Telecommunications
Options for and Barriers to Spectrum Reform Gao ID: GAO-06-526T March 14, 2006The radio-frequency spectrum is used to provide an array of wireless communications services that are critical to the U.S. economy and various government missions, such as national security. With demand for spectrum exploding, and most useable spectrum allocated to existing users, there is growing concern that the current spectrum management framework might not be able to respond adequately to future demands. This testimony, which is based on previous GAO reports, provides information on (1) the extent to which the Federal Communications Commission (FCC) has adopted market-based mechanisms for commercial use, (2) the extent to which market-based mechanisms have been adopted for federal government users of spectrum, (3) options for improving spectrum management, and (4) potential barriers to spectrum reform.
FCC is incrementally adopting market-based approaches for managing the commercial use of spectrum. Market-based mechanisms can help promote the efficient use of spectrum by invoking the forces of supply and demand. For example, although FCC currently employs largely a command-and-control process for spectrum allocation, it has provided greater flexibility within certain spectrum bands. In addition, FCC began using auctions to assign spectrum licenses for commercial uses in 1994. Finally, FCC has taken steps to facilitate greater secondary market activity, which may provide an additional mechanism to promote the efficient use of spectrum. While some countries have adopted market-based mechanisms to encourage the efficient use of spectrum by government agencies, the Department of Commerce's National Telecommunications and Information Administration (NTIA) has not adopted similar mechanisms for federal government use in the United States. NTIA imposes fees designed to recover only a portion of its cost to administer spectrum management, rather than fees that would more closely resemble market prices and thus encourage greater spectrum efficiency among government users; currently, NTIA does not have authority to impose fees that exceed its spectrum management costs. However, adopting market-based mechanisms for federal government use of spectrum might be difficult or undesirable in some contexts because of the primacy of certain government missions, the lack of flexibility in use of spectrum for some agencies, and the lack of financial incentives for government users. Industry stakeholders and experts have identified a number of options for improving spectrum management. The most frequently cited options include (1) extending FCC's auction authority, (2) reexamining the use and distribution of spectrum, and (3) ensuring clearly defined rights and flexibility in commercial spectrum bands; there was no consensus on these options, except for extending FCC's auction authority. Given the success of FCC's use of auctions and the overwhelming support for extending FCC's auction authority, GAO suggested that the Congress consider extending FCC's auction authority beyond 2007. Congress extended FCC's auction authority to 2011 with the passage of the Deficit Reduction Act of 2005. The current spectrum management framework may pose barriers to reform, since neither FCC nor NTIA has been given ultimate decision-making authority over all spectrum use, or the authority to impose fundamental reform, such as increasing the reliance on market-based mechanisms. Under the divided management framework, FCC manages spectrum for nonfederal users, including commercial uses, while NTIA manages spectrum for federal government users. As such, FCC and NTIA have different perspectives on spectrum use. Further, spectrum management issues and major reform cross the jurisdictions of both agencies. Thus, contentious and protracted negotiations arise over spectrum management issues.
GAO-06-526T, Telecommunications: Options for and Barriers to Spectrum Reform
This is the accessible text file for GAO report number GAO-06-526T
entitled 'Telecommunications: Options for and Barriers to Spectrum
Reform' which was released on March 14, 2006.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Testimony:
Before the Committee on Commerce, Science, and Transportation United
States Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
Tuesday, March 14, 2006:
Telecommunications:
Options for and Barriers to Spectrum Reform:
Statement of JayEtta Z. Hecker, Director, Physical Infrastructure
Issues:
GAO-06-526T:
GAO Highlights:
Highlights of GAO-06-526T, testimony before the Committee on Commerce,
Science, and Transportation, United States Senate:
Why GAO Did This Study:
The radio-frequency spectrum is used to provide an array of wireless
communications services that are critical to the U.S. economy and
various government missions, such as national security. With demand for
spectrum exploding, and most useable spectrum allocated to existing
users, there is growing concern that the current spectrum management
framework might not be able to respond adequately to future demands.
This testimony, which is based on previous GAO reports, provides
information on (1) the extent to which the Federal Communications
Commission (FCC) has adopted market-based mechanisms for commercial
use, (2) the extent to which market-based mechanisms have been adopted
for federal government users of spectrum, (3) options for improving
spectrum management, and (4) potential barriers to spectrum reform.
What GAO Found:
FCC is incrementally adopting market-based approaches for managing the
commercial use of spectrum. Market-based mechanisms can help promote
the efficient use of spectrum by invoking the forces of supply and
demand. For example, although FCC currently employs largely a command-
and-control process for spectrum allocation, it has provided greater
flexibility within certain spectrum bands. In addition, FCC began using
auctions to assign spectrum licenses for commercial uses in 1994.
Finally, FCC has taken steps to facilitate greater secondary market
activity, which may provide an additional mechanism to promote the
efficient use of spectrum.
While some countries have adopted market-based mechanisms to encourage
the efficient use of spectrum by government agencies, the Department of
Commerce‘s National Telecommunications and Information Administration
(NTIA) has not adopted similar mechanisms for federal government use in
the United States. NTIA imposes fees designed to recover only a portion
of its cost to administer spectrum management, rather than fees that
would more closely resemble market prices and thus encourage greater
spectrum efficiency among government users; currently, NTIA does not
have authority to impose fees that exceed its spectrum management
costs. However, adopting market-based mechanisms for federal government
use of spectrum might be difficult or undesirable in some contexts
because of the primacy of certain government missions, the lack of
flexibility in use of spectrum for some agencies, and the lack of
financial incentives for government users.
Industry stakeholders and experts have identified a number of options
for improving spectrum management. The most frequently cited options
include (1) extending FCC‘s auction authority, (2) reexamining the use
and distribution of spectrum, and (3) ensuring clearly defined rights
and flexibility in commercial spectrum bands; there was no consensus on
these options, except for extending FCC‘s auction authority. Given the
success of FCC‘s use of auctions and the overwhelming support for
extending FCC‘s auction authority, GAO suggested that the Congress
consider extending FCC‘s auction authority beyond 2007. Congress
extended FCC‘s auction authority to 2011 with the passage of the
Deficit Reduction Act of 2005.
The current spectrum management framework may pose barriers to reform,
since neither FCC nor NTIA has been given ultimate decision-making
authority over all spectrum use, or the authority to impose fundamental
reform, such as increasing the reliance on market-based mechanisms.
Under the divided management framework, FCC manages spectrum for
nonfederal users, including commercial uses, while NTIA manages
spectrum for federal government users. As such, FCC and NTIA have
different perspectives on spectrum use. Further, spectrum management
issues and major reform cross the jurisdictions of both agencies. Thus,
contentious and protracted negotiations arise over spectrum management
issues.
What GAO Recommends:
In previous reports, GAO recommended that (1) the Secretary of Commerce
and FCC should jointly develop a national spectrum plan to guide
decision making, and (2) the relevant administrative agencies and
congressional committees work together to develop and implement a plan
for the establishment of an independent commission that would conduct a
comprehensive examination of current spectrum management. To date,
these recommendations have not been implemented.
www.gao.gov/cgi-bin/getrpt?GAO-06-526T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact JayEtta Z. Hecker at
(202) 512-2834 or heckerj@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to provide testimony on spectrum reform
issues. As you know, the radio-frequency spectrum is used to provide an
array of wireless communications services that are critical to the U.S.
economy and various government missions, such as national security.
Demand for radio-frequency spectrum has exploded over the past several
decades as new technologies and services have been--and continue to be-
-brought to the market in the private sector, and new mission needs
unfold among government users. As a result, nearly all parties are
becoming increasingly concerned about the availability of spectrum for
future needs because most of the usable spectrum in the United States
has already been allocated to existing services and users. Compounding
this concern is evidence that some of the spectrum is currently
underutilized. Many parties believe that spectrum management reform--
such as greater reliance on market-based mechanisms that invoke the
forces of demand and supply--is essential to meeting the growing and
unpredictable demand for spectrum.
My statement today will identify (1) the extent to which the Federal
Communications Commission (FCC) has adopted market-based mechanisms for
commercial uses of spectrum,[Footnote 1] (2) the extent to which market-
based mechanisms have been adopted for federal government use of
spectrum, (3) options for improving spectrum management, and (4)
potential barriers to spectrum reform. My comments are based on our
body of work on spectrum management, including our recently issued
report to this Committee;[Footnote 2] these reports were prepared in
accordance with generally accepted government auditing standards.
In summary:
* FCC is incrementally adopting market-based approaches to managing the
commercial use of spectrum. Market-based mechanisms can help promote
the efficient use of spectrum by invoking the forces of supply and
demand--that is, they provide users an incentive to use the spectrum as
efficiently as possible. Examples of market-based mechanisms include
introducing flexibility in the use of spectrum, using auctions to
assign licenses, and enhancing the use of secondary markets as a means
for companies to obtain access to spectrum. FCC has adopted these
mechanisms for commercial uses. For example, although FCC currently
employs largely a command-and-control process for spectrum allocation,
it has provided greater flexibility within certain spectrum bands. In
addition, FCC began using auctions to assign spectrum licenses for
commercial uses in 1994. According to industry stakeholders, FCC's
implementation of auctions is seen as an improvement over comparative
hearings and lotteries, the primary assignment mechanisms employed in
the past. Finally, FCC has taken steps to facilitate greater secondary
market activity, which may provide an additional mechanism to promote
the efficient use of spectrum.
* While some countries have adopted market-based mechanisms to
encourage the efficient use of spectrum by government agencies, the
Department of Commerce's National Telecommunications and Information
Administration (NTIA) has not adopted similar mechanisms for federal
government use in the United States. NTIA imposes fees that recover
only a portion of its cost to administer spectrum management, rather
than incentive-based fees--that is, fees that more closely resemble
market prices and thus encourage greater spectrum efficiency among
government users; currently, NTIA does not have authority to impose
fees that exceed its spectrum management costs. However, adopting
market-based mechanisms for federal government use of spectrum might be
difficult or undesirable in some contexts because of the primacy of
certain government missions, the lack of flexibility in use of spectrum
for some agencies, and the lack of financial incentives for government
users.
* As we reported in December 2005, industry stakeholders and experts
have identified a number of options for improving spectrum management.
The most frequently cited options include (1) extending FCC's auction
authority, (2) reexamining the use and distribution of spectrum, and
(3) ensuring clearly defined rights and flexibility in commercially
licensed spectrum bands; there was no consensus on these options,
except for extending FCC's auction authority. Given the success of
FCC's use of auctions and the overwhelming support for extending FCC's
auction authority, we suggested that the Congress consider extending
FCC's auction authority beyond the 2007 expiration date. Congress
extended FCC's auction authority to 2011 with the passage of the
Deficit Reduction Act of 2005.[Footnote 3]
* The current management framework may pose barriers to reform since,
while two agencies have been given responsibility for aspects of
spectrum management, neither has been given ultimate decision-making
authority over all spectrum use or the authority to impose fundamental
reform, such as increasing the reliance on market-based mechanisms.
Under this divided management framework, FCC manages spectrum for
nonfederal users while NTIA manages spectrum for federal government
users. However, spectrum management issues and major reform cross the
jurisdictions of both agencies. To address these barriers, we have
previously recommended that (1) the Secretary of Commerce and FCC
establish and carry out formal, joint planning activities to develop a
national spectrum plan to guide decision making; and (2) the relevant
administrative agencies and congressional committees work together to
develop and implement a plan for the establishment of a commission that
would conduct a comprehensive examination of current spectrum
management.[Footnote 4] To date, these recommendations have not been
implemented.
Background:
The radio-frequency spectrum is the part of the natural spectrum of
electromagnetic radiation lying between the frequency limits of 9
kilohertz and 300 gigahertz.[Footnote 5] It is the medium that makes
wireless communications possible and supports a vast array of
commercial and governmental services. Commercial entities use spectrum
to provide a variety of wireless services, including mobile voice and
data, paging, broadcast radio and television, and satellite services.
Additionally, some companies use spectrum for private tasks, such as
communicating with remote vehicles. Federal, state, and local agencies
also use spectrum to fulfill a variety of government missions. For
example, state and local police departments, fire departments, and
other emergency services agencies use spectrum to transmit and receive
critical voice and data communications, and federal agencies use
spectrum for varied mission needs such as national defense, law
enforcement, weather services, and aviation communication.
Spectrum is managed at the international and national levels. The
International Telecommunication Union (ITU), a specialized agency of
the United Nations, coordinates spectrum management decisions among
nations. Spectrum management decisions generally require international
coordination, since radio waves can cross national borders. Once
spectrum management decisions are made at the ITU, regulators within
each nation, to varying degrees, will follow the ITU decisions. In the
United States, responsibility for spectrum management is divided
between two agencies: FCC and NTIA. FCC manages spectrum use for
nonfederal users, including commercial, private, and state and local
government users under authority provided in the Communications Act.
NTIA manages spectrum for federal government users and acts for the
President with respect to spectrum management issues.[Footnote 6] FCC
and NTIA, with direction from the Congress, jointly determine the
amount of spectrum allocated to federal and nonfederal users, including
the amount allocated to shared use.
Historically, concern about interference or crowding among users has
been a driving force in the management of spectrum.[Footnote 7] FCC and
NTIA work to minimize interference through two primary spectrum
management functions--the "allocation" and the "assignment" of radio
spectrum. Specifically:
* Allocation involves segmenting the radio spectrum into bands of
frequencies that are designated for use by particular types of radio
services or classes of users. For example, the frequency bands between
88 and 108 megahertz (MHz) are allocated to FM radio broadcasting in
the United States. In addition to allocation, FCC and NTIA also specify
service rules, which include the technical and operating
characteristics of equipment.
* Assignment, which occurs after spectrum has been allocated for
particular types of services or classes of users, involves providing a
license or authorization to use a specific portion of spectrum to
users, such as commercial entities or government agencies. FCC assigns
licenses for frequency bands to commercial enterprises, state and local
governments, and other entities, while NTIA makes frequency assignments
to federal agencies.
When FCC assigns a portion of spectrum to a single entity, the license
is considered exclusive. When two or more entities apply for the same
exclusive license, FCC classifies these as mutually exclusive
applications--that is, the grant of a license to one entity would
preclude the grant to one or more other entities. For mutually
exclusive applications, FCC has primarily used three assignment
mechanisms--comparative hearings, lotteries, and auctions. FCC
historically used comparative hearings, which gave competing applicants
a quasi-judicial forum in which to argue why they should be awarded a
license instead of other applicants. In 1981, partially in response to
the administrative burden of the comparative hearing process, the
Congress authorized the use of lotteries, which allowed FCC to randomly
select licenses from the qualified applicant pool. [Footnote 8] The
Congress provided FCC with authority to use auctions to assign mutually
exclusive licenses for certain subscriber-based wireless services in
the Omnibus Budget Reconciliation Act of 1993.[Footnote 9] Auctions are
a market-based mechanism in which FCC assigns a license to the entity
that submits the highest bid for specific bands of spectrum. As of
November 30, 2005, FCC has conducted 59 auctions for over 56,000
licenses to select between competing applications for the same license,
which have generated over $14.5 billion for the U.S. Treasury. However,
only a very small portion of total licenses has been auctioned. (See
fig. 1.)
Figure 1: Percent of Licenses Auctioned:
[See PDF for image]
Notes:
To calculate the percentage of licenses that have been auctioned, we
divided the number of auctioned licenses by the number of licenses
included in FCC's three spectrum license databases.
Licenses can vary considerably in terms of bandwidth, as well as the
geographic area and population covered.
[End of figure]
In some frequency bands, FCC authorizes unlicensed use of spectrum--
that is, users do not need to obtain a license to use the
spectrum.[Footnote 10] Rather, an unlimited number of unlicensed users
can share frequencies on a non-interference basis. Thus, the assignment
process does not apply to the use of unlicensed devices. However,
manufacturers of unlicensed equipment must receive authorization from
FCC before operating or marketing an unlicensed device.
FCC Has Adopted Several Market-Based Mechanisms for Commercial Uses:
To promote the more efficient use of spectrum, FCC is incrementally
adopting market-based approaches to spectrum management. For instance,
FCC has introduced some flexibility in the spectrum allocation process,
although it remains largely a command-and-control process. In addition,
in 1994, FCC instituted auctions to assign certain spectrum licenses.
According to industry stakeholders, FCC's use of auctions is seen as an
improvement over comparative hearings and lotteries, the primary
assignment mechanisms employed in the past. Finally, FCC has taken
steps to facilitate greater secondary market activity, which may
provide an additional mechanism to promote the more efficient use of
spectrum.
FCC Has Introduced Some Flexibility in the Spectrum Allocation Process
but Allocation Remains Largely a Command-and-Control Process:
FCC currently employs largely a command-and-control process for
spectrum allocation.[Footnote 11] That is, FCC applies regulatory
judgments to determine and limit what types of services--such as
broadcast, satellite, or mobile radio--will be offered in different
frequency bands by geographic area. In addition, for most frequency
bands FCC allocates, the agency issues service rules to define the
terms and conditions for spectrum use within the given bands. These
rules typically specify eligibility standards as well as limitations on
the services that relevant entities may offer and the technologies and
power levels they may use. These decisions can constrain users' ability
to offer services and equipment of their choosing.
However, FCC has provided greater operational and technical flexibility
within certain frequency bands. For example, FCC's rules for Commercial
Mobile Radio Service (CMRS), which include cellular and Personal
Communications Services (PCS), are considered less restrictive. Under
these rules, wireless telephony operators are free to select
technologies, services, and business models of their choosing. FCC has
not provided comparable flexibility in other bands.[Footnote 12] For
example, spectrum users have relatively little latitude for making
similar choices in frequency bands allocated to broadcast television
services.
Further, the Spectrum Policy Task Force Report, a document produced by
FCC staff, identified two alternatives to the command-and-control
model: the "exclusive, flexible rights" model, and the "open-access"
model.[Footnote 13] The exclusive, flexible rights model provides
licensees with exclusive, flexible use of the spectrum and transferable
rights within defined geographic areas. This is a licensed-based
approach to spectrum management that extends the existing allocation
process by providing greater flexibility regarding the use of spectrum,
and the ability to transfer licenses or to lease spectrum usage rights.
The open-access model allows a potentially unlimited number of
unlicensed users to share frequency bands, with usage rights governed
by technical standards, but with no rights to interference protection.
This approach does not require licenses, and as such is similar to
FCC's Part 15 rules (which govern unlicensed use in the 900 MHz, 2.4
GHz, and 5.8 GHz bands)--where cordless phones and Wi-Fi technologies
operate. Both models allow flexible use of spectrum, so that users of
spectrum, rather than FCC, play a larger role in determining how
spectrum is ultimately used. FCC's Spectrum Policy Task Force
recommended a balanced approach to allocation--utilizing aspects of the
command-and-control; exclusive, flexible rights; and open-access
models. FCC is currently using elements of these two alternatives
models, although it primarily employs the command-and-control model.
FCC's Use of Auctions for Commercial Licenses Is Seen as an Improvement
Over Past Assignment Mechanisms:
In 1994, FCC began using auctions--a market-based mechanism that
assigns a license to the entity that submits the highest bid for
specific bands of spectrum. FCC's implementation of auctions mitigates
a number of problems associated with comparative hearings and
lotteries--the two primary assignment mechanism employed until 1993.
For example:
* Auctions are a relatively quick assignment mechanism. With auctions,
FCC reduced the average time for granting a license to less than 1 year
from the initial application date, compared to an average time of over
18 months with comparative hearings.
* Auctions are administratively less costly than comparative hearings.
Entities seeking a license can reduce expenditures for engineers and
lawyers arising from preparing applications, litigating, and lobbying;
and FCC can reduce expenditures associated with reviewing and analyzing
applications.
* Auctions are a transparent process. FCC awards licenses to entities
submitting the highest bid rather than relying on possibly vague
criteria, as was done in comparative hearings.
* Auctions are effective in assigning licenses to entities that value
them the most. Alternatively, with lotteries, FCC awarded licenses to
randomly-selected entities.
* Auctions are an effective mechanism for the public to realize a
portion of the value of a national resource used for commercial
purposes. Entities submitting winning bids must remit the amount of
their winning bid to the government, which represents a portion of the
value that the bidder believes will arise from using the spectrum.
As we reported in December 2005, many industry stakeholders we
contacted, and panelists on our expert panel, stated that auctions are
more efficient than previous mechanisms used to assign spectrum
licenses.[Footnote 14] For example, among our panelists, 11 of 17
reported that auctions provide the most efficient method of assigning
licenses; no panelist reported that comparative hearings or lotteries
provided the most efficient method. Of the remaining panelists, several
suggested that the most efficient mechanism depended on the service
that would be permitted with the spectrum.[Footnote 15]
FCC Has Acted to Facilitate Secondary Market Transactions:
While FCC's initial assignment mechanisms provide one means for
companies to acquire licenses, companies can also acquire licenses or
access to spectrum through secondary market transactions. Through
secondary markets, companies can engage in transactions whereby a
license or use of spectrum is transferred from one company to another.
These transactions can incorporate the sale or trading of licenses. In
some instances, companies acquire licenses through the purchase of an
entire company, such as Cingular's purchase of AT&T Wireless.
Ultimately, FCC must approve transactions that result in the transfer
of licenses from one company to another.
Secondary markets can provide several benefits. First, secondary
markets can promote more efficient use of spectrum. If existing
licensees are not fully utilizing the spectrum, secondary markets
provide a mechanism whereby these licensees can transfer use of the
spectrum to other companies that would utilize the spectrum. Second,
secondary markets can facilitate the participation of small businesses
and introduction of new technologies. For example, a company might have
a greater incentive to deploy new technologies that require less
spectrum if the company can profitably transfer the unused portion of
the spectrum to another company through the secondary market. Also,
several stakeholders with whom we spoke noted that secondary markets
provide a mechanism whereby a small business can acquire spectrum for a
geographic area that best meets the needs of the company.
In recent years, FCC has undertaken actions to facilitate secondary-
market transactions. FCC authorized spectrum leasing for most wireless
radio licenses with exclusive rights and created two categories of
spectrum leases: Spectrum Manager Leasing--where the licensee retains
legal and working control of the spectrum--and de Facto Transfer
Leasing--where the licensee retains legal control but the lessee
assumes working control of the spectrum. FCC also streamlined the
procedures that pertain to spectrum leasing. For instance, the Spectrum
Manager Leases do not require prior FCC approval and de Facto Transfer
Leases can receive immediate approval if the arrangement does not raise
potential public interest concerns.[Footnote 16] While FCC has taken
steps to facilitate secondary market transactions, some hindrances
remain. For example, some industry stakeholders told us that the lack
of flexibility in the use of spectrum can hinder secondary market
transactions.
Market-Based Mechanisms Have Not Been Adopted for Federal Government
Use of Spectrum:
In some countries, spectrum managers have adopted market-based
mechanisms to encourage the efficient use of spectrum by government
agencies. In the United States, NTIA has not adopted incentive-based
fees for federal government users of spectrum; rather, NTIA applies
fees that recover only a portion of the cost of administering spectrum
management. Additionally, adopting market-based mechanisms for
government use of spectrum might be difficult or undesirable in some
contexts because of the primacy of certain government missions, the
lack of flexibility in use of spectrum for some agencies, and the lack
of financial incentives for government users.
Incentive-Based Fees Have Not Been Used to Promote Spectrum Efficiency
Among Federal Government Users of Spectrum in the United States:
Spectrum managers in some countries have adopted market-based
mechanisms for government users of spectrum. For example, in Australia,
Canada, and the United Kingdom, spectrum managers have implemented
incentive-based fees for government users of spectrum. Incentive-based
fees are designed to promote the efficient use of spectrum by
compelling spectrum users to recognize the value to society of the
spectrum that they use. In other words, these fees mimic the functions
of a market. These incentive-based fees differ from other regulatory
fees that are assessed only to recover the cost of the government's
management of spectrum.
In the United States, NTIA has not adopted incentive-based fees, or
other market-based mechanisms, for federal government users of
spectrum. Currently, NTIA charges federal agencies spectrum management
fees, which are based on the number of assignments authorized to each
agency. In our 2002 report, we noted that, according to NTIA, basing
the fee on the number of assignments, rather than the amount of
spectrum used per agency, better reflects the amount of work NTIA must
do for each agency.[Footnote 17] Moreover, NTIA stated that this fee
structure provides a wider distribution of costs to agencies. However,
NTIA's fee does not reflect the value of the spectrum authorized to
each agency, and thus it is not clear how much this encourages the
efficient use of spectrum by federal agencies. The fee also recovers
only a portion of the cost of administering spectrum management. NTIA
does not currently have the authority to impose fees on government
users that exceed its spectrum management costs.[Footnote 18]
Applying Market-Based Mechanisms to Federal Government Users May Not Be
Effective in All Contexts:
Applying market-based mechanisms might be difficult or undesirable for
federal government users in some situations. The purpose of market-
based mechanisms is to provide users with an incentive to use spectrum
as efficiently as possible. However, the characteristics of government
use of spectrum impose challenges to the development and implementation
of market-based mechanisms for federal government users, and in some
situations, make implementation undesirable. For example:
* Primacy of certain federal government missions. Because of the
primacy of certain federal government missions--such as national
defense, homeland security, and public safety--imposition of market-
based mechanisms for use of the spectrum to fulfill these missions
might not be desirable. In fact, NTIA officials have told us that the
agency rarely revokes the spectrum authorization of another government
agency because doing so could interfere with the agency's ability to
carry out important missions.
* Lack of flexibility in use of spectrum. Market-based mechanisms can
create an incentive to use spectrum more efficiently only if users can
actually choose to undertake an alternative means of providing a
service. In some situations, federal government agencies do not have a
viable alternative to their current spectrum authorization. For
example, spectrum used for air traffic control has been allocated
internationally for the benefit of international air travel. Thus, the
Federal Aviation Administration has little ability to use spectrum
differently than prescribed in its current authorizations. In
situations such as this, market-based mechanisms would likely prove
ineffective.
* Lack of financial incentives. If federal government users can obtain
any needed funding for spectrum-related fees through the budgetary
process, market-based mechanisms are not likely to be effective.
However, imposing fees will make the cost visible to agency managers,
thus providing them information they need if they are to manage
spectrum use more efficiently. Whether more efficient spectrum use
actually occurs will depend in part on whether agencies receive
appropriations for the full amount of the fees or only for some
portion. If agencies do not receive appropriations for the full amount,
some pressure will be created, but it will not be as strong as the
private sector's profit motive.
Industry Stakeholders and Panelists Suggested Several Options to
Improve Spectrum Management:
As we reported in December 2005, industry stakeholders and panelists on
our expert panel offered a number of options for improving spectrum
management.[Footnote 19] The most frequently cited options include (1)
extending FCC's auction authority, (2) reexamining the distribution of
spectrum--such as between commercial and government use--to enhance the
efficient and effective use of this important resource, and (3)
ensuring clearly defined rights and flexibility in commercially
licensed spectrum bands. There was no consensus on these options for
improvements among stakeholders we interviewed and panelists on our
expert panel, except for extending FCC's auction authority.
Extend FCC's Auction Authority:
Panelists on our expert panel and industry stakeholders with whom we
spoke overwhelmingly supported extending FCC's auction authority. For
example, 21 of 22 panelists on our expert panel indicated that the
Congress should extend FCC's auction authority beyond September 2007--
the date auction authority was set to expire at the time of our expert
panel. Given the success of FCC's use of auctions and the overwhelming
support among industry stakeholders and experts for extending FCC's
auction authority, we suggested that the Congress consider extending
FCC's auction authority. In February 2006, the Congress extended FCC's
auction authority to 2011 with the passage of the Deficit Reduction Act
of 2005.[Footnote 20]
While panelists on our expert panel overwhelmingly supported extending
FCC's auction authority, a majority also suggested modifications to
enhance the use of auctions.[Footnote 21] However, there was little
consensus on the suggested modifications. The suggested modifications
fall into the following three categories:
* Better define license rights. Some industry stakeholders and
panelists indicated that FCC should better define the rights
accompanying spectrum licenses, as these rights can significantly
affect the value of a license being auctioned. For example, some
industry stakeholders expressed concern with FCC assigning overlay and
underlay rights to frequency bands when a company holds a license for
the same frequency bands.[Footnote 22]
* Enhance secondary markets. Industry stakeholders we contacted and
panelists on our expert panel generally believed that modifying the
rules governing secondary markets could lead to more efficient use of
spectrum. For example, some panelists on our expert panel said that FCC
should increase its involvement in the secondary market. These
panelists thought that increased oversight could help to both ensure
transparency in the secondary market and also promote the use of the
secondary market. Additionally, a few panelists said that adoption of a
"two-sided" auction would support the efficient use of spectrum. With a
two-sided auction, FCC would offer unassigned spectrum, and existing
licensees could make available the spectrum usage rights they currently
hold.
* Reexamine existing small business incentives. The opinions of
panelists on our expert panel and industry stakeholders with whom we
spoke varied greatly regarding the need for and success of FCC's
efforts to promote economic opportunities for small businesses. For
example, some panelists and industry stakeholders do not support
incentive programs for small businesses. These panelists and industry
stakeholders cited several reasons for not supporting these incentives,
including (1) the wireless industry is not a small business industry;
(2) while the policy may have been well intended, the current program
is flawed; or (3) such incentives create inefficiencies in the market.
Other industry stakeholders suggested alternative programs to support
small businesses. These suggestions included (1) having licenses cover
smaller geographic areas, (2) using auctions set aside exclusively for
small and rural businesses, and (3) providing better lease options for
small and rural businesses. Finally, some industry stakeholders with
whom we spoke have benefited from the small business incentive
programs, such as bidding credits,[Footnote 23] and believe that these
incentives have been an effective means to promote small business
participation in wireless markets.
Reexamine the Use and Distribution of Spectrum:
Panelists on our expert panel suggested a reexamination of the use and
distribution of spectrum to ensure the most efficient and effective use
of this important resource. One panelist noted that the government
should have a good understanding of how much of the spectrum is being
used. To gain a better understanding, a few panelists suggested that
the government systematically track usage, perhaps through a "spectrum
census." This information would allow the government to determine if
some portions of spectrum were underutilized, and if so, to make
appropriate allocation changes and adjustments.[Footnote 24]
A number of panelists on our expert panel also suggested that the
government evaluate the relative allocation of spectrum for government
and commercial use as well as the allocation of spectrum for licensed
and unlicensed purposes. While panelists thought the relative
allocation between these categories should be examined, there was
little consensus among the panelists on the appropriate allocation. For
instance, as shown in figure 2, 13 panelists indicated that more
spectrum should be dedicated to commercial use, while 7 thought the
current distribution was appropriate; no panelists thought that more
spectrum should be dedicated to government use. Similarly, as shown in
figure 3, nine panelists believed that more spectrum should be
dedicated to licensed uses, six believed more should be dedicated to
unlicensed uses, and five thought the current balance was appropriate.
Figure 2: Panelists' Views on the Allocation of Spectrum between
Commercial and Government Use:
[See PDF for image]
[End of figure]
Figure 3: Panelists' Views on the Allocation of Spectrum between
Licensed and Unlicensed Use:
[See PDF for image]
[End of figure]
Ensure Clearly Defined Rights and Flexibility:
Similar to a suggested modification of FCC's auction authority, some
panelists on our expert panel suggested better defining users' rights
and increasing flexibility in the allocation of spectrum. Better
defining users' rights would clarify the understanding of the rights
awarded with any type of license, whether the licensees acquired the
license through an auction or other means. In addition, some panelists
stated that greater flexibility in the type of technology used--and
service offered--within frequency bands would help promote the
efficient use of spectrum. In particular, greater flexibility would
allow the licensee to determine the efficient and highly valued use,
rather than relying on FCC-based allocation and service rules. However,
some panelists on our expert panel and industry stakeholders with whom
we spoke noted that greater flexibility can lead to interference, as
different licensees provide potentially incompatible services in close
proximity.[Footnote 25] Thus, panelists on our expert panel stressed
the importance of balancing flexibility with interference protection.
The Current Framework for Spectrum Management May Pose Barriers to
Reform:
Under the current management framework, neither FCC nor NTIA has been
given ultimate decision-making authority over all spectrum use or the
authority to impose fundamental reform, such as increasing the reliance
on market-based mechanisms. FCC manages spectrum for nonfederal users
while NTIA manages spectrum for federal government users.[Footnote 26]
As such, FCC and NTIA have different perspectives on spectrum use. FCC
tends to focus on maximizing public access to and use of the spectrum.
Alternatively, NTIA tends to focus on protecting the federal
government's use of the spectrum from harmful interference, especially
in areas critical to national security and public safety. Further,
despite increased communication between FCC and NTIA, the agencies'
different jurisdictional responsibilities appear to result in piecemeal
efforts that lack the coordination to facilitate major spectrum reform.
For example, FCC's and NTIA's recent policy evaluations and
initiatives--the FCC Spectrum Policy Task Force and the Federal
Government Spectrum Task Force, respectively--tend to focus on the
issues applicable to the users under their respective
jurisdictions.[Footnote 27]
Major spectrum reform must ultimately address multidimensional
stakeholder conflicts. One source of conflict relates to balancing the
needs of government and private-sector spectrum users. Government users
have said that because they offer unique and critical services, a
dollar value cannot be placed on the government's provision of spectrum-
based services. At the same time, private-sector users have stated that
their access to spectrum is also critical to the welfare of society,
through its contribution to a healthy and robust economy. A second
source of conflict relates to balancing the needs of incumbent and new
users of spectrum. Since most useable spectrum has been allocated and
assigned, accommodating new users of spectrum can involve the
relocation of incumbent users. While new users of spectrum view
relocations as essential, incumbent users often oppose relocations
because the moves may impose significant costs and disrupt their
operations. A third source of conflict relates to existing technology
and emerging technology. Some new technologies, such as ultra
wideband,[Footnote 28] may use the spectrum more efficiently, thereby
facilitating more intensive use of the spectrum. However, users of
existing technology, both commercial and government, have expressed
concern that these new technologies may create interference that
compromises the quality of their services.
The current spectrum management framework may pose a barrier to
spectrum reform because neither FCC nor NTIA has ultimate authority to
impose fundamental reform and these stakeholder conflicts cross the
jurisdictions of both FCC and NTIA. As such, contentious and protracted
negotiations arise over spectrum management issues. We previously made
two recommendations to help further the reform process. First, we
recommended that the Secretary of Commerce and FCC should establish and
carry out formal, joint planning activities to develop a national
spectrum plan to guide decision making.[Footnote 29] Additionally, we
also recommended that the relevant administrative agencies and
congressional committees work together to develop and implement a plan
for the establishment of an independent commission that would conduct a
comprehensive examination of current spectrum management.[Footnote 30]
To date, neither recommendation has been implemented.
Concluding Observations:
With authorization from Congress, FCC has taken several steps to
implement a more market-oriented approach to spectrum management. In
recent years, FCC has taken actions to facilitate secondary-market
transactions. FCC authorized spectrum leasing for most wireless radio
licenses with exclusive rights and also streamlined the procedures that
pertain to spectrum leasing. In addition, FCC has conducted 59 auctions
for a wide variety of spectrum uses, including personal communications
services and broadcasting. FCC's auctions have contributed to a vibrant
commercial wireless industry. The Congress' recent decision to extend
FCC's auction authority was, in our opinion, a positive step forward in
spectrum reform. However, more work is needed to ensure the efficient
and effective use of this important national resource. To help reform
spectrum management, we have previously recommended that (1) the
Secretary of Commerce and FCC should establish and carry out formal,
joint planning activities to develop a national spectrum plan to guide
decision making; and (2) the relevant administrative agencies and
congressional committees work together to develop and implement a plan
for the establishment of a commission that would conduct a
comprehensive examination of current spectrum management.[Footnote 31]
To date, these recommendations have not been implemented.
Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions you or other Members of the Committee may have
at this time.
Contact and Acknowledgments:
For questions regarding this testimony, please contact JayEtta Z.
Hecker on (202) 512-2834 or heckerj@gao.gov. Individuals making key
contributions to this testimony include Amy Abramowitz, Michael
Clements, Nikki Clowers, Eric Hudson, and Mindi Weisenbloom.
FOOTNOTES
[1] FCC manages spectrum use for nonfederal users, including
commercial, private, and state and local government users.
[2] GAO, Telecommunications: Strong Support for Extending FCC's Auction
Authority Exists, but Little Agreement on Other Options to Improve
Efficient Use of Spectrum, GAO-06-236 (Washington, D.C.: Dec. 20,
2005); GAO, Telecommunications: Comprehensive Review of U.S. Spectrum
Management with Broad Stakeholder Involvement is Needed, GAO-03-277
(Washington, D.C.: Jan. 31, 2003); and GAO, Telecommunications: Better
Coordination and Enhanced Accountability Needed to Improve Spectrum
Management, GAO-02-906 (Washington, D.C.: Sept. 30, 2002).
[3] Pub. L. No. 109-171, §3003, 120 Stat. 4 (2006).
[4] GAO-02-906 and GAO-03-277.
[5] Radio signals travel through space in the form of waves. These
waves vary in length, and each wavelength is associated with a
particular radio frequency. Radio frequencies are grouped into bands
and are measured in units of Hertz. The term kilohertz refers to
thousands of Hertz, megahertz (MHz) to millions of Hertz, and gigahertz
to billions of Hertz.
[6] The Department of State also plays a role in spectrum management by
coordinating and mediating the U.S. position and leading the nation's
delegation to international conferences on spectrum management.
[7] Interference occurs when two or more radio signals interact in a
manner that disrupts the transmission and reception of messages.
[8] In 1981, Congress added Section 309(i) to the Communications Act to
give FCC the authority to assign a broad range of licenses by lottery.
The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 260,
tit. III, § 3002, terminated FCC's authority to assign licenses by
lotteries, except with respect to licenses for non-commercial broadcast
stations and public broadcast stations. See, 47 U.S.C. § 309(i)(5) and
47 U.S.C. § 397(6).
[9] 47 U.S.C. § 309(j). In subsequent years, the Congress has modified
and extended FCC's auction authority, including exempting some licenses
from competitive bidding, such as licenses for public safety radio
services and noncommercial educational broadcast services.
[10] Traditional unlicensed devices are low-powered equipment that
operate in a limited geographic range, such as cordless phones, baby
monitors, garage door openers, and wireless access to the Internet.
[11] NTIA employs a similar process for federal government spectrum
users.
[12] In some instances, statutory restrictions are an impediment to
granting greater flexibility.
[13] For more information on these alternative spectrum management
models, including the perceived advantages and disadvantages of each,
see GAO-06-236.
[14] See GAO-06-236. We convened, in collaboration with the National
Academies, two panels of experts to discuss spectrum allocation and
assignment issues and options to improve spectrum management. The
panelists convened at the National Academies on August 9, 2005, and
August, 10, 2005. A total of 23 panelists participated on our two
expert panels. For more information on the expert panels, see GAO-06-
236.
[15] For example, some panelists did not support using auctions to
assign spectrum licenses for public safety services.
[16] The public interest concerns arise as a result of FCC policies
pertaining to (1) eligibility and use of the license and spectrum, (2)
foreign ownership limitations, (3) designated entity and entrepreneur
benefits, and (4) competition. See Promoting Efficient Use of Spectrum
Through Elimination of Barriers to the Development of Secondary
Markets, WT Docket No. 00-230, Second Report and Order, Order on
Reconsideration, and Second Further Notice of Proposed Rulemaking, 19
FCC Rcd. 17503 (2004).
[17] GAO-02-906.
[18] In its 2005 program assessment of NTIA, OMB noted that NTIA does
not currently have sufficient mechanisms in place to ensure efficient
and effective federal spectrum use. OMB further notes that NTIA lacks
the authority to implement market-based or other incentives to promote
efficient and effective use of the federal spectrum among federal
agencies. According to OMB, NTIA plans to study incentives to promote
the more efficient and effective use of spectrum and seek authority to
implement incentives, as appropriate.
[19] GAO-06-236.
[20] Pub. L. No. 109-171.
[21] Fifteen of twenty-two panelists suggested modifications to enhance
the use of auctions.
[22] Underlay rights allow unlicensed users to operate in the same
spectrum bands as licensees, as long as the unlicensed users do not
cause undue interference for licensees. For example, ultra-wideband
technology operates at very low power levels over a very wide range of
spectrum, and thus might avoid interfering with licensed spectrum users
in the same spectrum bands. Overlay rights allow unlicensed users to
operate in licensed spectrum bands during times or in geographic areas
where licensees are not using the spectrum.
[23] A bidding credit is a percentage discount applied to the high bid
amount if the bidder meets designated entity criteria established in
the auction rules. In February 2006, FCC issued a notice of proposed
rule making to consider whether its general competitive bidding rules
should be modified.
[24] In February 2006, the Technology CEO Council released a report
entitled, Freeing Our Unused Spectrum: Toward a 21st Century Telecom
Policy (Washington, D.C.: Feb. 2006). This report included
recommendations for FCC and NTIA to examine how efficiently spectrum
bands are being used and encourage more efficient use of bands that are
not found to be used efficiently.
[25] With the current allocation process, FCC attempts to keep
incompatible service separated to avoid interference. With licensees
exerting greater control, this protection could be reduced.
[26] In some countries, a single government entity regulates spectrum
for all users. For example, Industry Canada has exclusive spectrum
management responsibility in Canada.
[27] At a recent NTIA-sponsored workshop addressing spectrum
management, the topics discussed included issues relevant for both FCC
and NTIA, and the participants included spectrum managers from several
government agencies, as well as FCC officials, commercial users, and
other experts.
[28] Ultra wideband devices emit a low-power signal over large swaths
of spectrum.
[29] GAO-02-906.
[30] GAO-03-277.
[31] GAO-02-906 and GAO-03-277.
