Telecommunications
Comprehensive Review of U.S. Spectrum Management with Broad Stakeholder Involvement Is Needed Gao ID: GAO-03-277 January 31, 2003The 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.
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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-277, Telecommunications: Comprehensive Review of U.S. Spectrum Management with Broad Stakeholder Involvement Is Needed
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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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