-based mechanism that allows spectrum licensees more freedom to 

change how they use their assigned spectrum without administrative 

approval--will result in more radio interference among users. Finally, 

some experts note that market-based mechanisms work only if each user’s 

“rights” in the use of spectrum are clearly defined; such definitions 

may be difficult to establish.



Under the current framework for managing spectrum, it has been 

difficult to resolve conflicts among existing spectrum users. While 

various stakeholders have been actively searching for ways to improve 

spectrum management to meet future spectrum needs, certain key 

conflicts among these stakeholders have limited their ability to find 

solutions that are satisfactory to all. For example, considerable 

conflicts exist between incumbent spectrum users and potential new 

commercial providers, and no consensus exists on how best to balance 

the needs of the private sector with those of the public sector. While 

FCC and NTIA have worked to resolve issues, at times their resolution 

of key policy issues has been protracted and contentious. Moreover, in 

the current regulatory environment, no one agency has been given 

ultimate decisionmaking authority over all spectrum in the United 

States or the authority to impose fundamental reform. Therefore, FCC 

and NTIA may not be in the best position to conduct an overarching 

review of spectrum-management structure that would consider a full 

range of possible structural changes. In the past, presidential or 

congressional commissions have been established to find solutions to 

complex problems such as those faced in reforming the spectrum-

management system in the United States.



In order to develop solutions to key spectrum-management issues, this 

report recommends that the Chairman of FCC and the Assistant Secretary 

of Commerce for Communications and Information, in consultation with 

officials from the Department of State, Office of Management and 

Budget, Office of Science and Technology Policy, and pertinent 

congressional committees, work together to develop and implement a plan 

for the establishment of a commission that would conduct a 

comprehensive examination of current U.S. spectrum management. This 

commission would examine, among other things, whether structural reform 

of our current system is needed. The commission should be independent 

and involve all relevant stakeholders--including commercial interests, 

government agencies, regulators, and others--to ensure that the 

diversity of views on key spectrum-management issues are represented. 

The review should be time-limited and, if change is needed, should have 

as its primary objective the establishment of a framework to implement 

that change. Although the commission could be established by statute, 

executive order, or other means, a statutory basis for the commission 

may provide the most appropriate framework for achieving a wide-ranging 

review of issues that may ultimately need legislative solutions. In 

appendix IV, we have presented possible issues and stakeholder concerns 

that a commission could consider as part of its comprehensive 

examination.



We provided a draft of this report to FCC, the Department of Commerce, 

and the Department of State for their review and comment. Regarding our 

recommendation for an independent commission to evaluate the need for 

overarching spectrum reform, FCC and the Department of Commerce stated 

that they would take our recommendation into consideration. The 

Department of State did not provide comments on this report.



Because FCC and the Department of Commerce did not specifically agree 

to implement our recommendation, the Congress may wish to consider 

taking appropriate action to ensure that the question of whether 

overarching spectrum-management reform is needed is fully examined. 

This could take the form of holding hearings or enacting legislation to 

establish an independent commission that would conduct a comprehensive 

examination of current U.S. spectrum management.



Background:



The radiofrequency spectrum is the medium that enables wireless 

communications of all kinds. Although the radio spectrum spans the 

range from 3 kilohertz to 300 gigahertz, 90 percent of its use is 

concentrated in the 1 percent of frequencies that lie below 3.1 

gigahertz,[Footnote 3] because these frequencies have properties that 

make this portion of the spectrum well suited for many important 

wireless technologies.



Spectrum is used to provide a variety of services in the United States. 

Companies are licensed to provide mobile telephone, paging, broadcast 

television and radio, and various satellite services. Additionally, 

some companies maintain spectrum licenses for a variety of private 

tasks, including communication in a particular location (such as a 

large industrial complex) or among remote vehicles of a company. A 

variety of government users also employ spectrum to provide public 

safety services and other functions of federal, state, and local 

government agencies. For example, local and state police departments, 

fire departments, and other emergency services use spectrum to transmit 

and receive critical voice and data communications. Federal agencies 

use spectrum for varied mission needs, such as law enforcement, weather 

services, aviation communication, and national defense.



Since the beginning of radio communications, concern about interference 

among users has been a driving force in the management of spectrum at 

the national and international levels. Interference among spectrum 

users can occur when two or more radio signals interact in a manner 

that disrupts or degrades the transmission and reception of messages. 

Spectrum managers have worked to minimize interference through their 

two primary spectrum-management functions, the “allocation” and the 

“assignment” of radio spectrum.[Footnote 4]



The allocation process begins with the International Telecommunication 

Union (ITU), a specialized agency of the United Nations, where member 

nations identify spectrum bands for about 40 broad categories of 

wireless services. The Department of State coordinates and mediates the 

views of FCC and NTIA to reach a U.S. position on spectrum issues for 

international discussions. Once spectrum-allocation decisions are made 

at the ITU, regulators within each country will, to varying degrees, 

follow the ITU decisions when allocating spectrum for particular types 

of radio services or classes of users to meet domestic needs. In the 

United States, spectrum allocation is handled primarily by two 

agencies: FCC--an independent agency that regulates spectrum use for 

nonfederal users, including commercial, private, and state and local 

government users--and NTIA, an agency within the Department of Commerce 

that regulates spectrum for federal government users. NTIA works in 

consultation with IRAC, which is composed of representatives from 

federal agencies, to manage the federal spectrum use.



Once spectrum is allocated for specific uses, the spectrum-management 

agencies assign portions of spectrum to specific users. Spectrum 

assignment has generally been very proscriptive regarding how a 

specified portion of spectrum can be used. That is, generally a license 

or assignment specifies the frequencies the license holder may use, the 

length of time the license covers, the geographic areas the license 

covers, and the services that may be provided. FCC assigns licenses for 

commercial enterprises, state and local governments, and others. NTIA 

makes frequency assignments to federal agencies. In addition to 

licensed uses for spectrum, FCC authorizes unlicensed use of spectrum 

in some frequencies. Unlicensed spectrum has traditionally been used 

for low-powered devices that operate in a limited geographic range, 

such as cordless phones, baby monitors, and garage door openers, and it 

is increasingly being used to provide services such as wireless access 

to the Internet.



Over the years, FCC has used a variety of methods to assign spectrum 

for commercial users. Sometimes spectrum has been assigned on a first-

come, first-served basis. When more than one party applies for the same 

license, FCC has used several alternative approaches to assign the 

license. FCC historically used comparative hearings, which give 

competing applicants a quasi-judicial forum in which to argue why they 

should be awarded a license instead of other applicants. In 1981, 

partially in response to the administrative burden of the comparative 

hearing process, the Congress authorized the use of lotteries, which 

allowed FCC to randomly select licensees from the qualified applicant 

pool.[Footnote 5] In the Omnibus Budget Reconciliation Act of 1993, the 

Congress authorized FCC to use auctions to award spectrum licenses for 

certain wireless communications services. Auctions, a market-based 

mechanism, grant a license to the company that has bid the highest 

price for specific bands of spectrum. Since auctions were put into 

place, FCC has conducted 42 auctions.



Since nearly all of the usable radio spectrum in the United States has 

been allocated already, accommodating more services and users often 

involves having more than one user sharing spectrum, or reallocations 

of spectrum from one use to another. “Spectrum sharing”--one method of 

accommodating more services and users--enables more than one user to 

transmit or receive radio signals on or near the same frequency band. 

Within the United States, about 56 percent of the spectrum is shared by 

federal and nonfederal users, while about 31 percent is designated 

exclusively for nonfederal use and about 14 percent exclusively for use 

by federal agencies.[Footnote 6] Another method of accommodating new 

users and technologies is “band clearing,” or reclassifying a band of 

spectrum from one set of radio services and users to another, which 

requires moving previously authorized users off of the band. Band-

clearing decisions that affect federal and nonfederal users may require 

coordination between FCC and NTIA to ensure that moving existing users 

off of a band is technically feasible and meets the users’ needs. Such 

moves often involve costs because existing users of the band may need 

to modify or replace existing equipment.



In addition to spectrum-management policies directed at the allocation 

and assignment of spectrum, advances in technology could also help to 

accommodate more services and users. For example, by compressing pieces 

of information, digital technologies are able to use less spectrum than 

would analog technologies to transmit a given amount of spectrum. Also, 

with appropriate technical standards, ultrawideband devices--which use 

very low power over very large bandwidths--can operate using spectrum 

occupied by existing radio services, in some cases, without causing 

interference. This permits scarce spectrum resources to be used more 

efficiently, as more than one service can use the same spectrum. See 

appendix III for more discussion of technological advancements that 

could help relieve spectrum scarcity.



Concerns Exist That Future Needs for Spectrum Will Be Difficult to 

Meet:



In the past, the spectrum available to commercial users has 

accommodated rapid growth in wireless telephone markets and supported a 

competitive structure in that market. In addition, many government 

agencies’ spectrum managers say that, in the past, government users’ 

needs for spectrum have generally been met. However, concerns exist 

about the ability to meet the growing needs of both commercial and 

government users. In addition, some observers are particularly 

concerned that some spectrum is not currently used as efficiently as 

possible. Many are also concerned that current spectrum-management 

practices, which generally take a command and control approach--that 

is, policies wherein government largely dictates how spectrum is used-

-may not work effectively as spectrum needs rapidly change. Key 

stakeholders are voicing these concerns as they search for ways to meet 

these needs.



Spectrum Allocated to the Commercial Sector Has Accommodated Rapid 

Growth and Competitive Structure in Some Wireless Markets:



Many industries that rely on spectrum to provide services have grown 

dramatically over the past 20 years, including mobile telephone service 

and varied satellite-provided services. In particular, the availability 

of spectrum has accommodated the dramatic growth of mobile telephone 

service since it was first launched in the 1980s. Between 1985 and 

2001, subscribership increased from approximately 340,000 to over 128 

million, and wireless use (measured in minutes) grew by almost 800 

percent between 1996 and 2001 (fig.1). This growth resulted from an 

increase in subscribership as well as a marked increase in the average 

number of minutes used by each subscriber. In terms of revenues, the 

industry has also mushroomed: in 1985 annual revenues were $482 

million, and by 2001 annual revenues stood at over $65 billion. 

Finally, the number of people employed in the mobile telephone sector 

grew from about 3,000 in 1985 to over 200,000 by 2001.



Figure 1: Number of Mobile Telephone Minutes Used per Month, on 

Average, 1996-2001, in Billions:



[See PDF for image]



[End of figure]



In addition to the rapid growth in wireless services, most observers 

believe that wireless phone markets are highly competitive. According 

to a recent FCC report,[Footnote 7] 94 percent of the U.S. population 

lives in counties with access to 3 or more mobile telephone service 

providers, and 80 percent lives in counties with at least 5 

providers.[Footnote 8] Officials from the wireless companies we spoke 

with and participants on our expert panel overwhelmingly perceived 

wireless markets as competitive. Twelve of the 13 wireless service 

providers that we interviewed said that mobile markets are competitive. 

Even in rural areas wireless markets appear competitive. For example, 

officials at the 3 rural companies we spoke with reported that they 

were among 3 to 6 competitors in the small and rural markets they 

serve. Similarly, all 10 of the participants on our expert panel 

reported that wireless markets are “extremely” or “moderately” 

competitive.



A number of policy decisions implemented by the Congress and FCC have 

helped to accommodate the rapid growth and competitiveness of wireless 

markets. In the 1990s, the Congress mandated the transfer of over 200 

megahertz (MHz) of spectrum from government use to nonfederal use. This 

provided additional spectrum for commercial wireless services. Since 

1994, FCC has conducted 42 auctions for spectrum dedicated to various 

kinds of wireless services. Additionally, FCC’s licensing scheme for 

mobile telephone service helped ensure that many providers were 

available in each market region. In every region, FCC authorized up to 

eight different mobile telephone licenses.



Government Spectrum Managers Say Government Users’ Needs Have Generally 

Been Met:



Our survey of the 20 IRAC agencies asked whether agencies were able to 

meet their critical mission needs, given their current spectrum 

resources. Of the 16 agencies that responded to this question on our 

survey, 13 said that all or most of their critical mission needs were 

being met; 3 agencies responded that some critical needs were not being 

met. Moreover, officials at FCC and NTIA stated that spectrum needs of 

government users have generally been met.



Officials at three of the four government agencies we interviewed in 

greater depth told us that their agencies have generally received the 

spectrum necessary to meet their mission needs. Officials at the 

Federal Aviation Administration (FAA) told us that their agency has 

been able to meet aviation requirements with the currently available 

spectrum. Officials at the Department of Defense (DOD) said that their 

missions had not yet been compromised because of a lack of 

spectrum.[Footnote 9] The Federal Emergency Management Agency (FEMA), 

which most often uses spectrum allocated to the U.S. Army, also told us 

that it has been able to obtain spectrum when needed.[Footnote 10] The 

Department of Justice (DOJ), however, stated that in just the past few 

years, as the use of wireless surveillance activities has increased, 

congestion has increased, resulting in increased occurrences of 

interference.



Agency officials we interviewed noted that they have taken measures to 

achieve mission requirements in the absence of new spectrum 

assignments. For example:



* Officials stated that their agencies share considerable spectrum with 

other federal agencies, as well as with nongovernmental users. FAA 

officials noted that spectrum allocated for certain systems, such as 

radar, is shared among a number of users, including FAA, DOD, the U.S. 

Customs Service, and the National Weather Service; DOJ officials also 

noted that they share spectrum in the government bands and are in the 

design phase of a plan to implement greater sharing with a variety of 

users having similar missions.



* FAA and DOD officials noted that they perform internal audits of 

spectrum use within their agency. FAA told us that the results of these 

internal audits are used to make more efficient use of the available 

spectrum; DOD said that it has relinquished use of underutilized 

spectrum that has been identified during these audits.



* All four government agencies told us that, when possible, they use 

commercial vendors--who use spectrum assigned for commercial uses--to 

provide nonsafety-related spectrum services, such as mobile telephone 

service.



* Officials at both DOJ and DOD told us that they attempt to economize 

on spectrum use by implementing new technologies. DOJ is planning on 

making greater use of trunking technology;[Footnote 11] DOD is 

investigating new technologies that use spectrum more efficiently, or 

do not depend on spectrum.



Commercial and Government Users See Future Spectrum Needs Growing

:



Commercial users have expressed a need for more spectrum in certain 

highly congested areas, as well as to accommodate new services. This 

spectrum is needed to accommodate the expected growth in the demand for 

wireless voice services as well as for additional services that will be 

provided over telephone handsets, including the transfer of data at 

higher speeds than current wireless devices are able to do--so-called 

third-generation wireless services (3G). Also, certain commercial users 

have argued that additional spectrum should be made available for 

unlicensed use by low-powered devices. These users, as well as staff at 

FCC, have stated that more spectrum for unlicensed services is 

particularly helpful in trying to bring new technologies, such as local 

area Internet access, to the market. In a recent speech, an FCC 

Commissioner noted that a research study had predicted that 21 million 

Americans will be using wireless local area networks--a service that 

can be provided without a license--by 2007.



Officials of the United Telecom Council, an organization that helps 

utilities and railroads to manage their spectrum needs, told us that 

these entities also need more spectrum for the wireless communications 

used by their maintenance personnel. These officials told us that since 

1997, utilities have increasingly had to share spectrum assignments 

with certain other users.[Footnote 12] Moreover, within these 

arrangements, no limit exists as to the number of licenses that can be 

assigned for use on any particular frequency. As a result, they told 

us, these frequencies are either too congested to be used safely or are 

in imminent threat of such congestion. In a recently released report, 

NTIA stated that the events of September 11, 2001 have underlined the 

importance of these industries and the roles they play in times of 

disaster response and recovery.



Officials at most of the federal government agencies we spoke with also 

told us that they face increasing needs for spectrum and are concerned 

that adequate spectrum will not be available in the future. 

Furthermore, of the 17 IRAC members who responded to our survey, 12 

believed that their spectrum needs would at least moderately increase 

over the next 2 to 3 years. Fifteen of the 17 respondents felt that 

they would have at least some difficulty meeting their future critical 

mission needs because of insufficient spectrum, whether or not they 

were meeting those needs at this time.



Two of the four agencies that we interviewed in depth also revealed an 

expectation of increased spectrum needs. In particular:



* Officials at DOJ believe that they will need access to additional 

spectrum to support homeland security, accommodate increased border 

patrol, and provide for additional surveillance.



* Defense spectrum use has grown exponentially since Desert Storm in 

1991, according to DOD spectrum managers we interviewed. A DOD official 

testified before the Senate Committee on Commerce, Science, and 

Transportation in June 2002 that DOD’s spectrum usage is projected to 

grow by more than 90 percent by 2005--and this estimate was made prior 

to September 11, 2001. According to DOD officials we interviewed, since 

September 11th, DOD’s spectrum needs have further increased.



Finally, public safety officials with whom we spoke said they needed 

additional spectrum. In particular, these officials said that small 

bits of spectrum located in various bands have been allocated for 

public safety use, and that some of these slices of spectrum have been 

allocated very close to certain commercial providers. Public safety 

officials told us that this situation has resulted in there being some 

interference between public safety users and commercial vendors, and 

they noted their continued need for more contiguous blocks of spectrum 

to provide critical safety-of-life services.[Footnote 13]



Concerns Exist about Inefficient Spectrum Use in the Public and Private 

Sectors:



Given the concern about the growing need for spectrum, stakeholders are 

particularly concerned that some users may not be applying the most 

spectrally efficient technologies.[Footnote 14] If that is the case, 

then spectrum scarcity may be exacerbated by this inefficient use. As 

such, policies to promote more spectrally efficient technologies can 

help to meet future spectrum needs by freeing up unneeded spectrum.



Some observers, including several of our expert panel members, 

commercial users, and regulators we spoke with in certain other 

countries, expressed concern that government users do not have adequate 

incentives to conserve their use of spectrum and therefore may not 

deploy this valuable resource efficiently. NTIA, which manages federal 

spectrum, is responsible for promoting the efficient use of that 

spectrum to the maximum extent feasible. Our September 2002 report 

noted that it is not clear that NTIA is able to ensure that spectrum is 

being used efficiently.



NTIA currently charges federal government users a small spectrum-

management fee for each frequency assignment the government user holds. 

However, it is not clear how much these fees, which are designed to 

recover 80 percent of the administrative costs in NTIA’s spectrum-

management budget, encourage government users to economize on their use 

of the spectrum. Officials from two federal agencies that use spectrum 

noted that the current charges--approximately $55 per assignment--were 

not high enough to cause them to economize on their use of spectrum. 

Recently, NTIA has expressed an interest in examining a fee structure 

that provides a greater incentive to promote efficient use of spectrum 

than is currently being used by NTIA.



Federal agency officials told us that they have some nonfinancial 

incentives to conserve spectrum. Officials from two of the agencies we 

interviewed reported that because they are unlikely to get substantial 

new spectrum from NTIA, they face internal pressures to conserve and 

reshuffle current spectrum resources to meet new needs. Also, DOD 

officials stated that the department’s internal goal of being a 

responsible steward of America’s resources drives it to use spectrum 

efficiently. Agencies we spoke with noted that NTIA requires that 

federal agencies review their assignments every 5 years. However, in 

our first report, released in September 2002, we noted that one agency 

official said that these reviews are often perfunctory, there is no 

independent verification of the reviews, and there is no other evidence 

that these reviews are effective. Those we spoke with for this report 

did cite other audits of spectrum use in the federal government--

including spectrum reviews by the White House--as incentives to use 

spectrum efficiently. Finally, NTIA has required the adoption of 

certain technologies--such as narrowbanding[Footnote 15] and trunking-

-that conserve spectrum. However, NTIA officials told us that, in 

practice, it is difficult for NTIA to invoke its enforcement authority 

because its primary enforcement tool is the ability to remove frequency 

assignments from agencies not complying with certain requirements. 

Because license removal is a radical measure that could interfere with 

government agencies’ ability to carry out important missions, it is 

difficult for NTIA to use this approach.



Some of those we spoke with also expressed concern that public safety 

users do not employ the most efficient technologies and are therefore 

wasteful with their spectrum. The head of a commercial wireless 

organization noted that public safety communications equipment is often 

antiquated. One public safety official we interviewed stated that 

public safety officials often do not have adequate funding to update 

their equipment to be more spectrally efficient.



Concerns also exist that some nongovernmental users do not have 

incentives to be efficient. In August 2001, FCC commenced an audit of 

private land mobile radio stations licensed on frequencies below 512 

MHz. These license holders included industrial/business users and 

public safety users.[Footnote 16] As part of the audit, FCC sent 

letters to over 260,000 licensees seeking information to determine 

whether they (1) were meeting required construction deadlines and (2) 

were operational. As of October 2002, FCC had received responses from 

over 228,000 licensees, and these licensees reported that over 33,000 

licenses (7.9 percent of licenses) were not being used and could be 

canceled. FCC officials told us that they would like to undertake more 

spectrum audits such as this.



Additionally, some concerns exist that certain commercial users may not 

employ spectrally efficient technologies. Members of the expert panel 

and government users have stated that they believe the television 

broadcasting industry does not employ spectrally efficient 

technologies. Several stakeholders noted that in part this is 

attributable to a lack of receiver standards. Some expert panel members 

and some government users also noted that mobile satellite services, 

radio broadcasters, and the mobile telephone industry are also not 

necessarily using the most spectrally efficient technologies.[Footnote 

17]



Concerns Exist That Primary Reliance on Administrative Management May 

Not Be Effective in Today’s Rapidly Changing Environment:



For most of the history of wireless transmissions, the national 

governments of the countries we reviewed have used centralized 

administrative techniques--often called command and control--to 

allocate and assign spectrum. An important focus of this regulatory 

approach has generally been to minimize interference among users. Using 

the ITU allocation tables as a starting point, individual countries 

have traditionally allocated spectrum for particular uses and assigned 

spectrum to particular users by licensing them to use the spectrum in 

specific ways. Until the past 10 to 15 years, when some countries 

started using auctions to assign spectrum, countries throughout the 

world assigned spectrum on a first-come, first-served basis, or used 

some other administrative device (such as comparative hearings) to 

decide among applicants who wanted the same spectrum. In the United 

States, FCC used comparative hearings and, later, used lotteries to 

assign spectrum to competing commercial carriers.



One of the benefits of using market forces to allocate and assign 

spectrum resources is that these methods help to ensure that spectrum 

moves into the services that are most highly valued by consumers, as 

measured by their willingness to pay higher prices for those services. 

When resources move to more valued uses, a form of efficiency known as 

“allocative efficiency” is advanced. For example, if, because of the 

development of cable and satellite television, broadcast television 

were to lose viewers and its spectrum were to become more valuable for 

other uses in higher demand, such as mobile telephone service, then 

market forces--that is, market mechanisms in spectrum management--would 

naturally lead to a reallocation of some of that spectrum to these 

other uses. However, without market forces helping to direct resources, 

spectrum managers would have to predict the most valued use of the 

resource in order to make decisions designed to allocate spectrum to 

the services that would best serve society’s interests.



Because of the growing demand for spectrum and the inability to predict 

where technology will lead, spectrum managers in some countries, as 

well as many other interested parties, are questioning the continued 

appropriateness of relying largely on traditional command and control 

methods for allocating and assigning spectrum. In October 2001, FCC’s 

Chairman underlined the need to move away from reliance on command and 

control methods when he stated that it is becoming an “impossible task” 

for government officials to determine the best use for spectrum and to 

repeatedly adjust allocations and assignments of spectrum to 

accommodate new spectrum needs and new services. Similarly, in June 

2002, the Assistant Secretary of Commerce for Communications and 

Information at NTIA indicated her support of market-oriented approaches 

for commercial users when she stated that NTIA is hoping that FCC will 

move forward fairly rapidly with its efforts to promote secondary 

markets for spectrum.



Key Stakeholders Are Discussing Ways to Meet Future Spectrum Needs:



Because stakeholders are concerned that the current system may not be 

able to meet the country’s future needs for spectrum, they have been 

having discussions and looking to find solutions for these concerns. 

These forums and initiatives are indicative of a general sense among 

many interested parties that managing spectrum is difficult, complex, 

and challenging, and that significant reforms to the current processes 

may be needed. These initiatives include a variety of task forces and 

working groups, including:



* FCC: In June 2002, the Spectrum Policy Task Force, composed of senior 

FCC staff, was announced. The task force’s mission was to identify and 

evaluate changes in spectrum policy to increase public benefit. The 

task force released its report in November 2002, with four key 

recommendations: (1) To provide an incentive for spectrum holders to be 

technically innovative and economically efficient, FCC should move 

toward more flexible, market-oriented policies, which would require FCC 

to clearly define spectrum users’ rights and responsibilities. (2) FCC 

should adopt a new standard for judging acceptable interference, to be 

called the “interference temperature.” (3) FCC should increasingly 

consider the dimension of time to make allocation and assignment 

decisions, so that spectrum users could better share unused and 

underused spectrum. (4) FCC should begin basing its spectrum policy on 

the “commons” and exclusive use models rather than on the command and 

control model, except in cases where there is a compelling public 

interest, such as public safety.[Footnote 18]



* NTIA: In April 2002, NTIA held a Spectrum Management and Policy 

Summit. The purpose of this conference was to discuss how spectrum 

management could be more effective and to find ways of meeting future 

spectrum needs. Additionally, NTIA included in the Department of 

Commerce’s fiscal year 2003 budget a proposal for an NTIA Spectrum 

Management Reform initiative. The fiscal year 2003 appropriation 

request for the program, which is expected to take about nine years to 

be implemented, was $1.425 million. The purpose of this initiative 

would be to review the management processes that are currently being 

used to allocate and distribute spectrum, including those used by NTIA, 

FCC, and the individual federal agencies that manage spectrum.



* Public Safety Wireless Advisory Committee: This committee, 

established by FCC and NTIA in response to concerns voiced by the 

Congress that the agencies’ individual reporting of public safety’s 

spectrum needs may be insufficient, outlined public safety’s spectrum 

needs through the year 2010. The committee suggested focusing on 

obtaining new spectrum allocations for public safety, implementing 

technologies to allow more efficient spectrum use and sharing, and 

encouraging public safety users to utilize commercial services when 

possible.



* The Center for Strategic and International Studies (CSIS): 

Recognizing increasing demands on the spectrum allocation process, CSIS 

conducted a series of roundtable discussions in the past 2 years on 

spectrum allocation and long-term spectrum-management needs and goals 

for the U.S. government and economy. In addition, CSIS has convened a 

Commission on Spectrum Management to further examine the issue and 

expects to release a report on spectrum management in mid-2003.



In addition, both the Senate and the House of Representatives are 

looking at ways to better meet future spectrum needs. Issues being 

examined include creating funds for reallocating spectrum from one use 

or user to another and setting aside unlicensed spectrum for broadband 

use. Hearings have been held to examine the current process and the 

impact of this system on the implementation of 3G technologies--which 

include transferring data at higher speeds than current technologies 

generally permit. Also, a variety of bills introduced in the 107th 

Congress addressed diverse spectrum-related issues.[Footnote 19]



Many Countries Are Adopting Market-Based Mechanisms to Help Meet Future 

Spectrum Needs:



There appears to be general agreement among many regulators and experts 

that a more dynamic system for allocating and assigning spectrum is 

needed. To promote the movement of spectrum to those uses where it is 

most highly valued, the United States and some other countries have 

adopted some market-based mechanisms in their management of the 

spectrum. According to spectrum managers we spoke with in various 

countries, some have adopted these mechanisms for both government and 

commercial users, while others have adopted mechanisms only for 

commercial users. Spectrum managers in the remaining countries we 

studied said that they were not using these market-based mechanisms, 

but some reported that they were exploring using these mechanisms.



Many Countries Identified Advantages to Using Market-Based Mechanisms 

for Spectrum Management:



While spectrum users have been shielded historically from the normal 

workings of the marketplace, market-based approaches to spectrum 

management invoke mechanisms or policies that leverage the information 

normally available in markets--such as prices of goods or services--to 

promote the efficient use of spectrum. Regulators can implement market-

based mechanisms in a variety of ways. They can:



* Create a market where none previously existed. For example, markets 

for spectrum have been created over the past 10 to 15 years by adopting 

auctions as a method for assigning spectrum licenses to mobile 

telephone and other wireless service providers.



* Remove or relax rules and regulations that created barriers to the 

full functioning of spectrum markets. For example, some countries 

reported that they are considering rules and regulations to permit 

users to more readily purchase or lease spectrum from other license 

holders, allowing a more robust secondary market.[Footnote 20] 

Similarly, with more flexibility, spectrum licensees can more readily 

make business decisions to change how they use their assigned spectrum 

without having to get regulatory approval.



* Implement a policy that artificially mimics the functions of a 

market. For example, in some countries, regulators have developed fees 

that are based on information about prices for spectrum that would 

likely exist under a free market. These “incentive-based fees” differ 

from other regulatory fees that are assessed only to recover the cost 

of the government’s management of spectrum. Incentive-based fees are 

designed to promote the efficient use of spectrum by compelling 

spectrum users to recognize the value to society of the spectrum that 

they use. Mechanisms such as these might have the most applicability 

for users that do not function within a commercial context.



According to the spectrum managers in the 13 countries we reviewed (see 

fig. 2), many have adopted a variety of market-based mechanisms 

including auctions and incentive-based fees, more flexible licenses, 

and secondary markets. Managers in many countries told us that they are 

moving away from administrative processes and adopting market-based 

mechanisms for a variety of reasons. Spectrum managers in the countries 

we studied shared their views on the advantages of market-based 

policies, which included their usefulness in:



* facilitating the reallocation and reassignment of spectrum to its 

most efficient use;



* allowing the market to handle the assignment and allocation of 

spectrum, which some believe the market can do better than managers 

can;



* requiring government agencies to pay market prices for spectrum just 

as they do for other resources, such as land and electricity; and:



* addressing the challenges of spectrum management under conditions of 

increasing demand and rising unpredictability of new opportunities for 

using spectrum.



Figure 2: Countries Studied as Part of GAO’s Review:



[See PDF for image]



[End of figure]



Some Countries Have Adopted Market-Based Mechanisms for Government and 

Commercial Users:



Some Countries Have Adopted Market-Based Mechanisms for Government and 

Commercial Users:



According to spectrum managers in Australia, Canada,[Footnote 21] and 

the United Kingdom, these countries have adopted market-based 

mechanisms as part of their spectrum-management approaches for both 

government and commercial users. As table 1 shows, in addition to 

holding auctions, these countries have instituted incentive-based 

pricing--which is designed specifically to provide an incentive to 

conserve on spectrum--for commercial and government spectrum. These 

countries have also introduced greater flexibility and secondary 

markets for spectrum holders. Of these three countries, Australia was 

the first to institute market mechanisms, adopting auctions in 1994 and 

incentive-based pricing in the early 1980s. Canada and the United 

Kingdom started using auctions at a later time--in 1999 and 2000, 

respectively. With regard to incentive-based pricing, Canada has been 

using this mechanism since the late 1980s and the United Kingdom since 

1998. See appendix V for more information on spectrum management in all 

of the countries we reviewed.



Table 1: Market-Based Mechanisms Adopted by Countries for Both 

Government and Commercial Users:



Details on the Use of Market-Based Mechanisms: Auctions (for commercial 

users only); Countries: Australia; Countries: Canada; Countries: 

United Kingdom.



Details on the Use of Market-Based Mechanisms: Year of first auction or 

tender[A]; Countries: Australia: 1994; Countries: Canada: 1999; 

Countries: United Kingdom: 2000.



Details on the Use of Market-Based Mechanisms: Number of auctions or 

tenders to date; Countries: Australia: 18; Countries: Canada: 2; 

Countries: United Kingdom: 2.



Details on the Use of Market-Based Mechanisms: Incentive-based pricing 

(for commercial and government users); Countries: Australia; 

Countries: Canada; Countries: United Kingdom.



Details on the Use of Market-Based Mechanisms: Time when country 

instituted pricing; Countries: Australia: Early 1980s; Countries: 

Canada: Late 1980s; Countries: United Kingdom: 1998.



Details on the Use of Market-Based Mechanisms: Revenue from spectrum 

fees as a percentage of management costs[B]; Countries: Australia: 

400%; Countries: Canada: 500%; Countries: United Kingdom: 130%.



Details on the Use of Market-Based Mechanisms: Flexibility and 

secondary markets (for commercial users only); Countries: Australia; 

Countries: Canada; Countries: United Kingdom.



Details on the Use of Market-Based Mechanisms: Degree to which spectrum 

licensees have flexibility in terms of how they use licensed spectrum 

without regulatory approval; Countries: Australia: Some licenses have 

flexibility regarding which technologies can be used with the 

spectrum.; Countries: Canada: Licenses acquired in auctions have more 

flexibility in use of the spectrum.; Countries: United Kingdom: All 

licenses restricted to use specified at the time spectrum was 

obtained..



Details on the Use of Market-Based Mechanisms: Degree to which spectrum 

licenses can be traded in secondary markets without regulatory 

approval; Countries: Australia: All licenses have clearly defined 

rights and are tradable without regulatory approval.; Countries: 

Canada: Some licenses have clearly defined rights and are tradable 

without regulatory approval.; Countries: United Kingdom: Licenses 

cannot be easily traded..



Source: Spectrum managers interviewed in each country.



Note: GAO’s analysis of information elicited from interviews with 

spectrum managers.



[A] The term “tender” can have different meanings with regard to 

spectrum management. For our purposes, tender refers to a simple form 

of auction in which participants bid a price they are willing to pay 

for a spectrum license.



[B] If this ratio is 100, it means that spectrum fees are covering only 

the administrative costs of spectrum management. The percentages do not 

include auction revenues.



[End of table]



The incentive-based pricing systems in these countries were designed to 

encourage government spectrum users to recognize the market value of 

the spectrum they use.[Footnote 22] Although officials told us that 

these fees have been successful in providing incentives for government 

agencies to use spectrum efficiently, part of that success was 

attributed to other factors. In particular, political pressures and 

budgetary policies were key to helping promote efficient spectrum use.



* In Australia, the fees paid by government and nongovernmental users 

(including the military) are based on a formula that includes factors 

such as the demand for frequency, amount of spectrum assigned, 

geographic location, and power of transmission. Australian officials 

report that government users appear to be able to fulfill their 

missions despite having to pay for spectrum. When asked to explain the 

mechanism by which these fees provide an incentive for government users 

to conserve on spectrum, the spectrum manager we spoke with told us 

that the impact in Australia is largely the result of synergy between 

the spectrum fees and declining government agency budgets. Since the 

1970s, budgets have been constrained because of the government’s 

attempt to recover some of the benefits of the gains in efficiency 

arising from various government management reforms. The official we 

spoke with believes that this budgetary pressure, combined with more 

appropriate pricing of spectrum licenses, leads government users to be 

more efficient with their spectrum. This greater efficiency may 

manifest itself in government users’ relinquishing spectrum that they 

do not currently need.



* Spectrum managers in Canada reported that they charge incentive-based 

fees for most uses of spectrum, including many government uses. 

Although the fees are currently based on the amount of equipment in 

use, Canada is considering changing its fee structure to be based more 

on other factors such as bandwidth, geography, and the degree to which 

spectrum is shared. Spectrum managers in Canada reported that the fees 

have helped some government agencies to use spectrum more efficiently 

and that a number of licenses have been returned as a result of the 

fees. They reported that some of these results might also have come 

about because of their close working relationship with licensees.



* The United Kingdom developed an approach for determining spectrum 

fees for all users, except those who had purchased their spectrum at 

auction and certain providers of exempted services (such as certain 

military functions). The approach considers alternative means to 

provide a service that is currently being provided with certain 

assigned spectrum. Then, an evaluation is made of how that service 

could be provided by using alternative spectrum, or without any 

spectrum at all, if possible. A key evaluation is made of the 

difference in cost between the current means of providing the service 

and the next best means. Adjusted for certain other factors, this 

difference represents the “opportunity cost” of the spectrum to the 

user--that is, the value of the spectrum to that user. As such, this 

dollar value is the basis for the incentive-based portion of the fee 

the user must pay. Officials in the United Kingdom believe that 

spectrum fees are working to improve the efficiency of government 

spectrum use because agencies are generally facing budgetary 

restrictions and therefore cannot easily finance spectrum fees through 

the budgetary process.[Footnote 23]



For commercial users, these countries are working to provide more 

flexibility in licensing and to establish or improve secondary markets 

for spectrum.



* In Australia, licenses may be traded, sold, or sublet.[Footnote 24] 

Some of these can also be traded, sold, or sublet in portions based on 

geography, time, or bandwidth. Australian spectrum managers have not 

been satisfied with the speed of development of secondary markets in 

that country, however, and spectrum managers are considering measures 

to stimulate these markets. Payments among users are also allowed as 

part of the spectrum-clearing process. Although government funding for 

moving incumbent spectrum holders to alternative spectrum is not 

provided, new spectrum licensees are allowed to pay incumbent license 

holders to induce more rapid clearing of spectrum.



* In Canada, licenses acquired through auctions have greater 

flexibility of use than those acquired in other ways, which enables 

spectrum licensees to more freely decide to modify how they use their 

assigned spectrum. For example, licenses gained through the auction 

process have a broader class of services that can be provided with the 

spectrum than licenses gained through other assignment mechanisms. 

According to officials there, Canada is planning to extend this 

flexibility to spectrum obtained in comparative hearings as well. 

Although holders of auction-based licenses can also participate in the 

secondary market, officials report that secondary markets are not well 

developed.



* The United Kingdom is in the process of increasing the flexibility 

allowed by its spectrum licenses. Its recent major review of spectrum 

management recommends allowing more flexibility in the services that 

spectrum users can provide and the technologies they use. The United 

Kingdom is planning to issue future licenses with as much flexibility 

as possible, while recognizing that international coordination and 

interference management may sometimes limit flexibility. The United 

Kingdom also sees the development of a robust secondary market as a 

valuable tool for ensuring that spectrum flows to its most valued 

use.[Footnote 25]



United States and Certain Other Countries Have Adopted Some Market-

Based Mechanisms for Commercial Users Only:



According to the spectrum managers we spoke with in each country, the 

United States, New Zealand, Mexico, Italy, and Hong Kong have adopted 

market-based mechanisms for the commercial sector only (see table 2). 

For various reasons, these countries do not charge government users 

more than cost recovery for their use of the spectrum. In the United 

States, NTIA and FCC do not have the authority to impose fees that 

exceed the costs of spectrum management. Similarly, managers in Italy 

are currently prohibited from charging fees above a cost-recovery 

level.[Footnote 26] Officials in New Zealand reported that they had 

considered charging government users an incentive-based value for 

spectrum, but decided against it because they were concerned that 

determining the value of spectrum not bought and sold in a commercial 

market would be too difficult.



Table 2: Market-Based Mechanisms Adopted by Countries for Commercial 

Users Only:



Details on the Use of Market-Based Mechanisms: Auctions; Countries: New 

Zealand; Countries: United States; Countries: Mexico: [Empty]; 

Countries: Italy: [Empty]; Countries: Hong Kong, China: [Empty].



Details on the Use of Market-Based Mechanisms: Year of first auction or 

tender; Countries: New Zealand: 1989; Countries: United States: 1994; 

Countries: Mexico: 1996; Countries: Italy: 2000; Countries: Hong Kong, 

China: 2001.



Details on the Use of Market-Based Mechanisms: Number of auctions or 

tenders to date; Countries: New Zealand: 12; Countries: United States: 

42; Countries: Mexico: 17; Countries: Italy: 2; Countries: Hong Kong, 

China: 1.



Details on the Use of Market-Based Mechanisms: Flexibility and 

secondary markets; Countries: New Zealand: [Empty]; Countries: United 

States: [Empty]; Countries: Mexico: [Empty]; Countries: Italy; 

Countries: Hong Kong, China: [Empty].



Details on the Use of Market-Based Mechanisms: Degree to which spectrum 

licensees have flexibility in terms of how they use licensed spectrum 

without regulatory approval; Countries: New Zealand: Many licenses have 

flexibility in use of the spectrum.; Countries: United States: Some 

licenses have more flexibility in use of the spectrum.; Countries: 

Mexico: Some licenses have more flexibility in use of the spectrum.; 

Countries: Italy: Licenses are restricted to use specified at the time 

spectrum was obtained.; Countries: Hong Kong, China: Licenses are 

restricted to use specified at the time spectrum was obtained..



Details on the Use of Market-Based Mechanisms: Degree to which spectrum 

licenses can be traded in secondary markets without regulatory 

approval; Countries: New Zealand: Many licenses have clearly defined 

rights and are tradable without regulatory approval.; Countries: United 

States. 1994: 42: Some licenses have more flexibility in use of the 

spectrum.: Licenses cannot be easily traded.; Countries: Mexico: 

Licenses cannot be easily traded.; Countries: Italy: Licenses cannot be 

easily traded[A]; Countries: Hong Kong, China: Licenses cannot be 

easily traded..



Source: Spectrum managers interviewed in each country.



Note: GAO analyzed information elicited from interviews with spectrum 

managers.



[A] Italy recently approved a law that allows the trading of certain 

broadcasting frequencies, with the requirement that they are used 

exclusively for experimentation with terrestrial digital video 

broadcasting.



[End of table]



The United States has used auctions since 1994, shortly after 

congressional legislation first authorized auctions to be used for 

commercial spectrum assignment. FCC has also adopted rules that afford 

companies more flexibility regarding various license provisions--such 

as the technologies that a company may use or the services that it may 

provide with its licensed spectrum. FCC plans to increase the 

flexibility of its licenses, and it is considering liberalizing the 

right to engage in secondary markets. In recent congressional 

testimony, an FCC official noted that flexible spectrum rules, which 

allow companies to respond to market conditions without government 

intervention, are essential in today’s dynamic world of wireless 

communications. With regard to secondary market activity, spectrum 

trades in the United States generally require regulatory approval from 

FCC. Despite this requirement, a majority of companies we spoke with in 

the United States have either purchased spectrum licenses from another 

company or traded spectrum licenses with another company. FCC has an 

ongoing proceeding looking at ways to encourage the growth of secondary 

markets. For example, FCC is seeking to institute policies that would 

allow commercial users to sublease slices of spectrum covered by a 

license for variable lengths of time.



With regard to the use of market-based mechanisms for commercial users 

in other countries, spectrum managers told us the following:



* New Zealand was the first country to implement a market-based 

mechanism to assign spectrum. Today, New Zealand assigns “management 

rights” to some spectrum it auctions. A winner of such a license is 

allowed to assign the spectrum in various configurations to itself or 

others. As such, auction winners essentially have a profit motive that 

gives them an incentive to assign spectrum to its most valued use. 

Although licenses are tradable in New Zealand without regulatory 

approval, spectrum managers reported that because there is not a 

scarcity of spectrum in that country, there is very little market 

activity.



* More recently, Italy has begun to use auctions to assign spectrum, 

but as with many other European countries subject to certain 

restrictions on the regulation of spectrum under European Commission 

law, Italy is moving more slowly than Canada, Australia, and New 

Zealand to adopt certain market mechanisms. At this time, Italy issues 

very restricted licenses and has a very limited secondary market for 

spectrum.



* Spectrum managers in Hong Kong reported that they assigned spectrum 

for 3G services in 2001 using a royalty-based auction, which is unique 

among the countries we reviewed. Unlike most auctions in other 

countries in which participants bid the total fixed cash price they are 

willing to pay for spectrum, bidders in Hong Kong bid on the percentage 

of future revenues--that is, a royalty rate--that they would pay to the 

government on an ongoing basis. Officials in Hong Kong told us that 

they chose the royalty method so that the government could share some 

of the risk inherent in paying for spectrum in future years. They 

explained that the risk exists because 3G services are new and their 

full potential cannot be estimated accurately. They also reported that 

they were concerned that requiring companies to spend large amounts of 

capital in a cash auction requiring an up-front payment for spectrum 

would result in too large a financial burden for potential bidders, who 

also require capital to roll out their networks. Spectrum managers told 

us that the royalty auction resulted in four incumbent providers of 

traditional wireless services offering the minimum bid allowable (5 

percent of revenue) for the four licenses to provide advanced wireless 

services.[Footnote 27] We further discuss Hong Kong’s use of royalty 

auctions in appendix II.



Several Countries Have Not Adopted Market-Based Mechanisms at This 

Time, but Some May in the Future:



Spectrum managers from five of the countries in our study--Japan, 

France, Finland, Spain,[Footnote 28] and Sweden--reported that they 

have not used mechanisms that we have defined as being market-based in 

managing their spectrum. Some of these countries, however, reported 

that they are considering changing laws and regulations in the future 

to encourage more efficiency. France, which imposes a large fee to 

participate in comparative hearings, reported that it has legislation 

pending to require most users--including government users but not 

broadcasters--to pay for spectrum. Similarly, managers from Finland 

reported that they are currently reviewing their policies to extend 

spectrum fees to more users. Finally, Sweden reported that a committee 

has proposed changes to Swedish law to allow greater use of market-

based mechanisms.



Market Mechanisms May Not Be Effective in All Contexts and May Be 

Difficult to Implement:



While a move to market-based mechanisms could help to meet future 

spectrum needs by encouraging users to better utilize spectrum, these 

mechanisms may not be effective in some contexts and may be difficult 

to implement. In particular, the context in which certain government 

users function may not be conducive to the influence of market-based 

mechanisms. For commercial users, implementing market-based mechanisms 

may heighten concerns about interference among users. Moreover, market-

based mechanisms can work well only when license holders have clearly 

defined “rights” regarding their use of spectrum.



Greater Reliance on Market-Based Mechanisms for Government Users May Be 

Undesirable, Ineffective, or Difficult to Implement in Some 

Circumstances:



Greater reliance on market-based mechanisms may not be desirable or 

effective for some government users or uses. The purpose of market-

based mechanisms is to provide users with an incentive to use spectrum 

as efficiently as possible. This may result in users’ considering 

alternative methods of providing services by adopting technologies that 

either (1) use less spectrum, (2) use less congested parts of the 

spectrum, or (3) do not require spectrum at all. Because of the primacy 

of certain government functions--such as homeland security and national 

defense--charging government users for these functions may not be 

desirable. In addition, if particular users are unable to adopt any 

alternative method in a reasonable time frame, market-based mechanisms, 

such as incentive-based spectrum fees, are not likely to result in 

reduced spectrum use. In other words, market-based mechanisms can 

create an incentive for spectrum conservation only if users can 

actually choose to undertake an alternative means of providing a 

service. Government users provided several examples of circumstances in 

which market-based fees might not provide incentives:



* Spectrum used for certain functions, such as air traffic control, has 

been allocated internationally--the same bands of spectrum are 

allocated for this service around the world. The benefit of this in the 

context of air traffic control is that airplanes on international 

flights can use the same radio equipment and systems in every country, 

making air travel safer and less costly than it would be if countries 

provided services on different bands. If FAA wanted to use bands that 

are different from those allocated in these international agreements, 

airplanes from the United States that are making international flights 

would require multiple communications systems and procedures, which 

would impose considerable additional costs on carriers. In fact, the 

United Kingdom charges government users incentive-based fees but 

exempts spectrum used for air traffic control from these fees.



* It may also be inappropriate to apply market-based mechanisms for 

defense systems that involve international agreements. For example, the 

United Kingdom does not charge the Ministry of Defence for spectrum 

identified for North Atlantic Treaty Organization use. In addition, DOD 

has publicly stated that the ability to operate certain systems depends 

on international agreements with other countries that allow DOD to use 

certain frequencies within other countries’ borders. DOD officials note 

that it is important for DOD to employ the same systems, and thus the 

same portions of spectrum, inside the United States as it does 

overseas. DOD officials said that it would be very difficult to 

renegotiate these arrangements in response to spectrum reallocations, 

or to the implementation of incentive-based fees for spectrum in the 

United States.



* Many government defense systems that use spectrum--such as large 

weapons systems, or satellite systems--not only involve complex 

international agreements, but are also large and complex from an 

engineering perspective. These systems usually require years of 

development, and spectrum may be only a small part of the total 

resources used by a given system. Thus, once a system is designed and 

operational, any benefits of conserving spectrum by redesigning these 

systems are likely to be outweighed by the costs of making such 

modifications. Consequently, imposing an incentive-based fee for 

spectrum employed in projects with a long time horizon may not result 

in spectrum conservation.

:



In some cases, charging government users a market-based fee for 

spectrum may have the potential to make spectrum use more efficient, 

such as in situations where a government user is providing a service 

similar to that of a commercial vendor. Nevertheless, implementing 

market-based incentives may still be challenging, for several reasons:



* It is difficult to place prices on goods and services that are not 

traded in the marketplace. For commercial users, spectrum prices are 

reflective of the value of the services provided with that spectrum, as 

measured, in part, by what consumers will pay for the service. Some 

government services are unique and provide safety-of-life or national 

defense services. For example, FAA’s air traffic control services and 

DOD’s precision weapons-guidance systems rely on spectrum, yet there 

are no equivalent commercial services. Government spectrum users have 

said that services without a direct commercial corollary cannot be 

easily valued. One government representative noted that the value to 

the nation of spectrum allocated to government services is difficult to 

measure through market mechanisms.



* If government users can obtain any needed funding for spectrum fees 

through the budgetary process, market-based incentives are not likely 

to be effective in conserving spectrum. Two of the three countries that 

believed that their incentive-based pricing systems were providing some 

financial incentives for government users to conserve on spectrum 

reported that one factor contributing to this conservation was a 

requirement for agencies to reduce their overall budgets while paying 

for spectrum. Thus, agencies could not easily finance the increased 

cost of spectrum through the budgetary process. In the United States, 

most of the limits or caps on discretionary spending contained in the 

Budget Enforcement Act of 1990 expired in fiscal year 2002. These 

limits or caps would have constrained discretionary spending, including 

amounts available for using the spectrum, if government users were 

charged for that use.



* In the commercial sector, the profit motive typically provides an 

incentive for individuals and companies to use spectrum efficiently. 

Government users do not have a similar financial incentive to conserve 

on spectrum, because spectrum efficiency is not directly rewarded 

within government agencies. Thus, imposing fees may create some 

pressure, but does not mimic a profit motive. Linking spectrum-

efficient decisions to performance contracts and individual awards 

could create greater individual efforts to make such decisions.



Another impediment to implementing market-based incentives for 

government users may be the views of those users. Our survey of IRAC 

agencies found that 7 of the 17 agencies responding to this survey did 

not support greater flexibility of use for government spectrum users, 

13 did not support the practice of allowing agencies to buy or sell 

spectrum, 12 were opposed to allowing agencies to lease spectrum, and 

13 were opposed to paying fees for spectrum that exceeded regulatory 

costs. However, 9 agencies were “greatly” or “moderately” supportive of 

allowing commercial users to pay government license holders to relocate 

to alternative spectrum, and 11 greatly/moderately supported creating a 

trust fund to pay for spectrum reallocation.



Impediments Have Limited Implementation of Market-Based Mechanisms for 

Commercial Users:



Despite the potential benefits of adopting market-based mechanisms for 

spectrum management, some impediments have limited the implementation 

of these methods for commercial users. Even though both FCC and NTIA 

support the use of market-based mechanisms for commercial users, FCC’s 

implementation of these tools has been limited. Impediments to more 

widespread implementation of market-based mechanisms--such as 

auctions, secondary markets, and flexibility of use--include statutory 

restrictions, the degree to which the most highly-valued spectrum is 

already assigned, and the sometimes conflicting interests of commercial 

entities.



Auctions: FCC has auctioned off only a limited amount of the spectrum 

it oversees. Because most of the spectrum is already assigned, the 

amount of spectrum that could be auctioned without reallocating 

spectrum is quite limited. Also, FCC has attempted to auction 

additional spectrum by relocating some users to other parts of the 

spectrum. Relocation can impose significant costs on the incumbent 

spectrum holder and sometimes on the new entrant who may be required to 

fund the relocation. In addition, FCC officials told us that there are 

statutory limits to their ability to use auctions.



Secondary markets: Further implementation of secondary markets in the 

United States will require that the rights of licensees with regard to 

their assigned spectrum be more clearly specified. In other resource 

markets--such as those for land--commercial entities usually have the 

right, without regulatory approval, to buy or sell the resource, or to 

lease the resource from another entity that owns it. Although the 

Communications Act of 1934 prohibits the ownership of spectrum, 

companies have generally been able to buy and sell spectrum licenses 

with FCC’s approval. However, according to an FCC official, it is 

unclear at this time whether, in general, license holders can legally 

lease all or part of their spectrum rights to other users for some 

limited period of time. The opposition of some stakeholders, who are 

concerned that conferring any specific spectrum rights will make it 

more difficult to release spectrum for new services and technologies 

that might develop in the future, further complicates providing rights 

to spectrum users. For over 2 years, FCC has been considering these 

issues under a Notice of Proposed Rulemaking on secondary markets and 

hopes to resolve some of these issues shortly.



Flexibility of use: Granting greater flexibility in the use of spectrum 

would enable license holders to behave like other resource owners in 

having the opportunity to make economic decisions that put their 

resource to its most highly valued use. Although FCC is examining ways 

to improve access to spectrum by providing additional flexibility, an 

FCC official told us that only a small portion of the spectrum it 

assigns is held under licenses that allow for considerable flexibility 

of use. FCC’s ability to introduce additional flexibility has been 

limited because most of the desirable spectrum has already been 

assigned, making it more difficult to change the rules embodied in 

these licenses. Moreover, there are considerable disagreements among 

commercial users over the appropriate degree of flexibility. In 

particular, some interested parties are concerned that allowing greater 

flexibility could result in more interference among users. In its 

report, the FCC Spectrum Policy Task Force made a number of 

recommendations for handling this potential interference, including the 

promotion of receiver requirements and creation of a new standard for 

quantifying acceptable levels of interference, the “interference 

temperature.”:



Diversity of Views among Stakeholders and Current Regulatory Structure 

Are Barriers to Meeting Future Spectrum Needs:



While a number of discussions and activities are under way to help 

ensure that future spectrum needs can be met, stakeholders appear to be 

having difficulty finding consensus that balances the needs of various 

interest groups. Regulatory actions aimed at providing solutions are 

often protracted. Moreover, because of the bifurcated regulatory 

structure in the United States, an examination of whether an 

overarching redesign of spectrum management is required may best be 

undertaken by an entity independent of the two regulatory agencies 

currently involved. In the past, Presidents and the Congress have 

appointed bipartisan commissions to address difficult policy issues 

such as this.



Stakeholders Have Major Disagreements on Spectrum Policy:



Stakeholders have been actively searching for ways to improve spectrum 

management and, thus, to alleviate concerns about meeting future 

spectrum needs. However, certain conflicts among the stakeholders make 

it difficult to find workable solutions that balance the needs of 

various spectrum users. Many conflicts arise because of divergent 

economic interests among users. For example:



* Concerns about the cost of reallocation. Incumbent users are often 

opposed to relocations of current users to new bands, because such 

moves are likely to require the purchase of new equipment and may thus 

impose significant costs and disruption on incumbents--although some of 

this cost may be shared with the firms receiving licenses to use the 

cleared spectrum. But firms with new services view reallocations as 

being essential for bringing the benefits of wireless services, 

including Internet services, to the American public.



* Concerns about interference. Many conflicts with regard to spectrum 

decisions arise over concerns about interference. A good example of 

this concern arises with regard to unlicensed spectrum users. Many 

licensed spectrum users, both commercial and government, have expressed 

concern that allowing certain unlicensed uses--wherein devices 

operating at low power and in fairly limited range use the same 

frequencies as licensed providers--may create interference that 

compromises the quality of services provided by licensed users. 

Conversely, those wanting to introduce certain new technologies view 

access to unlicensed spectrum as beneficial to the public interest and 

maintain that the degree of interference created by certain unlicensed 

uses is not “harmful.”:



* Concerns about policies that influence markets’ competitiveness. Many 

policy initiatives can have an effect on the competitiveness of 

wireless markets. For example, allowing greater flexibility for 

spectrum holders to use spectrum in a variety of ways could create 

opportunities for firms to enter markets for certain services, 

increasing the competitiveness of those markets. In fact, some experts 

have noted that, at times, incumbent firms oppose certain spectrum 

policies, in part, because of concerns about the effect on competition 

in the market.



Another area where conflicts among spectrum stakeholders have arisen 

relates to difficulties in determining how to balance the needs--or a 

process to ensure a balancing of needs--between public-sector and 

private-sector spectrum users. Government users have said that because 

they offer unique and critical services that are not comparable to 

those provided in the commercial sector, a dollar value cannot be 

placed on the government’s provision of spectrum-related services. FCC 

officials, commercial users, and others have stated that the ability of 

commercial users to acquire adequate spectrum is also critical to the 

welfare of society, because the commercial wireless sector makes 

important contributions to a healthy, robust economy. FCC and 

Department of Commerce officials acknowledge the difficulty of 

balancing the critical needs of government and commercial spectrum 

users. To illustrate this point, they refer to the difficulties 

experienced in negotiating two recent agreements: the reallocation of 

spectrum from government to commercial users for 3G services and the 

rules under which ultrawideband devices will share spectrum with 

federal users.



Regulatory Environment Results in Protracted Policy Development and 

Implementation:



Under the divided management framework, no one entity has been given 

ultimate decisionmaking authority over all spectrum use. There must be 

coordination and cooperation in order to determine how best to 

accommodate users of spectrum. While any decisions involving spectrum 

can be difficult, those involving spectrum allocations can be 

particularly protracted. Because most of the desirable spectrum has 

already been allocated, allocating spectrum for a new technology or 

service usually requires that some existing users be moved to another 

part of the spectrum. Since existing users are likely to experience 

costs for relocating but little, if any, benefit, they are often 

reluctant to make a move. Even within the jurisdiction of a single 

spectrum-management agency, reallocations of spectrum may require 

lengthy negotiations. Moreover, decisions involving the reallocation of 

spectrum between federal and nonfederal users, and thus between 

regulatory jurisdictions, can be even more difficult. Some examples of 

protracted spectrum decisions both within and across regulatory 

jurisdictions include:



The reallocation of spectrum in the 700 MHz band. In 1997, the Congress 

directed FCC to reallocate to public safety services the 24 MHz of the 

spectrum that will be recovered from the transition to digital 

television, and to put up for auction the remaining recovered spectrum. 

In 1999, the Congress directed that the proceeds from these auctions 

were to be deposited with the Treasury by September 30, 2000. Auctions 

for spectrum in the 700 MHz band have been rescheduled several times. 

Several mobile telephone companies supported a postponement of these 

auctions. Those in favor of postponing the auction believed that 

because it was unclear when the spectrum would be vacated, it would be 

difficult for companies to determine the value of the spectrum. On June 

18, 2002, the Congress passed legislation removing the former statutory 

auction deadlines but requiring FCC to auction, before September 19, 

2002, 18 MHz of spectrum, some of which was desired by rural carriers. 

This auction was completed in September 2002. The auction of the 

remaining spectrum in the 700 MHz range has been postponed 

indefinitely.



The narrowbanding initiative for federal spectrum users. In 1992, the 

Congress directed NTIA to adopt and implement a plan for federal 

agencies with existing mobile radio systems to use more spectrum-

efficient technologies. In 1993, NTIA responded to the Congress with a 

report that included a plan for implementing narrowbanding--a 

technology that would use about half as much bandwidth as agencies are 

currently using.[Footnote 29] NTIA set interim deadlines for the 

narrowbanding requirements, which are to be fully implemented by 2008. 

The plan required that some agencies move to spectrum occupied by 

another agency. As a result, the plan provided a time line according to 

which each agency would adopt narrowbanding because, as NTIA officials 

pointed out, the implementation of narrowbanding by any given agency 

depends, in part, on whether the other agencies have adhered to the 

schedules laid out by NTIA. We recently asked NTIA about the progress 

of agencies in meeting their narrowbanding requirements. NTIA was not 

able to tell us how many agencies have complied with the interim 

deadlines, because some agencies had not yet responded to NTIA’s June 

2002 request for information on compliance with narrowbanding 

requirements. NTIA officials noted that while they can legally remove 

frequency assignments from spectrum users that are not complying with 

the plan, in reality it is difficult for the agency to exercise its 

authority in overseeing the adoption of narrowbanding.



Allocation of spectrum for 3G wireless services. Spectrum managers 

first considered the need for spectrum to accommodate these new 

services in 1999, when FCC released its spectrum policy statement. In 

October 2000, President Clinton directed that a plan be developed to 

select spectrum for 3G services, but this initial attempt was 

unsuccessful. In a letter in June 2001, FCC’s Chairman wrote to the 

Secretary of the Department of Commerce, “It is apparent that 

additional time is necessary to allow the Commission and the Executive 

Branch to complete a careful and complete evaluation of the various 

possible options” for making spectrum available for 3G. FCC’s Chairman 

stated that the public interest would best be served by providing 

additional time for informed consideration, even if this resulted in 

some delay in reaching allocation decisions. Finally, he requested 

relief from the 2002 statutory deadline for spectrum to be auctioned. A 

task force was established, which included officials at the Department 

of Commerce, FCC, Department of Defense, and other federal agencies. In 

July 2002 the task force released a study concluding that 90 MHz of 

spectrum could be allocated to 3G without disrupting communications 

services critical to national security.[Footnote 30] The deadline set 

for the band clearing to occur is now 2008, although certain provisions 

need to be met before DOD would be expected to relinquish its portion 

of those frequencies. On November 7, 2002, FCC officials released a 

Notice of Proposed Rulemaking that suggests service rules for the 

reallocated spectrum. FCC officials stated that they would likely adopt 

an order establishing the service rules by mid-2003 and would likely 

hold an auction in 2004. Despite these developments, FCC officials have 

stated that additional spectrum would need to be allocated to fully 

support 3G services.



FCC and NTIA Are Attempting to Work in a More Coordinated Fashion to 

Address Difficulties in Spectrum Management, but Jurisdictional 

Responsibilities Differ:



Recognizing that the absence of a generally agreed upon national 

spectrum strategy can make it difficult for FCC and NTIA to avoid 

contentious, protracted negotiations when providing for future spectrum 

needs,[Footnote 31] we recommended in our September 2002 report that 

the Secretary of Commerce and FCC should establish and carry out 

formal, joint planning activities to develop such a strategy to guide 

decisionmaking. Both FCC and NTIA responded positively to this 

recommendation, and they have recognized the need to address concerns 

about current spectrum-management policies and procedures by 

establishing task forces and working groups within their own agencies. 

For example, the FCC Spectrum Policy Task Force addressed some of these 

issues and released a report in November 2002, and NTIA held a Spectrum 

Summit in April 2002 to gather information from stakeholders on the 

current problems with the spectrum-management process. In response to 

our previous report, FCC stated that a cornerstone of both these 

efforts is to improve coordination between FCC and NTIA, to conduct 

joint planning, and to develop a national spectrum-management strategy. 

NTIA officials told us that their request for funding for spectrum 

reform as part of the President’s fiscal year 2003 budget is also a 

result of their view that the United States needs to take a broad view 

of the organizational structure and processes for spectrum management.



Despite the increased amount of communication between FCC and NTIA, 

their different jurisdictional responsibilities appear likely to result 

in piecemeal efforts that lack the coordination to facilitate major 

policy changes. In particular, FCC and NTIA’s recent policy evaluations 

and initiatives tend to focus on the issues applicable to the users 

under their respective jurisdictions. Thus, while these current efforts 

may be beneficial within the current regulatory environment, an 

analysis of whether there is a need for comprehensive reforms--such as 

changes in the structure of spectrum management--may best be undertaken 

by an independent body.



Some Stakeholders Have Suggested That Changes to the Structure of 

Spectrum-Management Functions May Be Needed:



As we discussed in our September 2002 report, the current structure of 

spectrum-management functions within the U.S. government has been in 

place for many years. In particular, the bifurcated system was put into 

place with the Radio Act of 1927, and in 1934 the Federal 

Communications Commission was created to, among other things, oversee 

nonfederal licensing of spectrum. The federal oversight of spectrum has 

moved within the executive branch several times and has been the 

responsibility of NTIA since it was created in 1978. Although the 

organization of spectrum management has been static for many years, the 

application of spectrum in providing services has evolved dramatically. 

In particular, a plethora of new services and applications has emerged 

in the past 25 years, including various types of mobile telephone 

service, paging services, wireless video and data services, wireless 

local area networks, and Internet access. On the government side, the 

past 25 years have seen untold new wireless applications for public 

safety, national defense, and other key missions. Additionally, new 

technologies, such as ultrawideband and software-defined radio, would 

use radio spectrum in new ways.



Recognizing that the United States may not have an adequate regulatory 

structure to address spectrum-management concerns, commercial and 

government spectrum license holders, as well as other stakeholders, 

have suggested various changes in the domestic spectrum-management 

structure. The ideas range from temporary solutions to overarching 

systemic changes, but they all aim at improving the efficiency of the 

way spectrum is managed. Stakeholders’ proposals for improving the 

process include:



* Creation of spectrum allocation assessment commission: Several 

stakeholders have suggested the creation of a politically independent 

entity that would audit current spectrum allocations and make a 

comprehensive reallocation proposal. Some have suggested using the Base 

Realignment and Closure process as a model for creating an independent 

commission to look at spectrum allocations and assignments.



* Move NTIA out of the Department of Commerce: Some government agencies 

that we interviewed suggested that NTIA would be better positioned as a 

voice for all government spectrum users if it were moved outside of the 

Department of Commerce. It has been suggested that making NTIA either a 

commission or an executive office would provide it with a level of 

independence it does not currently have within another government 

agency. Eight out of 12 IRAC-member agencies that answered this 

question on our survey were greatly or moderately supportive of making 

NTIA an independent agency outside the Department of Commerce.



* Create a spectrum oversight committee: Along with several government 

spectrum license holders and a commercial user, a majority of those on 

our expert panel who responded to a poll felt that creation of a formal 

entity to provide FCC/NTIA oversight may be appropriate. They said that 

setting up an oversight committee would create an office where disputes 

could be settled. It would also serve as a place to create a uniform 

spectrum policy that both FCC and NTIA could follow.



* Merging FCC and NTIA into one agency: Some expert panel members 

suggested the merging of FCC and NTIA into one regulatory agency. 

Merging the responsibilities would allow a single agency to create one 

policy for the management of spectrum and create a single voice to 

address problems when they arise between parties.



* Undertake an independent review of spectrum-management practices: 

Seven of our 10 panelists said they favored an independent review of 

current spectrum-management practices, similar to that recently 

completed in the United Kingdom.



Spectrum-Management Structures in Some Other Countries Differ from 

Those in the United States, but These Alternative Structures May Not Be 

Applicable in the United States:



The structure for managing spectrum in the United States is unlike 

those in most countries that we examined. According to information 

obtained from interviews with spectrum managers in other countries, 

most of the countries have a single government entity that manages 

spectrum for all users. For example, Industry Canada makes all final 

decisions about spectrum for all Canadian users, and its decisions are 

not subject to judicial review. Similarly, in New Zealand, the Ministry 

of Economic Development is responsible for both government and 

nongovernmental users of spectrum. Also, some countries have committees 

or advisory boards that analyze conflicting requests and help spectrum 

managers make decisions. For example, the United Kingdom Spectrum 

Strategy Committee prioritizes spectrum needs and makes final decisions 

when any major conflicts arise. Also, the Radio Advisory Board of 

Canada attempts to garner consensus on issues so that Industry Canada 

does not have to analyze many different filings with opposing views.



While other countries have adopted alternative spectrum-management 

systems, they may have limited applicability for the United States for 

a few key reasons. First, the role of the military in the United States 

is unique in the world. Second, the divided structure in the United 

States reflects the President’s responsibility for national defense and 

the fulfillment of federal agencies’ missions, along with the U.S. 

government’s long-standing encouragement and recognition of private 

investment in developing commercial radio and other communications 

services. While alternative structures may not be fully pertinent to 

our domestic structure, it is interesting to note how other countries 

have organized their spectrum-management functions. For more 

information on spectrum-management structures in other countries, see 

appendix V.



In the United States, Commissions Have Been Used to Look at Major 

Policy Change When Complex Policy Disputes Arise:



In the past, commissions have been established to look at certain 

difficult policy issues. As table 3 shows, in the United States both 

the Congress and the Executive Branch have created commissions to 

examine a variety of issues.



Table 3: Examples of Commissions Examining Major Policy Issues:



Commission: President’s Commission on Administrative Management 

(Brownlow Committee); Established by: Executive Order; Date 

established: March 1936; Term: Approximately 10 months; Reporting: 

Report to the President on January 1, 1937; Mission: Ensure that the 

President is chief Administrator of an executive; branch with 

institutional support and reorganize the government along; hierarchical 

lines, to provide clear lines of authority and accountability.



Commission: Commission on Organization of the Executive Branch of the 

Government (First Hoover Commission); Established by: Act of Congress; 

Date established: July 1947; Term: Approximately 3 years; Reporting: 

Report to Congress by January 13, 1951; Mission: Determine how to limit 

spending to the amount consistent with efficient performance of 

essential services, eliminate duplicative services, abolish 

unnecessary services/activities, and provide definition for and 

limitations of executive functions.



Commission: Commission on Organization of the Executive Branch of the 

Government (Second Hoover Commission); Established by: Act of Congress; 

Date established: July 1953; Term: Approximately 2 years; Reporting: 

Report to the Congress by May 31, 1955; Mission: Address the policy 

issues that underlay big government, identify; desirable spending 

reductions, cut; back and eliminate services, and; define 

responsibilities of executive; branch officials.



Commission: President’s Commission on Postal Organization; Established 

by: Executive Order; Date established: April 1967; Term: 1 year; 

Reporting: Final report to the President within 1 year; Mission: Study 

the organization and structure of the postal service and report on the 

feasibility of transferring it from; the Post Office Department to a; 

government corporation or other such form of organization.



Commission: National Commission on Social Security Reform; Established 

by: Executive Order; Date established: December 1981; Term: 1 year, 2 

months; Reporting: Report to the President by January 20, 1983.; 

Mission: Review the condition of the Social Security trust funds, 

identify long-term problems, and analyze potential solutions that will 

put Social Security on a sound financial footing.



Commission: Defense Base Closure and Realignment Commission; 

Established by: Act of Congress; Date established: November 1990; Term: 

Approximately 5 years; Reporting: 3 reports to the President and 

Congress, 1 for each year that it meets; Mission: Provide a fair 

process that will lead to timely closure and realignment of military 

installations within the United States.



Commission: Amtrak Reform Council; Established by: Act of Congress; 

Date established: December 1997; Term: Approximately 5 years; 

Reporting: Annual reports to the Congress; Mission: Evaluate Amtrak 

performance and make recommendations for achieving cost containment, 

productivity improvements, and financial reforms.



Commission: National Gambling Impact Study Commission; Established by: 

Act of Congress; Date established: August 1996; Term: Approximately 2 

years; Reporting: Report issued no later than 2 years after the date of 

the Commission’s first meeting; Mission: Conduct a comprehensive study 

of the social and economic impacts of gambling in the United States..



[End of table]



Source: GAO.



To ensure that various views and opinions are incorporated, many of the 

past commissions have been set up so that their members include a broad 

variety of stakeholders. In a majority of the commissions highlighted 

in table 3, the right to appoint commission members was divided between 

the executive and legislative branches, and in several cases further 

divided in the Congress between majority and minority party 

appointments in each house. Furthermore, when creating commissions, the 

Congress has chosen, at times, to stipulate certain requirements for 

panel members. For example, the legislation setting up the Amtrak 

Reform Council stipulated that presidential appointments should include 

representatives from both labor and management. The commissions above 

were generally made up of between 8 and 15 members.



In addition to the commissions discussed above, there is a historical 

precedent for having a commission examine the spectrum-management 

process; the First National Annual Radio Conference was established in 

1922 by Secretary of Commerce Herbert Hoover. The group, made up of 

manufacturers, broadcasters, amateur radio representatives, civilian 

and military government radio communications personnel, and others, was 

charged with studying radio interference caused by the rise of radio 

broadcasting and the limitations of the Radio Act of 1912. The 

conference made recommendations to alleviate the overcrowding of the 

radio waves. Three subsequent conferences were held in each of the 

following years, and legislation was introduced to implement various 

recommendations of the conferences throughout this period. In 1927 a 

compromise was reached that led to a bifurcated framework for the 

management of radiofrequency spectrum by the federal government.



As spectrum management becomes more complex and difficult around the 

world, several other countries we examined are also finding a need to 

undertake a major reevaluation of their spectrum policies. Several 

countries we reviewed are engaged in high-level examinations of their 

spectrum-management systems. Canada is currently updating its 1993 

Spectrum Policy Management Framework; spectrum managers there told us 

that the review will take between 2 and 3 years. In the past few years 

several other countries have completed comprehensive reviews of their 

policies. Australia and the United Kingdom have each recently completed 

a 1-year review and are in the process of addressing some of the 

recommendations made in these studies. Officials in Finland, Italy, and 

Japan also told us that they are currently involved in or have recently 

completed some form of spectrum-management review.



Conclusions:



The availability of spectrum for a myriad of applications is of central 

importance to the U.S. economy and to the fulfillment of key government 

functions. In the past, the spectrum-management structure in the United 

States has served our interests well: spectrum for innumerable 

applications has been allocated and assigned, government’s many 

important missions are being fulfilled, and domestic wireless markets 

have grown considerably. However, technology, consumer demand, and 

government needs are growing rapidly. And as the world becomes more 

globally connected, new spectrum needs are putting increased stress on 

the spectrum-management structure. The need for attention to this 

problem is becoming acute.



We found that many countries have been responding to pressing spectrum-

management requirements in recent years by undertaking major reviews of 

spectrum issues and by instituting new policies and approaches. In the 

United States, numerous discussions and reviews are underway, and this 

activity is playing a vital role in drawing attention to and 

stimulating discussion of options for change to the current spectrum-

management system. While spectrum reform is increasingly being 

discussed, debated, and reviewed, it does not appear likely that timely 

reforms can be agreed upon amid the diversity of views held by 

stakeholders. Moreover, no single agency has been given ultimate 

decisionmaking authority over all spectrum in the United States or the 

authority to impose fundamental reform. FCC’s recent Spectrum Policy 

Task Force recommendations illustrate that even a major initiative such 

as this, when conducted by one regulatory agency, will focus on 

policies and issues under the jurisdiction of that agency. That is, 

despite the forward-looking nature of FCC’s recommendations, these 

policies impact only procedures of FCC and the stakeholders it 

oversees; none of the task force’s recommendations addresses the 

overarching structure of spectrum management or the possible need for 

comprehensive reform. As such, a major independent examination of 

spectrum-management policies and structure is needed.



Recommendations for Executive Action:



In order to develop solutions to key spectrum-management issues, this 

report recommends that the Chairman of FCC and the Assistant Secretary 

of Commerce for Communications and Information, in consultation with 

officials from the Department of State, Office of Management and 

Budget, Office of Science and Technology Policy, and pertinent 

congressional committees, work together to develop and implement a plan 

for the establishment of a commission that would conduct a 

comprehensive examination of current U.S. spectrum management. This 

commission would examine, among other things, whether structural reform 

of our current system is needed. The commission should be independent 

and should involve all relevant stakeholders--including commercial 

interests, government agencies, regulators, and others--to ensure that 

the diversity of views on key spectrum-management issues are 

represented. The review should be time-limited and, if change is 

needed, have as its primary objective the establishment of a framework 

to implement that change. Although the commission could be established 

by statute, executive order, or other means, a statutory basis for the 

commission may provide the most appropriate framework for achieving a 

wide-ranging review of issues that may ultimately need legislative 

solutions. In appendix IV, we have presented possible issues and 

stakeholder concerns that a commission could consider as part of its 

comprehensive examination.



Agency Comments:



We provided a draft of this report to the National Telecommunications 

and Information Administration of the Department of Commerce, the 

Department of State, and FCC for their review and comment. Both the 

Department of Commerce and FCC stated that they are taking steps to 

coordinate their spectrum-management processes and that each agency, on 

its own, is making progress in developing spectrum policies that will 

be more responsive to the rapidly changing environment. Regarding our 

recommendation for an independent commission to evaluate the need for 

overarching spectrum reform, both of these agencies stated that they 

would take our recommendation into consideration. Additionally, the 

Department of Commerce and FCC provided technical comments on our 

report that were incorporated as appropriate. The comments of the 

Department of Commerce appear in appendix VII and the comments of FCC 

appear in appendix VIII. The Department of State did not provide 

comments on this report.



Matter for Congressional Consideration:



Because neither FCC nor the Department of Commerce specifically agreed 

to implement our recommendation, the Congress may wish to consider 

taking appropriate actions to address spectrum-management concerns. For 

example, the Congress may consider holding hearings on this matter or 

enacting legislation to establish an independent commission that would 

conduct a comprehensive examination of current U.S. spectrum 

management.



We are sending copies of this report to the appropriate congressional 

committees. We are also sending this report to the Secretary of State, 

the Chairman of the Federal Communications Commission, and the 

Secretary of Commerce. We will also make copies available to others 

upon request.



In addition, the report will be available at no charge on the GAO Web 

site at http://www.gao.gov. If you have any questions about this 

report, please contact me at 202-512-2834 or guerrerop@gao.gov. Key 

contacts and major contributors to this report are listed in appendix 

IX.



Peter Guerrero

Director, Physical Infrastructure Issues:



Signed by Peter Guerrero



[End of section]



Appendix I: Scope and Methodology:



To respond to the objectives of this report, we gathered information 

from a variety of sources. In particular, we gathered information by 

(1) reviewing economic, legal, and public policy material relevant to 

spectrum issues; (2) interviewing regulatory agencies at state, local, 

and federal levels; (3) interviewing experts familiar with spectrum 

issues; (4) interviewing 17 companies that hold spectrum licenses in 

the United States; (5) interviewing spectrum managers in 12 foreign 

countries as well as other spectrum stakeholders in the United Kingdom 

and Canada; and (6) convening an expert panel to discuss several 

spectrum-policy issues.



To better understand the regulatory process and the differences in how 

spectrum is managed for commercial companies and government users, we 

interviewed officials who oversee spectrum allocation at both the 

Federal Communications Commission (FCC) and the National 

Telecommunications and Information Administration (NTIA) and obtained 

relevant documents from both agencies. To acquire a more in-depth 

understanding of how spectrum is managed within government agencies, we 

conducted interviews with officials at the Department of Justice (DOJ), 

Federal Aviation Administration (FAA), Federal Emergency Management 

Agency (FEMA), and Department of Defense (DOD). We also distributed a 

survey to the Interdepartment Radio Advisory Committee (IRAC) member 

agencies’ representatives, excluding NTIA and FCC.[Footnote 32] The 

survey asked questions about federal agencies’ ability to meet mission 

needs, their anticipated spectrum needs, and their views on several 

policy issues. Of the 20 surveys we distributed at an IRAC meeting, 17 

were returned to us. At the state and local levels, we talked to a 

national trade association representing public safety officials, as 

well as officials managing state and local public safety systems.



To get a more thorough understanding of the spectrum auction process, 

including how companies value spectrum and determine their bidding 

strategy, we conducted interviews with two financial companies that 

specialize in spectrum auction consulting and one that specializes in 

bringing wireless technologies to market. We also interviewed two 

academics who have written and published articles on the subject.



To better understand how companies value spectrum and whether the cost 

of their spectrum is a significant factor in setting end-user prices 

and determining the deployment of new products and services, we 

interviewed representatives of 17 commercial companies that have 

spectrum licenses. These companies provide services in both urban and 

rural markets. Of the 17 companies, 2 were radio or television 

broadcasters, 11 were wireless communications companies, 2 provided 

services via satellite, 1 provided local telephone service using 

wireless rather than wire connections, and 1 was a paging company. The 

selection of companies was based on those discussed in an FCC report 

concerning wireless issues.



To obtain information about spectrum management in other countries, we 

interviewed officials in Australia, Canada, Finland, France, Hong Kong, 

Italy, Japan, Mexico, New Zealand, Spain, Sweden, and the United 

Kingdom. The criteria we used to select the countries included 

geographic size, gross national product per capita, population density, 

level of mobile telephone penetration, primary methods for assigning 

spectrum, and whether the country uses market incentives to encourage 

government conservation of spectrum. In choosing the countries, we also 

consulted with NTIA and Department of State officials. For all 

countries, we were interested in learning about the regulatory 

structure governing spectrum management. We asked about the basic 

aspects of their management of the spectrum, including how the resource 

is allocated and assigned to government and commercial users, the 

mechanisms and regulatory structure they have in place for reaching 

agreement on spectrum-management issues, how they see the level of 

competition in their wireless industry, and whether they have employed 

market-based mechanisms in managing the spectrum. For Canada and the 

United Kingdom, we conducted more in-depth case studies of spectrum 

management by interviewing not only spectrum managers but also 

government users and commercial service providers. In these two 

countries--as well as in the United States--we interviewed officials 

who manage spectrum for air traffic control, national law enforcement, 

and local emergency service. We also interviewed commercial wireless 

providers. For many of the countries studied, the information in this 

report is based on statements provided by spectrum managers during 

interviews and could not always be verified through documents or other 

means.



To determine the validity of our preliminary research findings, we 

assembled an expert panel. To identify potential panelists with 

recognized expertise in spectrum-management issues, we solicited 

recommendations from officials at FCC and reviewed research on 

spectrum-management issues. From a pool of over 35 potential panelists, 

we selected 10 panelists who represented a cross-section of spectrum 

experts, including federal regulators, government and commercial users, 

band managers, financial analysts, economists, and engineers. The name 

and organizational affiliation of each panel member is listed in 

appendix VI. During a day-long meeting at GAO headquarters, the 

panelists discussed six topics that we provided in advance: (1) 

spectrum assignment and payment methods, (2) flexibility of use and 

secondary markets, (3) the scarcity of spectrum, (4) incentives for 

improving the technical efficiency of spectrum use, (5) the 

competitiveness of wireless and wireless equipment markets, and (6) 

ways to balance the needs of commercial and government users. After 

discussing each topic, we asked the panelists to answer specific 

questions on an anonymous ballot. The meeting was recorded and 

transcribed to ensure that we had accurately captured the panel 

members’ statements.



In addition to the information collected through the work efforts 

described above, we also reviewed technical, legal and regulatory, and 

economic research on relevant spectrum-management issues.



[End of section]



Appendix II: Stakeholders’ Views on Auctions and Spectrum Royalties:



This appendix provides information on (1) the positive attributes of 

auctions identified by stakeholders; (2) concerns about the effect of 

auctions on consumer prices for wireless services, the rapidity of 

deployment of new technology, and the ability of small business to 

participate in the provision of wireless services; and (3) 

stakeholders’ views on the merits of spectrum royalties.



Stakeholders Identified Several Positive Attributes of Auctions:



Wireless companies that we spoke with and members of our expert panel 

generally perceive auctions to be an improvement over comparative 

hearings and lotteries for the assignment of spectrum. Auctions are 

generally perceived to be faster and more transparent than comparative 

hearings. Also, auctions were seen as promoting economic efficiency by 

assigning spectrum to the party that values it the most. Finally, in 

contrast with comparative hearings and lotteries, auctions capture part 

of the value of the spectrum for the government in the form of winning 

bids. The companies that we spoke with generally characterized auctions 

as being superior to comparative hearings. Some companies described 

auctions as quick, efficient, certain, and the best available 

mechanism. Alternatively, some companies described comparative 

hearings as slow, arbitrary, and uncertain. Participants in our expert 

panel also were generally positive about auctions. For example, one 

participant noted that no one has figured out a better mechanism for 

the initial assignment of licenses.



Despite Success in Wireless Markets, Concerns Have Been Raised about 

Certain Possible Effects of Auctions:



Despite the growth and competitiveness of wireless markets, some 

concerns have been expressed about whether the use of auctions as the 

primary spectrum-assignment method has had a detrimental effect on 

certain economic factors. In particular, some observers are concerned 

that the use of auctions will raise consumer prices for wireless 

services, will slow the deployment of wireless networks, and will make 

it difficult for smaller businesses to compete for wireless licenses.



The effect of auctions on consumer prices. Some concerns have been 

raised that the price companies are paying for spectrum under auctions 

could drive up end-user customer prices. Some economists suggest that 

one-time license payments--such as those associated with auctions or 

with participation in comparative hearings--should not influence 

customer prices, because these fixed costs do not vary with a firm’s 

output. As such, they do not influence a firm’s decisions about how to 

set its prices; such decisions are based on the firms’ marginal, or 

incremental, costs. However, other economists have pointed to reasons 

why auction payments could influence consumer prices in certain cases. 

For example, some or all companies might, because of an increased need 

to borrow funds to participate in an auction, see their cost of 

financial capital rise. Moreover, these economists argue that while 

firms may temporarily set prices based on marginal costs, firms cannot 

survive in the long run without considering fixed costs, and hence 

auction payments will be reflected in consumer prices.



Views among those we spoke with on this issue were mixed. Officials at 

six of the companies we spoke with said that the assignment mechanism 

does not influence prices. Similarly, three of the panel members 

reported that the price paid for spectrum had “little/no” influence on 

customer prices. Additionally, two FCC studies that examined consumer 

prices for wireless services found that the introduction of auctions 

for spectrum assignment did not raise consumer prices.[Footnote 33] On 

the other side, officials at eight companies we interviewed suggested 

that the assignment mechanism does influence prices; three of these 

companies reported that they must set prices high enough to cover their 

debt and maintain margins. Additionally, four of our expert panelists 

said that spectrum price had “some” influence, and three said it had a 

“great” influence on customer prices.



While there is clear disagreement among those we spoke with about the 

effect of auctions on consumer prices, the competitiveness of the 

market is generally seen as a very important factor in determining 

consumer prices. The companies that we spoke with overwhelmingly cited 

competition as an important factor when setting consumer prices. 

Competitive factors were more commonly cited as an important influence 

on price than was the influence of auction payments. Similarly, 

participants in our expert panel also indicated that competition was an 

important consideration for companies when determining what prices they 

would charge consumers.



The effect of auctions on the rate of infrastructure deployment. Some 

observers argue that payment at auction for spectrum licenses would 

encourage companies to deploy technologies and services faster, because 

the companies would have devoted their own resources for the licenses 

and would need to recoup the investment by using the spectrum in a 

productive and innovative manner. Others, however, argue that the 

auction payments for spectrum licenses could slow the deployment of new 

technologies and services by diverting financial resources away from 

direct investments in infrastructure.



Officials at nine of the companies we spoke with said that the 

assignment mechanism can influence the rate of deployment of new 

technologies and services, because, for example, high auction prices 

can affect the firm’s access to financial capital. Alternatively, five 

companies said that the assignment mechanism does not influence the 

deployment of new technologies or services. Panel members’ views on 

whether the rate of deployment of wireless infrastructure is affected 

by purchase of licenses in an auction were also mixed. Six panelists 

generally reported that payments for spectrum had “little/no” or only 

“some” influence on the deployment of new wireless technology, while 

four panelists reported that these payments could have a greater 

influence on the rate of deployment. Finally, the United Kingdom’s 

National Audit Office found that while companies paid unprecedented 

amounts for 3G spectrum in that country, there was no strong evidence 

that the level of proceeds from the auction would have a negative 

impact on the wider economic benefit of 3G.



The companies that we spoke with told us that a number of other issues 

have an influence on the rate of deployment of wireless 

infrastructures, in addition to the purchase of spectrum licenses 

through auctions. These issues include (1) difficulty with citing cell 

towers because of problems associated with local zoning; (2) FCC 

mandates for items such as emergency 911 service, which require large 

financial investments that divert resources away from the deployment of 

the firm’s network;[Footnote 34] and (3) FCC procedures, such as 

licensing spectrum that is encumbered (that is, currently used by 

another licensee), that increase business uncertainty. Finally, the 

United Kingdom’s National Audit Office noted that the remaining 

difficulties to be overcome for the roll-out of 3G services in that 

country are mainly technical: for example, the development of suitable 

base station and hand-set equipment.



The effect of auctions on the ability of small businesses to obtain 

spectrum licenses. Another concern about the adoption of auctions for 

the assignment of spectrum licenses is that smaller companies will not 

be able to compete for licenses with larger businesses. FCC addressed 

this concern in a few ways. FCC allowed partitioning of some licenses 

into relatively small pieces to facilitate small business participation 

in wireless markets. Additionally, for some auctions, FCC provided 

special bidding credits, allowed long-term installment payments, or 

designated certain licenses as available only for acquisition by 

smaller companies, in order to facilitate their participation and 

increase their opportunity to acquire spectrum licenses.



Among the companies and experts that we spoke with, several suggested 

alternatives to the current spectrum-assignment mechanism to facilitate 

small business participation. These alternatives included small 

geographic areas, which can be better suited to the business models of 

small companies, and revenue sharing. Alternatively, while FCC has 

taken steps to promote small businesses in certain auctions, some 

observers do not believe this necessarily leads to viable small 

business participation in wireless markets.[Footnote 35] Those who take 

this view argue that certain wireless services have large economies of 

scale in their provision because of the large costs associated with 

constructing wireless networks.



Few Stakeholders Favor Royalty System of Spectrum Auctions:



In response to concerns about auctions, some stakeholders have 

suggested royalties as an alternative mechanism for assigning spectrum 

licenses. With a royalty mechanism, a company would pay the government 

a percentage of revenue on an ongoing basis, rather than pay the 

government a one-time fee to obtain a spectrum license. For example, 

Hong Kong spectrum managers reported that they used a royalty auction 

for 3G spectrum in which companies bid on a percentage of their revenue 

to be paid to the government. Spectrum managers in Hong Kong told us 

that a royalty structure enables the financial risk associated with 

purchasing spectrum at an auction to be shared between the government 

and commercial sector.



We found little support for royalties among the companies that we spoke 

with, the spectrum managers in other countries, or participants on our 

expert panel. Officials at only four of the domestic companies that we 

spoke with thought the royalty method merited consideration. These 

companies told us that royalties--in lieu of upfront auction payments-

-could help small businesses enter the wireless market by reducing the 

financial resources associated with acquiring spectrum licenses in an 

auction. However, eight companies that we spoke with did not favor 

royalties. Some of these companies noted that royalties would 

effectively function as a tax that would raise consumer prices and 

possibly increase business uncertainty. Participants on our expert 

panel were uniformly opposed to a royalty mechanism. Finally, officials 

with most foreign governments that we spoke with told us that their 

governments had considered and decided against royalties or had not 

considered royalties at all.



[End of section]



Appendix III: Technological Advancements Could Help to Relieve Spectrum 

Scarcity:



Because spectrum is a finite resource and demand for it is rising, it 

is increasingly scarce. The radiofrequency bands most usable for new 

wireless services in land mobile radio, wireless telephony, and 

ultrawideband applications are the most congested portions of the radio 

spectrum. But advances in technology hold promise for enabling greater 

efficiency in the use of this prime spectrum.



The move from analog to digital technologies has already greatly 

conserved the use of prime spectrum and holds further promise for the 

future. Digital technologies increase the amount of information that 

can be transmitted within a given amount of bandwidth. For example, by 

using certain digital techniques, wireless telephony networks can now 

handle more calls in a given bandwidth than was possible with analog 

cellular. These benefits are also spreading to other applications. 

Similarly, the transition from analog to digital television will 

eventually release some portion of the broadcast spectrum to be 

available for other uses. Federal users are also required to adopt 

narrowbanding techniques by 2008--a move that will economize on the use 

of spectrum.



Ultrawideband technologies also offer opportunities to conserve on 

spectrum use, by allowing a given band to be allocated to multiple 

uses. After a number of years of research and development in the use of 

wideband transmission for surveillance, obstacle detection, and ground-

penetrating radars, and after consultation with NTIA, FCC agreed to 

allow experimental wideband systems on an unlicensed basis. Because 

these technologies use low power over wide swaths of spectrum, they are 

able to share bands currently in use by many federal and nonfederal 

systems that are using higher power levels and compatible transmission 

techniques.



In the more distant future, users and experts are looking to the 

development of software-defined radios to more effectively use 

spectrum. As many experts have noted, much of the radio spectrum is not 

actually being used at a given time. Software-defined radio technology, 

in which a radio receiver searches for unused frequencies at a given 

time and tunes to an available channel, offers the opportunity to use 

temporarily unused spectrum by allowing spectrum to be allocated to 

various uses and assigned to various users dynamically--minute by 

minute. Software-defined radio technology promises to offer a way for 

numerous radio systems that are operating in varied frequency bands and 

different modes (push-to-talk, broadcast, secure, and so forth) to 

operate on a common platform. Not only will software-defined radio 

allow spectrum to be assigned on a minute-by-minute basis, but it may 

also help solve some of the problems related to the interoperability of 

various systems, a well-recognized problem in public safety and search-

and-rescue applications.



[End of section]



Appendix IV: Suggestions for Issues for Consideration by a Commission:



This appendix discusses issues that would need to be considered in 

setting up a commission if one is established. This is not intended to 

be an exhaustive list of possible topics for consideration, nor should 

it be interpreted as recommending any specific course of action for 

spectrum management.



Commission Structure Considerations:



When designing a commission to examine the U.S. spectrum-management 

process, the following should be considered:



* Appointment authority: Commissions often have both Congress and the 

President designate members to serve. Several have gone further to 

achieve political balance, allowing both majority and minority 

congressional leadership to make appointments.



* Federal Advisory Committee Act: Consideration should be given to 

whether the commission will be established as a federal advisory 

committee.



* Eligibility: In order to ensure that all of the diverse stakeholders’ 

opinions are heard, there should be broad representation on the 

commission. For example, the commission should include representation 

from the government, commercial, and technical sectors.



* Staff, timeframe, and budget: The size and qualifications of the 

staff, the budget for the commission, as well as the time frame of the 

commission’s work will need to be considered.



* Commission status: A decision on whether the commission should expire 

upon the issuance of its report or have a predetermined recurring 

status should be considered.



Potential Goals and Objectives of Commission:



* Promote technically efficient use of spectrum;



* Promote economically efficient use of spectrum;



* Ensure that government missions requiring spectrum are accomplished;



* Promote growth of the private sector;



* Minimize interference among users;



* Maximize the rapidity with which spectrum management can respond to 

changing needs; and:



* Recommend future policy and management structures.



Possible Policies to Consider:



* Whether the current policies should be continued;



* Whether mechanisms that create economic incentives to encourage users 

to use spectrum more efficiently could be developed:



* If it is appropriate to apply these mechanisms to all users or only 

to subsets of users, including government users;



* Possible mechanisms to consider include:



æRequiring users to pay for spectrum licenses in the marketplace;

æAllowing users to sell spectrum in the market place;

æAllowing users to lease spectrum from other users;

æCharging an incentive-based fee that is designed to mimic a market

 where one does not exist;

æIncreasing the flexibility of use embedded in a license;

æProviding more spectrum for experimental and unlicensed uses; 

æIncreasing the use of band managers.



* Increasing the information available to policy makers and regulators 

regarding spectrum use by:



* Auditing its use on a regular basis;



* Measuring its value through some form of accounting.



* Making spectrum conservation a high level policy goal throughout the 

government;



* Funding research on technologies that are spectrally efficient;



* Establishing rules for determining spectrum-use priorities;



* Setting up a formal spectrum-planning process;



* Determining whether there should be a major one-time reallocation of 

spectrum; and:



* Developing rules for reallocating spectrum both within and across 

regulatory jurisdictions.



Potential Regulatory Structure Options to Explore:



* Determining whether the current regulatory structure should be 

continued;



* Creating a mechanism for better coordination of NTIA, FCC, and IRAC 

functions by any of the following means:



* Requiring agencies to develop a single spectrum plan that would be 

reviewed regularly;



* Making coordination among spectrum-management agencies a critical 

objective in the strategic plan of each agency;



* Establishing other policies and procedures that require ongoing 

coordination;



* Creating a single agency to manage spectrum; and:



* Letting the federal agencies manage their own spectrum.



Lessons Learned:



When examining landmark commissions that led to government reforms in 

the past,[Footnote 36] we have cited three main lessons learned that 

those looking to examine the spectrum-management structure should keep 

in mind:



* Successful commissions have established useful goals for what is to 

be achieved and have had a narrow focus;



* Reorganization efforts need to recognize the unique federal 

government purpose/structure (that is, that policies have political, 

legal, and organizational facets to them); and:



* Efforts have to be made for the congressional and executive branches 

to reach agreement about the need for and type of reform. Furthermore, 

it is best when the Congress and executive agencies work in cooperation 

to implement these reforms.



[End of section]



Appendix V: More Details on Spectrum Management in Foreign Countries 

Studied:



Each of the 12 foreign countries we studied was asked a variety of 

questions relating to its management of the spectrum. We asked each 

country general questions about its spectrum-management structure and 

methods for resolving conflicts, about how it assigns spectrum to 

government and commercial users, and for specific details of other 

aspects of its spectrum-management system. Some of the information 

gathered from these countries has been reported in the body of this 

report and thus is not included in this appendix.



Spectrum Management and Conflict Resolution:



Table 4 lists the government entities primarily responsible for the 

management of the spectrum in each country.



Table 4: National Spectrum Regulators:



Country: Australia; National spectrum regulators: Australian 

Communications Authority (ACA).



Country: Canada; National spectrum regulators: Industry Canada.



Country: Finland; National spectrum regulators: Finnish Communications 

Regulatory Authority (FICORA).



Country: France; National spectrum regulators: National Agency for 

Frequencies.



Country: Hong Kong, China; National spectrum regulators: Office of the 

Telecommunications Authority (OFTA).



Country: Italy; National spectrum regulators: General Direction for 

Frequencies Allocation and Management, General Direction for Licensing 

and Assignment.



Country: Japan; National spectrum regulators: Ministry of Public 

Management, Home Affairs, Posts, and Telecommunications.



Country: Mexico; National spectrum regulators: Comision Federal de 

Telecomunicaciones.



Country: New Zealand; National spectrum regulators: Ministry of 

Economic Development.



Country: Spain; National spectrum regulators: General Directorate for 

Telecommunications.



Country: Sweden; National spectrum regulators: Swedish Post and Telecom 

Agency (PTS).



Country: United Kingdom; National spectrum regulators: 

Radiocommunications Agency.



[End of table]



Source: Spectrum managers interviewed in each country.



We asked spectrum managers how they resolve conflicts that arise 

regarding spectrum allocations and assignments. Many countries told us 

that they have one agency that makes all final spectrum decisions. 

Other countries reported that they have advisory boards or committees 

that help resolve disputes. Table 5 summarizes responses to this 

question.



Table 5: Spectrum-Decision Authority and Techniques for Resolving 

Disagreements Regarding Spectrum Management:



Country: Australia; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: The Australian 

Communications Authority regulates the radiofrequency spectrum and 

reports to the Australian Minister for Communications. Potentially 

contentious issues are resolved by the ACA or the Minister in 

consultation with users, or among users within an ACA framework..



Country: Canada; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: Industry Canada 

makes all final decisions with the help of the Radio Advisory Board of 

Canada. The Radio Advisory Board of Canada, which consists of 

representatives from most spectrum users in Canada, provides the 

government with broadly based advice regarding spectrum management..



Country: Finland; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: FICORA, an 

agency within the same administrative sector as the Ministry of 

Transportation and Communications, is responsible for managing both 

military and civil use. FICORA depends on national level advisory 

boards to function as discussion forums and to provide opportunities 

for cooperation. One particular board, the Radio Advisory Board, 

advises the Ministry on spectrum policy and creates working groups to 

address specific spectrum-management issues..



Country: France; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: The National 

Agency for Frequencies makes final decisions regarding all spectrum 

policy, and the Prime Minister formally approves these proposals. If 

necessary, arbitration is available for agencies to reach agreement; 

however, officials told us that arbitration is very rare..



Country: Hong Kong, China; Spectrum-decision authority and techniques 

for resolving disagreements regarding spectrum management: The Office 

of the Telecommunications Authority manages spectrum for all users with 

the help of the Radio Spectrum Advisory Committee. The committee--which 

consists of representatives of public network operators, major 

radiocommunications users, and independent professionals--provides 

advice to OFTA regarding spectrum-management strategies, policies, and 

procedures..



Country: Italy; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: The two agencies 

involved in spectrum management have independent responsibilities and 

make final decisions on spectrum management for issues under their 

jurisdiction..



Country: Japan; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: The Radio 

Regulatory Council acts as an advisory body to the Ministry of Public 

Management, Home Affairs, Posts, and Telecommunications, which makes 

all final spectrum-management decisions..



Country: Mexico; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: Secretariat of 

Communications and Transportation makes all final decisions..



Country: New Zealand; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: The Radio 

Spectrum Management Group, a part of the Ministry of Economic 

Development, allocates and assigns all spectrum, including spectrum for 

government users..



Country: Spain; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: General 

Directorate for Telecommunications makes all decisions..



Country: Sweden; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: The Swedish Post 

and Telecom Agency makes final decisions for all users (except 

broadcasters). It is possible to appeal PTS decisions in court..



Country: United Kingdom; Spectrum-decision authority and techniques for 

resolving disagreements regarding spectrum management: The 

Radiocommunications Agency makes spectrum decisions for commercial 

users, and the spectrum managers in each government agency set policy 

for their individual functions. However, a single committee--the United 

Kingdom Spectrum Strategy Committee--exists to prioritize and make 

final decisions about spectrum needs when any conflicts arise. In 

particular, this committee--which is a Cabinet Office committee jointly 

chaired by the Chief Executive of the Radiocommunications Agency and a 

representative from the Ministry of Defence--addresses strategic 

spectrum-management issues that affect the interest of more than one 

government department and those that revolve around balancing spectrum 

needs of government and commercial users..



[End of table]



Source: Spectrum managers interviewed in each country.



We asked spectrum managers whether spectrum users in their country have 

been forced to move to different bands and if the government provided 

funding for relocating users.[Footnote 37] Countries reported many 

examples of moving certain users to make room for new services or uses 

of the spectrum. These cases often involved moving government users out 

of spectrum to make room for new technologies. Table 6 includes 

information on government funding for moves, as well as other 

information about funding arrangements.



Table 6: Funding for Relocation:



Country: Australia; Provides government funding for relocation: No; 

Other funding information: Auction winners can pay for incumbents to be 

relocated..



Country: Canada; Provides government funding for relocation: No; Other 

funding information: New licensees may pay incumbents--both commercial 

and government users--to relocate..



Country: Finland; Provides government funding for relocation: No; Other 

funding information: New spectrum holders have compensated incumbents 

for their relocation costs. When the relocation has been a result of 

national implementation of an internationally approved frequency usage 

plan, compensation has not been paid..



Country: France; Provides government funding for relocation: Yes; Other 

funding information: Government users are completely reimbursed for 

relocation costs. Commercial users can be funded to upgrade technology 

to accelerate relocation timelines..



Country: Hong Kong, China; Provides government funding for relocation: 

No; Other funding information: [Empty].



Country: Italy; Provides government funding for relocation: No; Other 

funding information: Some users have had to compensate the Ministry of 

Defense for spectrum relocation costs..



Country: Japan; Provides government funding for relocation: No; Other 

funding information: A study group recently looked into funding 

relocation..



Country: Mexico; Provides government funding for relocation: No; Other 

funding information: If equipment from the previous user is less than 

10 years old, the new user needs to indemnify the previous user for 

relocation costs..



Country: New Zealand; Provides government funding for relocation: No; 

Other funding information: One move was facilitated by the government 

offering new spectrum rights to the incumbent in exchange for 

displacement..



Country: Spain; Provides government funding for relocation: No; Other 

funding information: In some cases, the new user has paid for the cost 

of relocation..



Country: Sweden; Provides government funding for relocation: No; Other 

funding information: [Empty].



Country: United Kingdom; Provides government funding for relocation: 

No; Other funding information: Officials are exploring funding options 

for relocations..



[End of table]



Source: Spectrum managers interviewed in each country.



We asked spectrum managers whether they were in the process of 

completing or had recently completed a review of spectrum management in 

their country. Some countries were undergoing or had recently conducted 

comprehensive reviews and others were involved in more focused studies. 

Table 7 summarizes the responses to our question on spectrum-management 

reviews.



Table 7: Spectrum-Management Reviews:



Country: Australia; Spectrum management reviews: In 2002, the 

Productivity Commission completed a comprehensive spectrum-management 

review, which took 12 months..



Country: Canada; Spectrum management reviews: The Canadian government 

is in the process of updating its Spectrum Policy Management Framework. 

The original framework was developed in 1993 and has been amended 

somewhat since that time. The current study is expected to extensively 

revise and create a new framework for spectrum management in the next 

2-3 years..



Country: Finland; Spectrum management reviews: Managers reported that 

they are involved in a continuous process to review their spectrum-

management policies and working methods. They are currently involved in 

a comprehensive project to change their fee structure..



Country: France; Spectrum management reviews: The National Agency for 

Frequencies has an ongoing process to review the use of the spectrum 

and make proposals to improve spectrum management..



Country: Hong Kong, China; Spectrum management reviews: OFTA does not 

see a need to conduct a comprehensive spectrum-management review for 

the time being..



Country: Italy; Spectrum management reviews: There is currently a study 

on implementing fees being conducted..



Country: Japan; Spectrum management reviews: In 2002 a study group 

examined certain issues, including reallocation and financial help for 

relocations..



Country: Mexico; Spectrum management reviews: Managers reported that in 

2003 they plan to review the rules for frequency grants and the status 

of the spectrum..



Country: New Zealand; Spectrum management reviews: In 1987, National 

Economic Research Associates was hired as a consultant to the Ministry 

to conduct a review of spectrum management and make recommendations. 

The Ministry received the report and, after public consultation, used 

the work to craft the Telecommunications Act of 1989. In the mid-1990s, 

the Ministry reviewed the impact of the new law and passed an amendment 

based on its findings..



Country: Spain; Spectrum management reviews: None.



Country: Sweden; Spectrum management reviews: Managers reported that 

they are not doing or planning to do any large-scale studies at the 

moment. However, they noted that spectrum-management policies are 

continually reviewed..



Country: United Kingdom; Spectrum management reviews: In March 2002 the 

United Kingdom released the results of its independent review of 

spectrum management..



[End of table]



Source: Spectrum managers interviewed in each country.



[End of section]



Appendix VI: Participants in GAO’s Expert Panel on Spectrum Issues:



Rudy Baca:



Vice President & Global Strategist,

Precursor Group (a company providing investment research):



Diane Cornell:



Vice President, Regulatory Policy, Cellular 

Telecommunications & Internet Association:



Mark Crosby:



President,

Access Spectrum (a company providing band-management services):



Michele Farquhar:



Attorney, Hogan & Hartson (a law firm with expertise in government 

regulation and policy):



Dale Hatfield:



Chair, Department of Interdisciplinary Telecommunications, University 

of Colorado at Boulder:



Glen Nash:



President, Association of Public Safety Communications Officials - 

International:



Robert Pepper:



Chief, Office of Plans and Policy,

Federal Communications Commission:



Steven Price:



Deputy Assistant Secretary of Defense for Spectrum and C3 Policy, 

Office of the Secretary of Defense:



David Salant:



Senior Vice President,

National Economic Research Associates:



Fred Wentland:



Associate Administrator (Acting), Office of Spectrum Management, 

National Telecommunications and Information Administration, Department 

of Commerce:



[End of section]



Appendix VII: Comments from the Department of Commerce:



THE SECRETARY OF COMMERCE

Washington, D. C. 20230:



Mr. Peter Guerrero:



Director, Physical Infrastructure Issues United States General 

Accounting Office 441 G Street, NW:



Washington, DC 20548:



Dear Mr. Guerrero:



Thank you for providing the Department with a copy of the General 

Accounting Office’s draft report entitled “Comprehensive Review of U.S. 

Spectrum Management With Broad Stakeholder Involvement is Needed.” The 

report makes one recommendation that pertains to the National 

Telecommunications and Information Administration (NTIA), an agency 

within the Department of Commerce: the Chairman of the FCC and the 

Assistant Secretary for Communications and Information (NTIA), in 

consultation with officials from relevant agencies and pertinent 

congressional committees, work together to develop and implement a plan 

for the establishment of an independent Commission with representation 

from all relevant stakeholders that would conduct a comprehensive 

examination of current U.S. spectrum management.



As you know, spectrum management is a complicated process with multiple 

stakeholders with different views on very technical issues. This 

Administration is committed to exploring new ideas to develop and 

implement spectrum policy and management approaches that will make more 

efficient use of the spectrum, provide spectrum for new technologies, 

and improve the effectiveness of domestic and international spectrum 

management processes. The guide post for spectrum policy in the 

Administration is to meet the needs of both economic and national 

security.



The NTIA and the Federal Communications Commission (FCC) have met the 

challenge of this directive by making spectrum available for new 

ultrawideband technology and for expanded advanced wireless 

communications. Yet, at the same time, the agencies have ensured 

protection for key federal government radiocommunications. Nancy J. 

Victory, Assistant Secretary for Communications and Information, has 

met periodically with FCC Chairman Michael Powell to address spectrum 

issues and means for improving spectrum management processes. The most 

recent of these meetings occurred on December 10, 2002, and their 

staffs are also meeting together to further these discussions.



The President’s Fiscal Year 2003 Budget includes an initiative designed 

to make the spectrum management process more responsive, effective, and 

efficient so that new technologies can be implemented more promptly, 

critical public safety radio communication needs can be satisfied,

economic growth can be increased, and unnecessary regulation can be 

eliminated. Consistent with your previous recommendations, the 

Department is committed to find additional mechanisms and policies to 

further these objectives.



As NTIA continues to explore new ideas for the effective management of 

radio frequency spectrum, the Department will take your recommendation 

with respect to the establishment of an independent commission under 

advisement. Thank you again for this opportunity to review the draft 

report.



Sincerely,



Donald L. Evans



Signed by Donald L. Evans



[End of section]



Appendix VIII: Comments from the Federal Communications Commission:



Federal Communications Commission Washington, D.C.



CHAIRMAN:



January 8, 2003:



Mr. Peter Guerrero:



Director, Physical Infrastructure Issues United States General 

Accounting Office 441 G Street, N.W.



Washington, D.C. 20548:



Dear Mr. Guerrero:



Thank you for sharing the General Accounting Office’s (“GAO’s”) draft 

report, entitled “Comprehensive Review of U.S. Spectrum Management With 

Broad Stakeholder Involvement Is Needed.” GAO’s draft report recommends 

that the Federal Communications Commission (“FCC”) and the Department 

of Commerce’s National Telecommunications and Information 

Administration (“NTIA”), in consultation with other government 

entities, work together regarding a plan for the establishment of an 

independent commission that would conduct a comprehensive review of 

U.S. spectrum management. We value GAO’s analysis as a way to build 

upon our existing work and cooperative efforts already underway with 

NTIA.



As GAO recognizes in its draft report, the ever-increasing demand for 

access to spectrum and continuing advances in wireless technology and 

applications pose significant challenges for policymakers involved in 

spectrum management issues. Recognizing the need for a fundamental re-

evaluation of spectrum policy in a fastmoving world, I established a 

Spectrum Policy Task Force (“SPTF”) staffed by senior agency personnel 

to identify outmoded procedures and policies, and evaluate changes in 

spectrum policy that could increase the public benefits derived from 

the use of the radio spectrum. The SPTF’s work resulted in a report 

published in November that presents many important new recommendations 

for spectrum policy reform. We are seeking comment on the report’s 

recommendations, and look forward to building on the work of the task 

force in the coming months.



NTIA Assistant Secretary Nancy J. Victory and I share a belief in the 

importance of effective coordination between our two agencies to ensure 

a common focus in our governmental efforts to manage a critical 

national asset, our radio spectrum. Most recently, Assistant Secretary 

Victory and I met on December I 0th along with senior spectrum policy 

teams from both organizations, to institutionalize and elevate the 

coordination between the two agencies beyond historical levels. The 

next formal spectrum leadership meeting will occur in the early summer 

of 2003, and coordination at the staff level of our agencies has 

occurred and will continue to occur regularly. For example, the 

Commission routinely coordinates its policy decisions with other

governmental agencies that have a stake in spectrum management through 

NTIA’s Interdepartment Radio Advisory Committee. The Commission and 

NTIA staffs are also working together to produce a new Memorandum of 

Understanding to ensure that our coordination processes continue to 

work smoothly.



I commend you and your staff for your hard work in helping to develop 

ideas for improving U.S. spectrum management policies in a manner that 

ensures that the radio resource will be effectively and efficiently 

employed for the benefit of the American people. We support any effort 

to continue to improve our policies in this area, and will work with 

our colleagues at NTIA to assess how best to incorporate the report’s 

findings and recommendations in our future work.



Sincerely,



Michael K. Powell, Chairman



Signed by Michael K. Powell



[End of section]



Appendix IX: Key Contacts and Major Contributors:



GAO Contacts:



Amy D. Abramowitz, (202) 512-4936:



Nancy S. Barry, (617) 565-8871:



Staff Acknowledgments:



In addition to those named above, Steve Brown, Michael Clements, 

Randall Fasnacht, Lynn M. Musser, Rebecca L. Medina, Hai Tran, Mindi 

Weisenbloom, and Nancy Zearfoss made key contributions to this report.



[End of section]



FOOTNOTES



[1] See U.S. General Accounting Office, Telecommunications: Better 

Coordination and Enhanced Accountability Needed to Improve Spectrum 

Management, GAO-02-906 (Washington, D.C.: Sept. 30, 2002).



[2] We recognize that Hong Kong is a special administrative region of 

China. However, the structure and policies used to manage spectrum in 

that region are independent of the spectrum policies of mainland China, 

and thus resemble the policies of an individual country. For ease of 

exposition, we will be including Hong Kong when we discuss countries in 

several places in this report. 



[3] Radio waves are a form of electromagnetic radiation that propagate 

in space as the result of particle oscillations. The number of 

oscillations per second is called “frequency,” which is measured in 

units of hertz. The term “kilohertz” refers to thousands of hertz and 

“gigahertz” to billions of hertz.



[4] Our September 2002 report, GAO-02-906, provided an extensive 

discussion of the organization of spectrum management in the United 

States. 



[5] 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. 

In 1997, Congress eliminated FCC’s authority to issue licenses by 

lotteries, with certain exceptions.



[6] NTIA officials told us that, even within the exclusive bands, some 

sharing may take place.



[7] See Federal Communications Commission, Seventh Annual CMRS 

Competition Report, FCC 02-179 (Washington, D.C.: July 3, 2002).



[8] FCC notes in its Seventh Annual CMRS Competition Report that, as a 

result of treating providers that serve any part of a county as if they 

served the entire county, the report likely overstates the number of 

providers serving consumers in various locations.



[9] DOD pointed out that reallocation of spectrum under the Omnibus 

Budget Reconciliation Act of 1993 did not affect bands in which DOD had 

extensive operations. Reallocation of spectrum under Title III of the 

Balanced Budget Act of 1997, which did identify bands in which DOD has 

operations, has not yet taken place. 



[10] Since FEMA did not exist when current wideband channels were 

allotted, FEMA’s operational units were transferred to FEMA from the 

U.S. Army, along with the attendant frequencies.



[11] Trunking is like a time-share system that allows several users to 

share spectrum. Under a trunking system, several users share a given 

set of frequencies under the assumption that it would be a rare 

occurrence for all users to need the spectrum at the same time. Thus, 

less spectrum can be provided to meet the users’ needs than if each 

were assigned discrete sets of frequencies reserved exclusively for its 

own use.



[12] Prior to 1997, utilities and railroads had spectrum allocated 

exclusively for their industries. But in 1997, in an effort to increase 

the efficient use of spectrum, FCC consolidated 20 previously exclusive 

Private Land Mobile Radio services into two pools--the Public Safety 

Pool and the Industrial/Business Pool. The frequencies within the 

Industrial/Business Pool are specified in 47 CFR § 90.35 (b)(3).



[13] While a 24 MHz block of spectrum has been allocated to public 

safety users, it is currently occupied by broadcasters, who may not 

vacate that spectrum for some time. For a further discussion of the 

digital television transition see U.S. General Accounting Office, 

Telecommunications: Additional Federal Efforts Could Help Advance 

Digital Television Transition, GAO-03-7 (Washington, D.C.: November 

2002). 



[14] This discussion focuses primarily on the concept of “technical 

efficiency”--that is, getting the most use, or “output,” out of a 

portion of spectrum, given the mission or market context of its use. 

Other important aspects of efficiency are also relevant in spectrum 

management. In particular, economic efficiency relates to whether 

spectrum is allocated across various uses in a way that maximizes 

society’s welfare. In free markets, economic incentives give signals to 

firms and consumers that help to ensure that resources flow to their 

most valued use. With spectrum, this free flow of resources is not 

fully functional, so the question of whether spectrum is allocated in 

an economically efficient manner is also an important focus of 

analysis.



[15] Narrowbanding is a technique for reducing the amount of spectrum 

(bandwidth) needed to transmit a radio signal, thereby freeing up 

spectrum to meet future growth.



[16] Specifically, these licenses apply to the Industrial/Business 

Radio Pool (for example, entities engaged in commercial activities; 

operating educational institutions; operating hospitals, clinics, or 

medical associations) and the Public Safety Radio Pool (for example, 

state and local governments, entities providing rescue and disaster 

relief services).



[17] FCC officials noted that analog television is being replaced by 

digital television, which is far more efficient, that analog mobile 

telephone service has largely transitioned to digital service, and 

that, regarding mobile satellite services, FCC is in the process of 

considering rule changes to enable these providers to become more 

efficient.



[18] See FCC’s “Spectrum Policy Task Force Report: ET Docket No. 02-

135,” November 2002, for a more in-depth discussion of each 

recommendation. FCC has issued a public notice asking for comments on 

this report. The comment period ended on January 27, 2003.



[19] Legislation addressing spectrum policy introduced in the 107th 

Congress included S. 2869, H.R. 5638, H.R. 4738, and H.R. 4641. 



[20] In its current Notice of Proposed Rulemaking and its Policy 

Statement on Secondary Markets, issued concurrently, FCC established 

guiding principles for the development of secondary markets. Their 

goals include the establishment of clear definitions of spectrum usage 

rights for assignees and the ability of assignees to be able to easily 

transfer, aggregate, and divide their licenses and spectrum usage 

rights. The countries we studied have followed these principles to 

varying degrees.



[21] While Canada’s fees do not attempt to closely mimic a market, we 

define these as market-oriented because the fees are set using certain 

“market indicators” and are set to recoup more than the cost of 

administering the licenses.



[22] These countries are also imposing incentive-based pricing for some 

commercial uses.



[23] In March 2002, the United Kingdom released the results of its 

independent review of spectrum management. 



[24] Only one type of license, a class license, cannot be traded, sold, 

or sublet. Although class licenses are referred to as licenses in 

Australia, they are actually open, standing authorities that allow 

anyone to operate certain low-power devices, similar to unlicensed 

spectrum in the United States. Device users do not have to apply for a 

class license and do not pay a fee.



[25] No European Union member states use secondary markets because, 

prior to 2003, the European Commission prohibited their use. Since this 

prohibition will be phased out by July 2003, some of these countries 

are thinking about implementing secondary trading of spectrum licenses.



[26] Managers in Italy report that the law may soon be changed to allow 

for spectrum holders to be charged a fee to account for the scarcity of 

resources, thus allowing them to recover costs greater than the cost of 

administering the spectrum. 



[27] For the first 5 years after the auction, licensees are required to 

make the minimum payment of 50 million Hong Kong dollars per year. 

After that, they must begin making the royalty payments.



[28] On at least one occasion, Spain has considered financial criteria 

in the process of awarding spectrum licenses.



[29] See National Telecommunications and Information Administration, 

Land Mobile Spectrum Efficiency: A Plan of Federal Government Agencies 

to Use More Spectrum-Efficient Technologies, NTIA Report 93-300 

(Washington, D.C.: October 1993). 



[30] 45 MHz of the spectrum being reallocated would come from 

government users, and the additional 45 MHz from nongovernmental users.



[31] At NTIA’s Spectrum Management and Policy Summit, held in April 

2002, it appeared that stakeholders did not have a clear agreement on 

what would be included in a national spectrum strategy. 



[32] The following agencies are IRAC members: FEMA, Broadcasting Board 

of Governors, Department of Veterans Affairs, DOJ, U.S. Postal Service, 

Department of State, General Services Administration, National Science 

Foundation, National Aeronautics and Space Administration, Department 

of Interior, Department of Commerce, Department of the Treasury, NTIA, 

Department of Energy, U.S. Army, Department of Agriculture, U.S. Navy, 

Department of Health and Human Services, FAA, U.S. Coast Guard, and 

U.S. Air Force, as well as FCC, in a nonvoting capacity.



[33] See http://wireless.FCC.gov/auctions/data/papersAndStudies/

aucspec.pdf, Evan Kwerel and Walt Strack, “Auctioning Spectrum Rights” 

(February 2001), and Evan Kwerel, “Spectrum Auctions Do Not Raise the 

Price of Wireless Services: Theory and Evidence” (October 2000), FCC 

Staff Paper. 



[34] Two rural companies that we spoke with said that FCC mandates are 

especially burdensome on small companies, because the costs must be 

recovered from a smaller customer base.



[35] In the Personal Communications Service C-Block auction, 

participation was limited to small businesses, and auction winners were 

permitted to pay off their bids over a 10-year period at a low rate of 

interest. A number of bidders, including the largest winner, NextWave 

Personal Communications, have defaulted on their payments. 



[36] These commissions include the Brownlow Commission (1936-1937), 

First and Second Hoover Commissions (1947-1949, 1953-1955), Ash Council 

(1969-1971), Carter Reorganization Project (1977-1979), Grace 

Commission (1982-1984), and National Performance Review I (1993-1994). 



[37] This question refers to funding provided by spectrum managers in 

the form of a trust fund or other mechanism, rather than by individual 

agencies paying their own relocation expenses.



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