[Senate Hearing 108-931]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-931

                       FUTURE OF SPECTRUM POLICY

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 6, 2003

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation







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           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon                 BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
                                     FRANK LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 6, 2003....................................     1
Statement of Senator Allen.......................................     4
Statement of Senator Brownback...................................     4
Statement of Senator Burns.......................................     2
Statement of Senator Lautenberg..................................     5
Statement of Senator McCain......................................     1
Statement of Senator Sununu......................................    49

                               Witnesses

Berry, Steven K., Senior Vice President, Cellular 
  Telecommunications and Internet Association....................    29
    Prepared statement...........................................    31
Calabrese, Michael, Director, Spectrum Policy Program, New 
  America Foundation.............................................    34
    Prepared statement...........................................    37
Kahn, Dr. Kevin, Intel Fellow, Intel Corporation.................    22
    Prepared statement...........................................    25
Kolodzy, Dr. Paul J., Director, Center of Wireless Network 
  Security and Professor in Engineering and Technology 
  Management, Stevens Institute of Technology....................     7
    Prepared statement...........................................     9
Rosston, Dr. Gregory L., Deputy Director, Stanford Institute for 
  Economic Policy Research.......................................    14
    Prepared statement...........................................    15

 
                       FUTURE OF SPECTRUM POLICY

                              ----------                              


                        THURSDAY, MARCH 6, 2003

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:35 a.m. in room 
SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning. We will begin the hearing. 
Virtually every form of communication is being changed by 
technology that uses spectrum. Cell phone usage is exceeding 
the forecasts of just a few years ago. Wireless e-mail 
messaging is rampant. Satellites bring us television, Internet 
services, and telephone services. Wi-Fi networks offer home 
network mobility today, and hold the promise of broadband 
speeds over greater distances in the future. Ultra wideband 
technology offers multiple benefits for government, public 
safety, and commercial users. New technology promises to 
increase exponentially the efficiency of today's commercial 
wireless networks.
    Spectrum policy clearly has a broad impact not only in 
communications but throughout our entire economy. Spectrum 
impacts many of the issues that this Committee has spent years 
examining: public safety--and more recently--homeland security, 
broadband, local telephone competition, competition to cable 
television, 3G services, the transition to digital television, 
broadcast ownership limits, and air time for political 
candidates.
    Today, we will examine the future of spectrum policy. Every 
year, we put more demands on the use of the radio spectrum. We 
must ensure that our Federal policies maximize the utility of 
this finite resource. Federal Communications Commission 
Chairman Michael Powell has called spectrum policy reform a 
``crucial initiative.'' Last year he commissioned a Spectrum 
Policy Task Force to consider future spectrum policy. It 
proposed significant fundamental change to spectrum policy. I 
look forward to hearing more about their recommendations.
    One of its legislative suggestions was the establishment of 
a spectrum relocation trust fund that would streamline the 
process of paying for the relocation costs of Federal spectrum 
users and would get spectrum in the hands of commercial users 
more quickly. The Administration has also advanced this 
proposal. I look forward to working with my colleagues on this 
Committee to introduce such legislation in the near future.
    Finally, I would like to commend the recent Spectrum 
Agreement between the Department of Defense and private 
industry to share spectrum in a manner that will protect 
sensitive military functions while providing more opportunities 
for Wi-Fi services. Last summer, I joined several of my 
colleagues, including Senator Hollings, urging these parties to 
address sharing and interference concerns in this band. 
Likewise, Senators Allen and Boxer have actively supported 
these discussions. I am pleased that these parties were able to 
reach an agreement, and hope that the FCC will act quickly on 
implementing that agreement.
    I thank the witnesses for joining us today and look forward 
to their testimony, and I want to thank the witnesses.
    Senator Burns.

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Thank you very much, Mr. Chairman, and I 
think the report in front of us today that we are talking about 
captures the essence of the challenges that we have before us 
as policymakers. The topic of spectrum management is one of the 
most important telecommunications issues of today. The U.S. is 
``spectrum-challenged'' in that we face serious obstacles when 
it comes to identifying available spectrum to meet government 
and private sector needs. To keep pace with all the advances in 
wireless technologies and maintain a global competitiveness 
though, we have to find ways to do more with less.
    Clearly, the demand for spectrum appears to be limitless 
both on the Federal and on the commercial levels. Reform of the 
process of spectrum management remains one of the greatest 
challenges that we face as policymakers. If done correctly, 
however, spectrum reform has the potential to create numerous 
high-tech jobs and jump-start a currently ailing technology 
sector in the United States.
    I would like to applaud the tremendous effort in the 
process made through the excellent coordination between the 
Commerce's Assistant Secretary Nancy Victory, and Administrator 
of the NTIA and the FCC Chairman Powell. While I am very 
pleased with the current cooperation between the NTIA and the 
FCC in dealing with these highly complex issues, I remain 
concerned from an institutional perspective, that fracturing 
spectrum management authority among two agencies presents 
serious operational difficulties. The most recent GAO report on 
spectrum management, issued late in January, reinforced my 
concerns and convinced me that it is time to take a hard look 
at a coordinated process that began over 75 years ago.
    The most recent GAO report also gave an excellent overview 
of the current flaws of the U.S. preparation for the critical 
World Radio Conferences. These conferences have grown 
dramatically in size from nine countries in the first 
conference in 1903 to 148 nations in the year 2000.
    Decisions at the conference are made by votes of 
participating members. In recent conferences, regional 
alignment and bloc voting have become the norm to advance 
regional positions. The GAO found the U.S. preparation suffered 
from separate and often differing positions developed by the 
FCC and the NTIA, and the 6-month short tenure of the head of 
the delegation. In contrast, other countries count on permanent 
or long-term officials to build working relationships and to 
develop a deep understanding of the process.
    In short, I am convinced that our Nation's spectrum 
management process is fundamentally broken, and I intend to 
work with my colleagues on a comprehensive spectrum reform 
bill. In considering how to frame my spectrum reform bill, I 
will be guided by the following principles. Some form of a 
market-driven allocation of spectrum is desirable. In a period 
of economic downturn in the telecommunications industry, 
outright bidding on spectrum may not be the best approach. 
Instead, a hybrid royalty-based approach where the risk of 
spectrum assignment and ownership are shared between government 
and the user is likely the best way to achieve an efficient 
spectrum use. A single regulatory agency, or, at best, more 
formalized cooperation between the FCC and the NTIA, will 
better control wasted resources and contribute to a better 
state of preparedness for the World Radio Conferences. 
Financial incentives, through tax structures and guaranteed 
future use, should be considered for technology innovation that 
seeks to develop devices which would operate in underutilized 
areas of the licensed spectrum, particularly in the range above 
3.1 gigahertz.
    As the need for spectrum grows, more efficient spectrum use 
should be required by Federal agencies. I also believe more 
critical research is needed in the area of evaluating potential 
interference for emerging wireless uses or current uses. I will 
push harder to ensure that the NTIA has sufficient resources at 
its laboratory in Boulder, Colorado to perform interference 
research and that the FCC labs in Columbia, Maryland also 
should be upgraded.
    Finally, I would like to touch on a challenge that faces 
broadcasters in rural States during the transition to digital. 
I have always been skeptical of hard and fast digital buildout 
requirements that were more a product of budget politics than 
engineering reality. I should note that most broadcasters are 
ready and willing to move forward in this area. Indeed, many 
broadcasters have already invested many millions of dollars in 
creating the infrastructure necessary for a rapid transition to 
digital programming.
    In Great Falls, Montana, KFBB Television has spent over 
$1.5 million for a transmitter and tower. In Billings, KTBQ is 
spending $532,000 on a transmitter, and our Montana television 
network stations, KTBQ, KPAX, KRTV, KXLF, and KBZK have 
budgeted an additional $3.3 million to convert control rooms. 
While these numbers might not raise too many eyebrows in this 
room, in many of these markets, these expenditures represent 
nearly 100 percent of the value of some of their physical 
plants.
    Additionally, many of these small stations have no way to 
offset these costs or to add on an analog spectrum fee. An 
unauctioned spectrum user fee might well put some of the 
smaller stations out of business.
    Clearly, we have many challenges to face in this critical 
issue of spectrum reform, but the potential rewards are great, 
and I look forward to working with the Chairman of this 
Committee and all the colleagues on the Commerce Committee as 
we wander down this road, because no other issue faces this 
country more importantly than the issue of homeland security.
    I thank the Chairman for holding this hearing today.
    The Chairman. Senator Brownback.

               STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Thank you very much, Mr. Chairman. Thank 
you for holding the hearing. Thank you to our witnesses, for 
presenting their views. I am going to have to slip out to 
another hearing on North Korea shortly, so I apologize for not 
being able to hear all of your comments.
    Mr. Chairman, I am encouraged by some of the things that 
have been happening recently, particularly the FCC's Spectrum 
Management Task Force Report. To the degree management 
breakdowns have occurred due to neglect, I feel at this time 
that the FCC is finally looking forward in an innovative 
manner, and I am interested in working with Chairman Powell to 
provide him with the tools he needs to get the ball moving 
forward in this regard.
    While some of the concepts in the FCC's report are more 
long-term in nature, there are some legislative items we can 
move right off the bat. The Administration has requested that 
we create a government user auction revenue trust fund. I think 
that is very appropriate. I also think we can take action to do 
away with statutory barriers to the development of real 
secondary markets for spectrum. Secondary markets are 
especially important for rural communities where spectrum all 
too often lies dormant, fallow.
    Later today, I will be joining my colleagues, Senators 
Burns, Dorgan, and Hagel, on the floor to introduce a bill 
called the New Homestead Act, which would help to revitalize 
rural communities that have experienced significant 
outmigration over the last 20 years. Spectrum can play an 
important role in helping to revitalize these rural 
communities. In that regard, I hope that we can move forward at 
least with that limited legislative concept to help in their 
redevelopment.
    Again, Mr. Chairman, I thank you for holding the hearing 
and look forward to working with my colleagues on some of these 
concepts.
    The Chairman. Thank you, Senator Brownback.
    Senator Allen.

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman, and thank you for 
your leadership in calling this hearing today on this important 
matter. Your visionary leadership and that of Senator Burns is 
really great, and I look forward to working with you. I thank 
our witnesses, and we look forward to hearing your comments on 
spectrum policy from your task force.
    I am one who will always be supporting a spectrum policy 
that encourages and fosters the power of technology, rather 
than arcane government regulations that are stagnant and 
inflexible. The existing command and control policy was 
established 90 years ago. They, in my view, in many cases 
unnecessarily constrain our innovators and entrepreneurs, and 
limit their ability to change and respond to consumer demand 
for wireless devices.
    As Chairman McCain alluded to earlier, Senator Boxer and I 
introduced legislation, the Jumpstart Broadband Act, and our 
bill is a very positive and proactive measure to strike a 
balance between Government regulation and the need for our 
technologists and engineers to innovate in response to the 
market. I am pleased to see that one of the recommendations 
included in this spectrum report is for the FCC to identify and 
allocate additional spectrum for unlicensed devices. Our 
legislation, of course, tries to create that environment for 
Wi-Fi, which is gaining popularity, but clearly has to get into 
another section of the spectrum that is unlicensed.
    The proliferation of unlicensed devices is truly one of the 
only success stories in the telecom industry over the past 
year. According to the Wi-Fi Alliance, worldwide sales for Wi-
Fi-related hardware are estimated to total $2.1 billion this 
year and more than $3 billion next year. However, I believe 
that Wi-Fi is just one example, and really only the beginning 
of future technologies that will significantly change broadband 
communications and stimulate the economy.
    I want to commend Chairman Powell for his leadership in 
this area in establishing the Spectrum Policy Task Force. I 
want to publicly thank the work of the NTIA, the Department of 
Defense, and the FCC with industry on the recent announcement, 
on the agreement for interference protections on the 5-
gigahertz spectrum band, and for recognizing not only consumer 
business goals in this agreement, but also, most importantly, 
the larger goals of protecting our national defense systems.
    So again I thank you, Mr. Chairman, for calling today's 
hearing, and look forward to our witnesses' testimony.
    The Chairman. Thank you. Senator Lautenberg.

              STATEMENT OF HON. FRANK LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks, Mr. Chairman, and I commend you 
on the fact that we are getting to this subject, and I also 
want to say thanks to the Federal Communications Commission, 
particularly Chairman Powell, for having selected Dr. Kolodzy, 
professor in the Schools of Engineering and Technology 
Management at Stevens Institute of Technology, one of our 
premier institutions.
    Dr. Kolodzy, your service to the country in the area of 
spectrum policy reform, your educational service to bright and 
talented students in New Jersey, of which we have an abundance, 
are very much appreciated, and I commend your dedication to 
both public service and education.
    The report of the Spectrum Policy Task Force is the first 
comprehensive review of our domestic spectrum policy and the 
regulation that began under the Radio Act of 1912. I have been 
asked if I remember that date so clearly and what the weather 
was like at that time.
    [Laughter.]
    Senator Lautenberg. That was over 90 years ago, and before 
the creation of the FCC in 1934. Spectrum policy reform is an 
important issue for commercial and public safety reasons. It 
does not lend itself, as we have come to find out over the 
years, to easy solutions based on either economic or political 
ideologies.
    In fact, one of the Task Force's major findings is that 
there is no singular regulatory model, not one-size-fits-all, 
that should be discussed or used to improve the management, 
accessibility, and allocation of the spectrum without 
recognizing the fact that you could leave out some very 
important aspect, so the review, though long and tedious, I 
think is a very positive thing to do, and I am glad to see that 
all of you are on this now.
    I was pleased to see the FCC's recommendation embracing a 
hybrid regulatory model whereby the traditional command and 
control model is not discarded outright. Instead, some 
consumer-driven, market-driven mechanisms, exclusive usage 
rights, and a more inclusive commons approach are proposed to 
address the needs of consumers, in most instances wireless 
service providers.
    The decisions that this Committee is going to make will 
affect the future development of spectrum technology, the 
rights and responsibilities of licensed and unlicensed spectrum 
users, and the availability of spectrum, and that is a 
question, frankly, that seems to mystify people, whether or not 
spectrum is a finite body, a finite amount of availability, or 
whether technology changes, as we have seen over the years, 
changes the volume of availability of spectrum bandwidths and 
reach.
    I would like to share a few thoughts and observations 
regarding the direction and the development of our spectrum 
policy. I think throughout this hearing, we ought to remember 
that the spectrum, with all of its electromagnetic waves, is a 
public resource, a public good, a public asset. With that in 
mind, spectrum should be treated the same way we treat the 
Nation's other natural but limited resources. We manage them 
through some joint public-private partnerships, but we are 
forever mindful that the resource belongs to all of the 
American people.
    Now, as a former businessman, I appreciate the necessity to 
eliminate inefficiencies in bringing a good or a service to 
market, but when you are dealing with a public resource, the 
reduction or elimination of market inefficiencies cannot be the 
primary goal. The public's interest has got to be protected. 
Commercial development and use of a public resource ought to 
provide a public benefit.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Our witnesses are Mr. Steven Berry, the Senior Vice 
President, Cellular Telecommunications and Internet 
Association; Dr. Gregory Rosston, Deputy Director of the 
Stanford Institute for Economic Policy Research; Dr. Kevin 
Kahn, Intel Fellow at the Intel Corporation; Dr. Paul Kolodzy, 
who is the author, or certainly a leader in the Spectrum Policy 
Task Force; Dr. Michael Calabrese is the Director of the 
Spectrum Policy Program, New America Foundation.
    I think it appropriate we begin with you, Dr. Kolodzy. 
Thank you for appearing today, and please proceed.

STATEMENT OF DR. PAUL J. KOLODZY, DIRECTOR, CENTER OF WIRELESS 
               NETWORK SECURITY AND PROFESSOR IN 
  ENGINEERING AND TECHNOLOGY MANAGEMENT, STEVENS INSTITUTE OF 
                           TECHNOLOGY

    Dr. Kolodzy. Good morning, Mr. Chairman, Ranking Member, 
and members of the Committee. Thank you for this opportunity to 
appear before you today. Until December of this last year, I 
served as Director of the Spectrum Policy Task Force at the 
FCC. I currently serve as the director of the Center of 
Wireless Network Security and also professor in both 
engineering and technology management at Stevens Institute of 
Technology in Hoboken, New Jersey.
    Although I am under a contract as a part-time expert 
consultant at the FCC, I am here today in my own capacity, 
pursuant to the kind invitation from this committee. I 
appreciate this opportunity to testify on this important topic 
of the future of U.S. radio spectrum policy.
    Chairman Powell established the Task Force to develop 
policies to advance spectrum reform, one of his six strategic 
goals for the agency. The Task Force has only just begun the 
processes of reexamining 90 years of spectrum policy to ensure 
that the Commission's policies will evolve with the consumer-
driven evolution of new wireless technologies, devices, and 
services.
    I will focus on the key findings and recommendations 
contained in the Task Force report today. Please accept the 
Task Force report and my written testimony for the record.
    The Chairman. It will be made a part of the record.
    Dr. Kolodzy. Thank you. Chairman Powell established the 
Spectrum Policy Task Force to assist the Commission in 
identifying and evaluating specific changes in spectrum policy 
to increase the public benefits derived from the use of the 
radio spectrum. The Task Force initiated the FCC's first ever 
comprehensive and systematic review of spectrum policy. The 
Task Force report concluded that the regulatory structure 
governing spectrum management is outdated, cumbersome, and 
lacks requisite flexibility to foster technological innovation 
and economically efficient spectrum use. Here are some of the 
key findings and recommendations that the Task Force made to 
the Commission.
    First, we are aware in just the last decade that there has 
been a dramatic increase in the overall demand for spectrum-
based services and devices, accompanied by particular demand 
for mobile and portable spectrum-based applications. At the 
same time, the speed of technological change has increased. We 
found that the growth in demand for spectrum-based services and 
devices requires many spectrum users to seek additional 
spectrum. This leads to the appearance that spectrum demand is 
outstripping spectrum supply.
    The Task Force determined that the spectrum access is a 
more significant problem than actual scarcity. If there were 
ways to facilitate greater access to the vacant white spaces of 
the radio spectrum, the effects of physical scarcity of the 
spectrum resource could be minimized.
    Second, the radio spectrum can be parceled in space, 
frequency, and also time. Due in large part to technological 
limitations in radio performance, the Commission's spectrum 
policies have parceled or assigned spectrum according to 
particular operational frequencies and geographic regions. 
Smart technologies, or smarter technologies, potentially allow 
operators to take advantage of the time dimension of the radio 
spectrum.
    Third, technology advances are allowing systems that use 
radio spectrum to be much more tolerant to interference. 
Spectrum policies can and should reflect this increased ability 
to tolerate interference.
    Fourth, all spectrum users really require clear rules 
governing their interactions with spectrum users and the 
Commission. Spectrum users' rights and obligations are often 
not defined with sufficient clarity. An example of this is 
defining harmful interference, which is one of the primary 
parameters of the bundle of spectrum rights granted to 
licensees.
    Based on these key findings, and many more, the Task Force 
made three core recommendations, and a total of 39 
recommendations. I will focus on the core recommendations 
today.
    The Task Force's first recommendation is to migrate from 
the current command and control regulatory model to a more 
market-oriented exclusive rights and unlicensed device and 
commons model. The Task Force agreed with the consensus view 
expressed by the participants of the Task Force process that 
one size does not fit all in spectrum policy. The Task Force 
recommended that the Commission base its spectrum policy on a 
balance of three basic spectrum rights models, the exclusive 
use model, a commons approach and, to a more limited degree, a 
command and control approach.
    Second, in order to be responsive to increased 
technological capabilities, the Task Force concluded that while 
the Commission's spectrum policies can and should remain 
technology agnostic, they should not be technology 
antagonistic. The Task Force suggested that the Commission 
strive wherever possible to eliminate regulatory barriers to 
increase spectrum access as new technologies and market 
approaches provide new and innovative means for consumers to 
use the spectrum.
    The Task Force's third recommendation was to suggest the 
development and implementation of a new paradigm for 
interference protection. Ensuring adequate interference 
protection has been a key responsibility of the Commission 
since its inception, and continues to be one of its core 
functions. The Task Force believes that the current 
interference management approaches and tools need to be 
reexamined in light of the dramatic changes in technology and 
uses of spectrum.
    The Task Force recommended that as a long-term strategy the 
Commission shift its current approach for assessing 
interference based on transmitter operations, focusing instead 
on the interference environment at the receiver locations. 
Specifically, on an ongoing basis it was recommended that the 
Commission adopt a new metric, the interference temperature, to 
quantify interference. The interference temperature would be a 
localized measurement defining the interference environment in 
or around the device.
    These three recommendations are a fraction of what the Task 
Force provided to the Commission, but its report is a 
culmination of an analytical and transparent process designed 
to carefully examine the status of our national spectrum 
policy. I appreciate Chairman Powell's bold vision. He 
recognized the critical need to undertake a comprehensive 
review of this area.
    The work of the Task Force was systematic and thorough, and 
involved participation of an extensive array of interested 
parties, but the work has just begun. It is my hope and 
expectation that the work of the Task Force, as well as the 
contributions of many others, including those sitting at this 
table with me, will provide the basis for important policy 
changes that will lead to technological innovation and, more 
importantly, increased consumer benefits.
    I am excited about the building momentum and ongoing debate 
for rethinking this decade-old policy. Again, I appreciate this 
opportunity to appear before the Committee, and I will be 
pleased to answer your questions.
    [The prepared statement of Dr. Kolodzy follows:]

 Prepared Statement of Dr. Paul Kolodzy, Director, Center of Wireless 
     Network Security and Professor in Engineering and Technology 
              Management, Stevens Institute of Technology
    Mr. Chairman, Ranking Member, and members of the Committee:
    Good morning. I am Dr. Paul Kolodzy, and I would like to thank you 
for this opportunity to appear before you today. Until December 2002, I 
served as the Director of the Spectrum Policy Task Force at the Federal 
Communications Commission. I currently serve as the Director of the 
Center for Wireless Network Security and as a Professor in the Schools 
of Engineering and Technology Management at the Stevens Institute of 
Technology in Hoboken, New Jersey.
    At the present time, I am under contract as a part-time expert 
consultant to the FCC, but I want to emphasize that I am here today in 
my own individual capacity pursuant to the Committee's invitation. 
Accordingly, my testimony is based on my staff level work with the 
Spectrum Task Force and does not necessarily reflect the views of the 
Commission. I was fortunate to have the support of my FCC colleagues, 
some of whom are behind me, in preparing for this hearing today.
    I am very grateful to the Committee for this opportunity to testify 
on the important topic of the future of U.S. radio spectrum policy. In 
my position as the Director of the Spectrum Policy Task Force from 
March to December 2002, I oversaw a comprehensive assessment of the 
Commission's current spectrum policy models, the development of new 
approaches to ``managing'' the spectrum resource, and the completion of 
the Task Force's report. Chairman Powell commissioned the Task Force to 
develop policies to advance spectrum reform, one of his six strategic 
goals for the agency. We have been overwhelmed by the positive response 
to our Report so far, as well as the tremendous interest in the 
important work of the Task Force.
    The Task Force has only just begun the process of reexamining 90 
years of spectrum policy to ensure that the Commission's policies 
evolve with the consumer-driven evolution of new wireless technologies, 
devices, and services. A close examination of current spectrum 
policies, even with the innovative legislative and regulatory changes 
that occurred in the 1990s, shows that government spectrum management 
is still based on the environment that existed in the 1920s and 30s: AM 
broadcast radio, ship-to-shore communications, and Ham operators. 
Although those uses are still important components of the 
communications mosaic, these services no longer represent the majority 
of the systems nor are they indicative of the technologies that 
comprise modern telecommunications services.
    My testimony will first provide some brief background on the 
Spectrum Policy Task Force. Then I will summarize the key findings and 
recommendations contained in the Task Force Report.
Background
    FCC Chairman Michael Powell established the Spectrum Policy Task 
Force in June 2002, to assist the Commission in identifying and 
evaluating specific changes in spectrum policy that would increase the 
public benefits derived from the use of radio spectrum. Chairman Powell 
directed the Task Force to analyze spectrum allocation, assignment and 
use and to develop a plan of action for review by the Commission. The 
creation of the Task Force initiated the first ever comprehensive and 
systematic review of spectrum policy at the FCC. In announcing the 
formation of the Task Force, the Chairman set forth its core mission:

    Provide specific recommendations to the Commission for ways 
        in which to evolve the current ``command and control'' approach 
        to spectrum policy into a more integrated, market-oriented 
        approach that provides greater regulatory certainty, while 
        minimizing regulatory intervention; and

    Assist the Commission in addressing ubiquitous spectrum 
        issues, including interference protection, spectral efficiency, 
        effective public safety communications, and international 
        spectrum policies.

    The Task Force is composed of a team of seasoned professionals from 
across the FCC's Bureaus and Offices, including engineers and 
economists, as well as lawyers and public policy experts. The Task 
Force recognized that our work could not be completed without 
significant input from sources outside of the FCC. We endeavored to 
create a transparent process that encouraged and facilitated 
substantial public participation and tapped all available expert 
resources. As soon as the Task Force announced its official 
organization and work plan in June 2002, we released a Public Notice 
seeking comment on a wide range of spectrum policy issues.
    We received over 200 comments and reply comments from many 
individuals and entities, including equipment and consumer electronics 
manufacturers, wireless Internet service providers, radioastronomy 
interests, satellite and broadcast companies, consumer groups and 
individual consumers, fixed and mobile wireless service providers, 
academics, economists, scientists, engineers, public safety 
organizations, state and local governments, consultants, journalists, 
telecommunications bandwidth brokers, energy and transportation 
interests and rural telephone companies.
    In August, the Task Force held public workshops over four separate 
days and utilized the services of over 70 expert panelists from 
government, industry, academia and the public. Each workshop focused on 
a specific aspect of spectrum policy: (1) Spectrum Rights and 
Responsibilities; (2) Spectrum Efficiency; (3) Interference Protection; 
and (4) Experimental Licenses and Unlicensed Spectrum. Approximately 75 
expert panelists and outside moderators participated, representing a 
cross-section of all interested parties.
    With the benefit of this tremendous public input, the Task Force 
developed several findings and made 39 specific recommendations to the 
Commission. Before submitting them to the full Commission, these 
recommendations were presented to and vetted by the members of the 
FCC's Spectrum Policy Executive Committee, which is made up of the 
Bureau and Office Chiefs from the internal FCC organizations engaged in 
spectrum activities. On November 7, 2002, I appeared before FCC 
Chairman Powell and his fellow Commissioners at an open meeting and 
presented the Task Force's findings and recommendations. We released 
the Report in November and the full Commission issued a Public Notice 
seeking public comment on the Report. In the first round alone, the FCC 
has received over 80 formal comments on the Report.
    The Task Force Report ultimately concluded that the regulatory 
structure governing spectrum management is outdated, cumbersome and 
lacks the requisite flexibility to foster technological innovation and 
economically efficient spectrum use. Addressing these matters is 
particularly important because spectrum-based services play such an 
essential role in the Commission's other strategic goals, including 
broadband, competition, the DTV transition, and homeland security. I 
will now highlight some of the key findings and recommendations that 
the Task Force made to the Commission.
Task Force Findings
    There has been a dramatic increase in overall demand for spectrum-
based services and devices, accompanied by particular demand for mobile 
and portable spectrum-based applications. This is true for both 
traditional, licensed services and for services offered through 
unlicensed devices. This increased demand is propelled by a host of 
factors: the economy has moved towards the communications-intensive 
service sector, the workforce is increasingly mobile, and consumers 
have been quick to embrace the convenience and increased efficiency of 
the multitude of wireless devices available today. Today, a myriad 
range of unanticipated innovations and changes continually challenge 
the ability of regulators to keep pace. It has become readily apparent 
that the speed of technological change has increased over the last few 
decades, creating an environment where flexibility and innovation 
should guide regulatory policies.
    While the Task Force recognized the societal trends that have 
contributed to the increased demand for spectrum-based services and 
devices, we also understood that it is difficult to make accurate 
projections of future demands. Historically, both industry and 
Commission projections for spectrum use have significantly and 
consistently underestimated the demand for additional spectrum 
resources and the public's utilization of new technologies and 
applications.
    Four principal findings of the Spectrum Policy Task Force provide 
the foundation for our recommendations. These and other findings were 
used to formulate recommendations to the Commission. Let me briefly 
outline these four findings and discuss some of the issues related to 
our work.
Spectrum Access versus Scarcity
    The growth in demand for spectrum-based services and devices 
requires many spectrum users to seek additional spectrum. This leads to 
the appearance that spectrum demand is outstripping spectrum supply. 
Indeed, most ``prime'' spectrum has already been assigned to one or 
more parties, and it is becoming increasingly difficult to find 
spectrum that can be made available either for new services or to 
expand existing ones.
    The Task Force determined that spectrum access is a much more 
significant problem than scarcity. The Task Force collected and 
reviewed preliminary data regarding spectrum usage that show that 
significant spectrum capacity remains untapped. Currently, no federal 
agency or other organization systematically measures actual spectrum 
use. While additional and more comprehensive spectrum measurements can 
and should be undertaken to improve the understanding of actual 
spectrum use, these preliminary measurements are quite revealing. If 
the Commission were to facilitate greater access to the vacant ``white 
spaces'' of the radio spectrum, the effects of the physical scarcity of 
the spectrum resource could be minimized.
    The Task Force concluded that improving access to the spectrum can 
be achieved through permitting licensees greater flexibility. Licensees 
often have variable needs and therefore do not use their spectrum for 
particular periods of time or in certain geographic areas. At the same 
time, due to regulatory restrictions, licensees are usually unable to 
make their spectrum available to others, even if a market exists to do 
so. Granting licensees additional flexibility to make their licensed 
bands available to others would increase access to the spectrum and, 
correspondingly, minimize the real prospect of spectrum scarcity.
New Methods as a Solution to Access
    Second, the radio spectrum can be parceled in time, space, and 
frequency. Historically, due in large part to technological limitations 
in radio performance, the Commission's spectrum policies have 
parceled--or assigned--spectrum according to particular operational 
frequencies and geographic areas of operations. Past policies also 
dictated the power at which radio transmitters must operate. Smart 
technologies, such as low power processors, frequency agile 
transmitters, digital receivers, and other technologies potentially 
allow operators to take advantage of the time dimension of the radio 
spectrum. That is, because their operations are so agile and can be 
changed nearly instantaneously, they can operate for short periods of 
time in unused spectrum.
    The Commission's current policies generally do not take into 
account the time dimension of spectrum use. In addition, the 
Commission's current policies do not effectively support the ability of 
new technologies to take advantage of geographic white space. In order 
to be responsive to these increased technological capabilities, the 
Task Force concluded that, while the Commission's spectrum policies can 
and should remain technology agnostic, they should not be technology 
antagonistic. As a result, the Task Force suggested that the Commission 
should strive, wherever possible, to eliminate regulatory barriers to 
increased spectrum access as new technologies provide new and 
innovative means to access the spectrum.
Interference Tolerance
    Third, technology advances are also allowing systems that use radio 
spectrum to be much more tolerant to interference. While technological 
advances are contributing to the increased diversity of spectrum-based 
consumer applications, the Task Force acknowledged that there are 
technological advances that also are providing some potential answers 
to current spectrum policy challenges concerning interference avoidance 
and mitigation.
    Growth in the use of digital spectrum-based technologies not only 
increases the potential throughput of information, it also has 
potentially significant ramifications for interference management. 
Digital signals are inherently more robust and resistant to 
interference than analog signals. Moreover, digital signal processing 
techniques, such as coding and error correction, are more effective at 
rejecting interfering signals. Thus, spectrum policies can and should 
reflect this increased ability to tolerate interference. Moreover, 
given the increased ability of new technologies to monitor their local 
RF environment and operate more dynamically than traditional 
technologies, the predictive models used by the Commission can be 
updated, and perhaps eventually replaced, by techniques that take into 
account and assess actual, rather than predicted, interference levels.
Need to Define Rights and Responsibilities
    Fourth, all spectrum users require clear rules governing their 
interactions with the Commission and other spectrum users. Regardless 
of how or to whom particular rights are assigned, ensuring that all 
rights are clearly delineated is important to avoiding disputes, and 
provides a clear common framework from which spectrum users can 
negotiate alternative arrangements. Currently, spectrum users' rights 
and obligations are often not defined with sufficient clarity.
    An example of this is in defining ``harmful'' interference, which 
is one of the primary parameters of the bundle of spectrum rights 
granted to licensees. But stakeholders in spectrum policy debates can 
subject the standard of ``harm'' to multiple subjective opinions and 
use it to block or delay new services and devices from being introduced 
into the market. Given the increasing flexibility in the types of 
spectrum-based services and, correspondingly, more intensive use of the 
radio spectrum, the spectrum user and the potential interferer need 
more certainty about the metrics that determine rights of protection 
and access. This is particularly important for incumbent providers who 
have invested substantial sums in building their networks and providing 
highly valued services to the public. Therefore, the Task Force 
concluded that there needs to be, wherever feasible, a more 
quantitative approach to interference management. Quantitative 
standards reflecting real-time spectrum use would provide users with 
more certainty and, at the same time, would facilitate enforcement.
Task Force Recommendations
    Based on these key findings, the Task Force set forth four key 
recommendations and a total of 39 separate recommendations to the 
Commission.
Modernizing the Regulatory Model
    The Task Force's first recommendation is to migrate from the 
current command and control model to the more market-oriented exclusive 
rights and unlicensed device/commons models. The Task Force agreed with 
the consensus view expressed by participants in the Task Force process 
that ``one size does not fit all'' in spectrum policy. An examination 
of the exclusive use and commons models as they have been applied 
suggests that each model has encouraged beneficial types of technical 
and economic efficiencies. The Task Force recommended that the 
Commission base its spectrum policy on a balance of the three basic 
spectrum rights models: an exclusive use approach, a commons approach, 
and (to a more limited degree) a command and control approach. Specific 
recommendations in furtherance of this objective include:

    Permit maximum flexible use of spectrum by both licensed 
        and unlicensed users. This would enable spectrum users to make 
        fundamental choices about how they use spectrum, taking into 
        account market factors such as consumer demand, availability of 
        technology and competition.

    Clearly and extensively define spectrum users' rights and 
        responsibilities.

    Provide incentives for efficient spectrum use.

    Investigate rule changes that promote the lowering of 
        permitted power in congested areas and the increasing of 
        permitted power in uncongested areas, particularly rural 
        environments.

Increase Access to Spectrum
    The Task Force's second major recommendation was to implement ways 
to increase access to the spectrum for both unlicensed and licensed 
users. Advances in technology that provide access in time, as well as 
in frequency, bandwidth, and space, of the spectrum also provides a 
window to new opportunities for using the radio spectrum. The Task 
Force recommended that the Commission consider the use of time in 
permitting more dynamic allocation and assignment of spectrum usage 
rights. Four of the recommended methods to use time are: (1) to act in 
its pending secondary markets proceeding; (2) to permit the use of more 
dynamic allocations and assignment of spectrum usage rights; (3) to 
permit more flexible use, albeit within technical parameters, of the 
allocations under licensee control; and (4) allow traditionally narrow 
services, such as public safety, to lease excess capacity to other non-
related services.
New Interference Management Techniques
    The Task Force's final ``core'' recommendation was to implement a 
new paradigm for interference protection. As the Commission considers 
how to provide opportunities for an ever-increasing array of spectrum-
based technologies and services, one recurring and often thorny issue 
is how to protect users against harmful interference. Ensuring adequate 
interference protection has been a key responsibility of the Commission 
since its inception and continues to be one of its core functions. The 
Task Force believed that, although the Commission's rules and processes 
for managing interference have historically been effective in many 
bands, current interference management approaches and tools need to be 
reexamined in light of the dramatic changes in technology and uses of 
the spectrum.
    The Task Force suggested that, as a long-term strategy, the 
Commission shift its current paradigm for assessing interference--based 
on transmitter operations--toward basing policy more on what results at 
receiver locations. The Commission currently performs detailed 
calculations of expected interference environments, and determines 
transmitter requirements based on ``worst case'' analysis. This 
methodology has generally been adequate and has been the foundation for 
successful spectrum management for the past several decades. With more 
intensive use of the spectrum, coupled with highly mobile devices, a 
more dynamic, in-situ methodology will be necessary. Specifically, the 
Task Force recommended that, on a going forward basis, the Commission 
adopt a new metric--the ``interference temperature''--to quantify and 
manage interference. The interference temperature would be a localized 
measurement defining the interference environment at or around the 
device. The Commission could use the interference temperature metric to 
establish maximum permissible levels of interference, on a band-by-band 
basis, thus establishing a clearly defined expectation of the noise 
environment in which the receiver would be operating. To the extent, 
however, that the interference temperature in a particular band is not 
reached, other users could operate more flexibly--with the interference 
temperature serving as the maximum cap on the potential RF energy they 
could introduce into the band.
Legislative Recommendations
    In furtherance of the broader goals for changes in spectrum policy 
outlined by the Task Force, it also advised that the Commission should 
consider making legislative proposals for submission to Congress. These 
recommendations to the Commission are the result of a thorough 
examination of the current statutory structure contained in the 
Communications Act of 1934, as amended, as well as related laws. The 
Task Force proposals were intended as a blueprint for the Commission to 
use in its interactions with Congress to reexamine the broader U.S. 
spectrum policy regime.
Conclusion
    The FCC's Spectrum Task Force Report is the culmination of an 
analytical and transparent process designed to carefully examine the 
status of our national spectrum policy and make recommendations for 
modernizing it to match current and future technological and market 
environments. I am extremely honored to have been a part of this 
endeavor and grateful for the bold vision of Chairman Powell, who 
recognized the critical need to undertake a comprehensive review of 
this area. The work of the Task Force was systematic and thorough, and 
involved the participation of an extensive array of interested parties.
    But the work has just begun. It is the my hope and expectation that 
the work of the Task Force, as well as the contributions of many others 
including those sitting at this table, will provide the basis for 
important policy changes that will lead to technological innovation 
and, most importantly, increased consumer benefits. I am excited about 
the building momentum and ongoing debate for rethinking these decades-
old policies.
    Again, I appreciated this opportunity to appear before the 
Committee and I would be pleased to answer your questions at this time.

    The Chairman. Thank you, and Doctor, thank you for the 
great work that was done by you and the rest of the Task Force. 
It has provided us with a very important blueprint. We thank 
you.
    Dr. Rosston.

              STATEMENT OF DR. GREGORY L. ROSSTON,

              DEPUTY DIRECTOR, STANFORD INSTITUTE

                  FOR ECONOMIC POLICY RESEARCH

    Dr. Rosston. Mr. Chairman and members of the Committee, I 
am honored to appear before you today. I am the Deputy Director 
of the Stanford Institute for Economic Policy Research, or 
SIEPR. SIEPR is dedicated to using economic analysis to provide 
input to policy decisions. SIEPR itself does not take stands on 
policy issues, but it encourages its scholars to do so. As a 
result, my remarks about spectrum policy and the Task Force 
report reflect my own opinions.
    As you all have pointed out, spectrum policy is crucial to 
the overall communications sector in our economy. Ultimately, 
good, competitive spectrum policy may alleviate the need for 
regulation of local telephone service, and provide more 
facilities-based competition for broadband services.
    While my written testimony points out a lot of the problems 
that I see in the Spectrum Policy Task Force, my hope is that 
the report and these hearings today will lead to fundamental 
changes in the way the Federal Government approaches spectrum 
policy so that we will allocate and assign spectrum rights and 
responsibilities in a way that improves consumer welfare.
    I want to commend the FCC staff for their hard work on the 
Spectrum Policy Task Force report, and hope that the Commission 
uses this as a first step in its spectrum policy reforms, and 
goes much further than the Task Force report suggests.
    I have three main points that will be interwoven through my 
testimony today. First, to increase the supply of spectrum 
available in the marketplace with as few restrictions as 
possible, second, spectrum users should have incentives to use 
spectrum efficiently, and third, there may be a place for a 
spectrum commons, but there should be a market test to 
determine the size, place, and spectrum devoted to commons use.
    The main issue with respect to spectrum policy is 
interference. If there were no interference when multiple 
parties were trying to use the same frequencies, we would not 
be here today, but contention and interference are not unique 
to spectrum. These issues arise with all scarce goods in our 
economy. The occupancy of a house by one family interferes with 
the occupancy of the same house by another family. To resolve 
these issues, we generally rely on the market, or price system. 
This provides a reasonably efficient allocation of scarce 
resources.
    But spectrum has been treated very differently, and 
consumers have suffered as a result. Much of the usable 
spectrum has constraints on flexibility today. The Task Force 
report addresses this issue, and says the Commission should 
have a goal of increasing flexibility for 100 megahertz within 
5 years.
    On the same day the Commission released the Task Force 
report, it also released an OPP working paper by Evan Kwerel 
and John Williams that stated the Commission could grant 
additional flexibility for 438 megahertz within 2 years, more 
than four times as much spectrum, and 3 years sooner. This 
could lead to substantial benefits that will be lost if the 
Commission sets its sights too low.
    I hope that this Committee moves rapidly to enact any 
necessary authority for the Commission to pursue the auction 
ideas in the Kwerel-Williams proposal and increase secondary 
market rights, because alternatives requiring more government 
intervention in spectrum allocation, as has been done in the 
past, are likely to substantially reduce the benefits that can 
come from increased flexibility for spectrum users.
    For licensed users, the report is relatively clear: get the 
spectrum out, and make it flexible. Unfortunately, in the first 
significant spectrum decision since the release of the report, 
the Commission reverted to its old ways and restricted the use 
of MSS spectrum, ultimately harming consumers. There needs to 
be a way to ensure that the Commission does not treat every 
rulemaking as a special case. The best way to do this is to tie 
its hands so that there are no special cases, and spectrum is 
in the market with maximum flexibility.
    The report also addresses unlicensed and noninterfering 
uses. While Wi-Fi has recently made a splash, it is not clear 
that the regulatory framework currently in use is the best way 
to make tradeoffs between licensed and unlicensed uses, or even 
the best way to manage a so-called commons. It is not 
surprising that unlicensed proponents are clamoring for 
additional spectrum. It is free to them, but it may come at a 
huge cost to the public. There is no market test of the value 
of the spectrum used in unlicensed, compared to the value that 
could be generated in precluded licensed uses.
    Private companies could create their own open entry commons 
by participating in spectrum auctions. This puts commons 
allocation to a market test. In addition, some degree of 
private ownership would reduce substantially some of the 
problems that have plagued some of the open entry common 
systems; overcrowding, and an inability to facilitate a rapid 
transition to new technology.
    These commons problems are in stark contrast to the 
cellular PCS and SMR bands, where multiple market-mandated 
technology transitions have occurred in the past 10 years 
without government involvement. For example, the transition 
from analog to digital in cellular, and consumers are spending 
upwards of $70 billion per year to access this spectrum. 
Overall, the most important step is to get complete spectrum 
rights into the market. Spectrum is no different from other 
scarce resources, and should be treated like them for 
allocation purposes.
    Thank you very much. I am happy to answer any questions.
    [The prepared statement of Dr. Rosston follows:]

    Prepared Statement of Dr. Gregory L. Rosston, Deputy Director, 
            Stanford Institute for Economic Policy Research
    Mr. Chairman and members of the Senate Commerce Committee, I am 
honored to appear before you today. My remarks are about the spectrum 
policy in the United States and in particular some issues that were 
addressed in the recently released Federal Communications Commission 
``Spectrum Policy Task Force Report.''
    Since 1987, I have been involved extensively in spectrum policy 
issues. I have written numerous academic articles on the subject of 
spectrum policy, including a 1997 FCC staff working paper with Jeff 
Steinberg entitled ``Using Market-Based Spectrum Policy to Promote the 
Public Interest,'' that was subsequently published in the Federal 
Communications Law Journal.
    My attached testimony is a draft of an article prepared to discuss 
the Spectrum Policy Task Force Report for the National Academy of 
Sciences Journal, Issues in Science and Technology. Although I have 
advised governments and private parties on spectrum issues, these 
remarks are my own views.
    To summarize my conclusions:

    As much spectrum should be made available to the public as 
        possible.

    Spectrum should be made available to the market with 
        maximum flexibility. The Spectrum Policy Task Force Report sets 
        a very modest goal of 100 MHz in 5 years; an FCC Office of 
        Plans and Policy Working paper shows that it would be possible 
        to give additional flexibility for more than 400 MHz in less 
        than 2 years.

    The Commission should set initial interference rights for 
        licensees and then allow negotiation.

    The Commission should set up rules to allow licensed owners 
        to create ``commons'' where the market shows that commons are 
        valuable.

    The Commission should rely heavily on the market to 
        determine uses for this scarce resource just as we use the 
        market to allocate most scarce resources.
Draft for submission to ``Issues in Science and Technology''
    Today it is relatively easy to get wireless high-speed access along 
with your high-octane latte at Starbucks, but not cheap. The 
combination will set you back more than $10 if you use the T-Mobile Wi-
Fi network. In addition, licensed wireless services like Blackberry or 
advanced cellular (3G) service provide other ways of connecting to the 
Internet without wires. These modes of communication were not around 10 
years ago. And in 10 years, modes of communication are likely to be 
substantially different than they are today. These new innovations 
create billions of dollars of benefits to consumers, but the 
realization of these benefits are dependent on the availability of 
spectrum which, in turn, is dependent decisions by the federal 
government.
    The Commission should set forth guidelines to tie its hands to a 
marketplace solution. This will eliminate the current inefficiencies 
from lobbying for rules regarding each individual band of spectrum. The 
Commission also should to use market forces to determine how much 
spectrum should go to commons (or unlicensed) versus traditional 
licensed use. Finally, the Commission should ensure that new innovative 
and truly non-interfering uses can gain access to spectrum.
    Demand for spectrum has been relentlessly increasing since 
Marconi's time. At the same time, technology has increased the ability 
to use spectrum. But advances in technology have not eliminated the 
fundamental scarcity of usable spectrum, and are unlikely to in the 
near future--demand for spectrum will exceed supply of spectrum if the 
price of spectrum is set at zero and there will be contention for the 
use of spectrum. Spectrum is ``scarce,'' but so are lots of resources 
in the economy; the government's job should be to set forth policies to 
alleviate that scarcity as much as possible by getting flexible 
spectrum into the market, and to allow the market system to allocate 
the remaining scarce resource just as we do with most other scarce 
resources in the economy.
    Because of contention, there is a need for an allocation system 
just like other scarce resources are allocated in our society. In 
addition, interference concerns have been one of the hallmarks of the 
justification for continued government involvement in spectrum policy. 
How the government addresses spectrum policy is critical to the success 
of wireless services and ultimately to the competitiveness of the 
communications sector overall.
    The government should fully commit to an open, transparent and 
predictable spectrum policy that will maximize consumer welfare. Such a 
pro-consumer spectrum policy will allow consumers and companies to 
invest in radio equipment with an assurance about how they will be able 
to use the spectrum and what their protection from interference will 
be. To date, the government has failed to adopt a comprehensive pro-
consumer spectrum policy because it continually ``balances the 
interests'' of different parties rather than attempting to maximize 
consumer benefits.
    The FCC recently released a Spectrum Policy Task Force (``SPTF'') 
report detailing some of the ideas that it hopes to pursue in the near 
term with respect to spectrum policy (http://www.fcc.gov/
Daily_Releases/Daily_Business/2002/db1115/DOC-228542A1.pdf). This 
report is a very good primer on the background of the current issues in 
spectrum policy. The report reads like many of the studies that have 
come before it, including some FCC staff papers: it talks about the 
benefits of market allocation; it sets up ways to define interference; 
it stresses the need for more spectrum for licensed and unlicensed 
uses, and to allow for more ``underlay'' or non-interfering uses; and 
it talks about how to deal with scarcity and transaction costs.
    However, in a backhanded compliment, Ebert and Roeper would 
probably review it as ``The Feel Good Report of the Year.'' While the 
SPTF report provides a reasonable background on spectrum issues, it 
does not set forth any aggressive goals, does not change the nature of 
the debate about spectrum policy and ignores a lot of crucial issues. 
Tom Hazlett, in the 2001 Harvard Journal of Law and Technology, 
documents the long and tortured history of the FCC knowing the 
``right'' thing to do with regard to spectrum policy, but not doing it. 
(I provide more recent examples in a forthcoming article in 
Telecommunications Policy.) Unfortunately, the SPTF report is set up to 
be another in the series of FCC actions that ``talk the talk,'' but do 
not compel the Commission to ``walk the walk'' and really improve 
spectrum policy to alleviate the artificial portion of the spectrum 
scarcity that have been created by years of misguided regulation.
    The Commission needs to get congressional support to be much more 
aggressive about spectrum policy than the Task Force report. Without 
congressional support, the Commission is unlikely to be able to 
implement a comprehensive pro-consumer reform of spectrum policy. But 
with it, the Commission could promulgate rules to get more spectrum 
into the hands of the public and improve the quality and 
competitiveness of all communications services.
Spectrum Policy Background
    To vastly oversimplify, the main concern with spectrum policy is 
interference. If I use a band of spectrum for a transmission, my use 
may interfere with your communication and vice verse. If there were no 
problems with interference, virtually all spectrum policy would be 
unnecessary. Kevin Werbach, in a New America Foundation Working Paper, 
provides an ``ocean'' analogy where there are few rules necessary for 
ships at sea because the ocean is so vast relative to the room required 
for a ship so it is relatively easy to avoid other ships. 
Unfortunately, in the world of spectrum today, there is ``scarcity'' 
and communications do interfere with each other. Instead of being the 
wide open ocean, the situation resembles a congested harbor. As a 
result, there is a wide body of spectrum policy. The ultimate goal of 
spectrum policy should be to make the ocean analogy apt or at least to 
reduce the scarcity rents accruing to spectrum, but it may also be 
important to set rules to allow for a congested harbor to function 
smoothly.
    In an optimal world, spectrum policy would make tradeoffs, or even 
better set up frameworks so that marketplace participants could 
dynamically make the tradeoffs, between different uses of the spectrum. 
Today's spectrum policy is far from optimal: it evolved from the 
command and control days where specific frequencies were set aside for 
specific uses (including a specific channel for ice delivery!) and 
doled out as political favors--the original television license for 
Austin, Texas was awarded to Lady Bird Johnson.
    There is a vast amount of spectrum--NTIA provides a spectrum chart 
at http://www.ntia.doc.gov/osmhome/allochrt.pdf for those who are 
interested in seeing the various allocations. Most of the spectrum that 
is used for mobile communications throughout the world is below 3 GHz. 
Fixed wireless communications can occur at much higher frequencies. 
Most of the spectrum has already been allocated, but there has been a 
push to re-assign spectrum from the government and television 
broadcasters.
    There are still frequencies set aside for inefficient specific uses 
and it is difficult if not impossible to change the use of those 
frequencies. For example, the United States devotes more than 400 MHz 
of prime spectrum to over-the-air broadcast television while more than 
80% of households get their television signals from cable or satellite. 
Two FCC staff members, Evan Kwerel and John Williams have put forth a 
novel proposal in a recent Office of Plans and Policy Working Paper to 
increase the amount of spectrum available to the public as well as to 
increase the flexibility for licensees. They identify more than 400 MHz 
of spectrum that could be made available to the market with flexible 
use within 2 years. The SPTF report sets a much more modest goal of 100 
MHz within 5 years.
    The ideas about what to do about licensed spectrum are pretty clear 
and straightforward--get the spectrum into the market with well-defined 
initial rights and responsibilities and then allow secondary trading 
and renegotiation of these rights. Economists, engineers and lawyers 
have written about these issues for decades. However, it has been much 
harder to get Congress and the Commission to implement these steps. It 
has been hard because there are strong entrenched interests that profit 
from the restrictions and would be harmed by a more market-oriented 
spectrum policy that reduced the artificial scarcity rents. For 
example, the FCC recently issued a decision to increase the rights of 
mobile satellite providers to use terrestrial repeaters to enhance 
service. Cellular and PCS (``Personal Communications Service'') 
providers strenuously objected to the additional rights and may appeal 
the decision, but not on interference grounds.
    While the drumbeat for spectrum reform on the licensed bands 
continues and small progress is made on that front (e.g., the PCS 
licenses that were allocated in 1994 do not mandate technology or 
service except in relatively minor ways), there are two additional 
fronts that may dramatically change the nature of spectrum policy: 
unlicensed spectrum and ultra wideband technologies. There is a 
fundamental difference between the operation of these two policy or 
technology approaches. Unlicensed spectrum use requires a specific 
allocated band of spectrum like a national park. And that park has to 
be truly national (if not international) given the portable nature of 
wireless devices. Wi-Fi technologies use unlicensed spectrum; so do 
cordless telephones, garage door openers and a variety of other 
devices.
    Ultra wideband (UWB) technologies do not require dedicated 
spectrum. Instead, they spread signals across wide swaths of spectrum, 
radiating only miniscule amounts of noise in any specific frequency so 
as not to interfere with other transmissions on the same frequency. 
This so-called ``underlay'' transmission operates under the ``noise 
floor'' so that other users do not notice the transmission and it 
causes no harm. It is as though a mosquito flew across your backyard--
as long as it does not bite you or buzz your ear, you are unlikely to 
be bothered by it. As a result, UWB technologies can potentially 
operate within licensed and unlicensed bands without causing any harm 
to other users. The FCC recently set forth some rules for UWB 
technologies, so they are just beginning to take shape.
    The common thread between unlicensed operations and ultra wideband 
operations is that they operate at relatively low power over relatively 
small geographic areas so that theoretically they do not cause 
contention with other users. One way they do this is through mandated 
or regulated etiquettes and protocols. Essentially, these rules are 
like those you try to teach your kids--``listen before you talk'' and 
``don't take more than you need.'' The FCC sets etiquette rules for the 
band (in the unlicensed case) or technology (in the UWB case), so that 
the use of these potentially disruptive technologies is not free of 
regulatory involvement. In addition, for unlicensed bands, the FCC 
needs to determine the amount of spectrum set aside for unlicensed use.
    So far, the FCC has allocated more than 400 MHz for unlicensed use 
and has just set forth the initial rules regarding the status of UWB 
technology. As might be expected neither of the issues is without 
controversy--the Defense Department, among others, is concerned about 
the interference potential of vast numbers of unlicensed and UWB 
devices that push the edges of the agreed upon protocols. And licensed 
users are concerned that UWB devices may cause interference to their 
licensed operations. Not explicitly stated, but underlying this as 
well, may be the concern that the new technologies could seriously 
devalue the licenses for which some companies paid billions of dollars, 
the same concern that prompted the objections to the expansion of 
mobile satellite spectrum rights discussed above.
    Theoretically, unlicensed protocols will prevent interference, but 
there have been reports of areas where there is interference between 
different uses of the unlicensed band even though Wi-Fi has been in use 
only a short time. In addition, protocols themselves can be thought of 
as mechanisms to ration usage because demand exceeds supply at the zero 
price. This may be one reason why commons proponents argue for more 
spectrum for unlicensed use--one way to reduce contention is to 
increase supply of spectrum. But overuse of unlicensed spectrum (the 
``Tragedy of the Commons'') is still a likely outcome when demand for a 
scarce resource priced at zero is greater than the supply. I should 
note that proponents of additional spectrum for zero priced commons use 
like Yochai Benkler of NYU argue that technology will ultimately lead 
to a lack of contention and increased capacity to avoid this pitfall.
Substitutes and Complements
    Spectrum policy will have impacts on all forms of communications, 
whether they use spectrum or not. Much of the current debate at the FCC 
has been about local competition. Most of the projections of the cost 
of providing new wire (or fiber) based connections to homes are 
extremely high. High capacity wireless ``connections'' may be the 
answer to having multiple facilities-based competitors for residential 
customers. In this respect, regulators and antitrust enforcers should 
be cognizant of these potential competition effects when assessing 
mergers that involve wireless and wireline providers and ensure that 
there is sufficient incentive and ability to provide competitive 
services. The first step to ensuring competitive service provision is 
to get as much spectrum out into the market as possible and to make 
sure that the spectrum in the market is allowed to provide any type of 
service subject to interference constraints.
    Economists often divide products into substitutes and complements--
coffee and tea are used as examples of substitutes; if the price of 
coffee goes up, the demand for tea goes up. Coffee and cream are 
examples of complements. They are used together; if the price of coffee 
goes up, the demand for cream goes down.
    With communications technology, this simple delineation is not so 
straightforward. Rapid technological advances, changing relative prices 
and the introduction of completely new products blur the lines. For 
example, early car phones were complements to the landline telephone 
network--calls from car to car were an extremely rare use of car 
phones. But now, many people are using wireless phones as a complement 
to their existing wireline telephone service as well as using it as a 
substitute for toll and long distance calling, and, in some cases, for 
local telephone service.
    Wi-Fi and UWB technologies provide similar quandaries as to whether 
they will be complements to or substitutes for traditional wireline 
telephone service, wired high speed access services and licensed 
wireless services. Wi-Fi and UWB can be used within the home to enhance 
the value of wired services, or they can be used to connect multiple 
homes to a single wired connection, competing with wired services to 
each home.
    There are also for-hire systems like Boingo and T-Mobile that have 
begun to deploy lots of access points and allow the public to use them 
for a fee. Within range of one of these ``hot-spots'' one can log on to 
the system for a daily or monthly fee possibly including some fee for 
bandwidth used.
    Spectrum policy has historically set aside specific frequencies for 
specific types of use. The Commission has frequently determined 
allowable uses for spectrum depending on whether the use was to be a 
complement or substitute for existing uses. Some spectrum is available 
only for backhaul for television signals when it might be much more 
highly valued in other services. The uncertain nature of the 
complementarity or substitution from the new services that will be 
provided wirelessly means that the Commission will have to be more 
agnostic with respect to the services that advocates propose to provide 
on spectrum made available to the market. Instead, the Commission 
should put spectrum on the market as rapidly as possible, and move 
rapidly to increase the flexibility of spectrum already on the market.
The Near-term Future of Wireless Communications
    Licensed wireless service has experienced phenomenal growth since 
cellular service was first introduced about 20 years ago. At the time, 
McKinsey and Co. made the bold prediction that 1 million people would 
have cellular phones by the year 2000. They only missed by about 2 
zeros. At more than $70 billion a year in service revenues, the 
wireless industry is quite large. There are a whole series of quotes 
from other technology visionaries that have missed the mark by at least 
as much for computers and other information technology. These missed 
projections show that it is important to implement policies that are 
flexible enough to adapt to changing technology and changing demand 
without starting the regulatory process over again. The SPTF Report is 
sufficiently vague in its specific recommendations that one could argue 
that it is well-suited to provide the flexibility necessary for change. 
However, because it leaves open the window for continued regulatory 
involvement, it is much more likely to hamstring efforts to adapt 
rapidly to changing market needs.
    There will be differentiated competition between businesses based 
on different models of service provision to customers and the 
competition and ultimate consumer benefits from these depends on 
spectrum policy decisions made by the FCC.
    Some licensed wireless carriers are implementing 3G (third 
generation) wireless systems. Advanced 3G services include high-speed 
Internet access, and video communications as well as other features 
that have not been thought of, but could be layered on the 3G 
architecture. Some carriers have adopted interim solutions such as so-
called 2.5G systems that do not have the same capacity, but also do not 
have the same capital expense. To increase voice traffic capacity, 
carriers face a tradeoff between the introduction of new technology, 
purchasing additional spectrum or splitting cells so each cell covers a 
smaller geographic area. 3G technologies offer substantially more 
capacity as well as advanced services. To recoup the additional cost of 
the upgrades to the 3G technology, many of the carriers believed they 
would be able to offer and charge premiums for advanced data services. 
To make this profitable, they may need a reasonable fraction of their 
subscribers to pay for these data services.
    Consumer demand for on the move broadband access promised by 3G 
networks is unclear, but carriers are betting that at least some will 
materialize. However, with the rapid introduction of Wi-Fi services, 
consumers may be less willing to pay the premium prices for data access 
through the 3G networks. For example, demand for connection at the 
airport seems to be quite high--everyone has experienced the din of 
cell phone conversations as the plane taxis toward the gate and been 
nearly bowled over by people talking on the cellphone as they wheel 
their oversized carryon through the airport at breakneck speeds. The 
demand to check e-mail and websurf while waiting for planes may be 
high, but the 3G networks will be limited by the airports own Wi-Fi 
networks as a competitor. Granted the airport authorities have the 
opportunity to make Starbucks look like amateurs when it comes to 
overcharging for specific services, but they will have some competition 
from the 3G networks as well.
    In the near term, there will be competition among the various forms 
of wireless communications--there is not a neat bucket of unlicensed 
use in the home and licensed use on the road. Both forms will compete 
for consumer use and spectrum policy should ensure that the mode that 
provides the greatest overall consumer benefits is allowed to flourish. 
The SPTF report is very vague about how it proposes to make the 
tradeoffs, but it seems clear that the implication of the report is 
that the answer is an administrative decision. Instead, the Commission 
should try to set up a market framework to adapt to the changing 
circumstances.
Implications of Spectrum Policy for Wired Networks
    Local telephone companies have been losing retail lines the past 
couple of years. Wireless technologies have the potential to increase 
these line losses or to prevent price increases. In the late 1990s, 
local wireline growth was quite high with the demand for second lines 
to allow for connection to the Internet. Since then, the local 
telephone companies have been losing lines, both because of competition 
and because of new high speed access services from cable companies and 
DSL offerings that have obviated the need for a second line to have 
dedicated Internet access.
    Wireless provides additional threats to the local telephone 
companies. First, as discussed earlier, people are using wireless as a 
substitute for voice communications. On the data side, it may be 
possible for wireless to provide direct high-speed connections. 
Companies such as IP Wireless and SOMA networks are developing high-
speed, high capacity wireless technologies using different licensed 
frequencies that can connect homes and small offices in competition 
with wired solutions.
    In the longer term, there are other wireless solutions, using 
either licensed, unlicensed or UWB technologies, that can transport 
broadband signals further than the next door neighbor. Companies like 
SkyPilot and others have been trying to develop ``mesh network'' 
solutions that allow many subscribers in a network to transmit across 
town to an access point, becoming transmitters, receivers and relays 
for the signals of the neighborhood.
    Allowing competing networks to get access to the spectrum necessary 
to implement competitive alternatives to the landline network is likely 
to bring substantial consumer benefits. In addition to the increased 
competition, if these forays are successful, there is likely to be a 
lessened need for regulation of local communications services.
Implications for Spectrum Policy
    Clearly spectrum policy has an impact on the nature of the market 
for communications services. In addition, the superabundance of 
possible uses and the concomitant competition implications will have an 
impact on spectrum policy.
    There may be a legitimate role for trying to understand the future 
trajectory of technology and consumer demand in developing a spectrum 
policy. The SPTF report implicitly makes part of this argument by 
claiming that it is important to look at the nature of transmission and 
match up ``good neighbors'' to reduce interference. Given the already 
balkanized nature of the spectrum and the paucity of new places to 
shoehorn users in, this makes for a good sound bite, but is unlikely to 
have any real implications in the future of spectrum policy. Much more 
important for their argument is to ensure that spectrum neighbors abide 
by the interference rules that are set up and can negotiate new 
tolerances between them.
    The future trajectory of technology and demand may be more 
important in the current spectrum policy debate regarding the dividing 
line between licensed and unlicensed bandwidth under an administrative 
allocation. It is fundamental that any allocation of spectrum to 
unlicensed use precludes the use of that same spectrum for licensed 
use. If future demand for licensed use would lead to higher social 
value, then that spectrum should be used for licensed use; if 
unlicensed use would provide greater benefits, then it should be 
allocated that way. However, the current method of spectrum allocation 
does not provide any mechanism for determining the relative values in 
the two different uses; instead, it relies on the ability of different 
interest groups to lobby the Commission to allocate spectrum to their 
uses. The SPTF report states that ``the exclusive use model should be 
applied primarily, but not exclusively in bands where scarcity is 
relatively high and transactions costs associated with market-based 
negotiations of access rights are relatively low'' and the commons (or 
unlicensed) model should be used when the conditions are reversed. This 
provides the Commission plenty of room to do what it wants in each band 
on a case-by-case basis, subject to lobbying pressure rather than to 
have any real test of value.
    An alternative to the use of lobbying to get additional spectrum 
set aside for different uses would be to stick to and increase the use 
of the auction mechanism. In fact, a commons model is consistent with 
private ownership, competition and auctions. There is no reason why, if 
there is such a huge demand for unlicensed devices, a single operator 
or consortium of operators and equipment manufacturers could not bid in 
an auction for spectrum and then operate a ``private commons.'' The 
licensee could sublicense equipment manufacturers and users to operate 
in the band and try to maximize the use of the band. This would lead to 
a marketplace solution to the determination of how much spectrum should 
be available for commons use.
    Many of the proponents of the ``commons'' approach to spectrum 
policy decry private ownership of the spectrum because they feel that 
such private ownership will stifle innovation. The best way to ensure 
that private owners do not have such an incentive is to make sure that 
the market for spectrum is open and competitive--that there are 
sufficient numbers of owners of spectrum so that no owner has an 
incentive to block innovation because entrepreneurs with the next 
``killer app'' could easily go to another spectrum owner and get access 
to spectrum. The SPTF report does not address this answer to the 
innovation question.
    There are real coordination effects that may be necessary to solve 
in order to get nationwide or even international access to spectrum. 
Two advances may mitigate this problem. The first is improvements in 
auction design. The FCC is moving toward allowing ``package bidding'' 
so that potential spectrum licensees can make all or nothing offers to 
get specific bands of spectrum across the country. This would 
facilitate the operation of a nationwide private commons. In addition, 
the auction advocated in the Kwerel and Williams FCC OPP Working Paper 
would get a large amount of spectrum on the market at the same time to 
help solve some of the coordination problems.
    The second advance is the development and advancement of software 
defined radios. These radios are designed to be able to transmit over a 
wide range of spectrum and to modify dynamically their transmission 
modulation and other technical parameters to minimize interference with 
other transmissions. Software defined radios can be used in conjunction 
with UWB technologies, for higher-powered licensed use, or for 
unlicensed use, depending on the availability of spectrum at the time 
and location. With software defined radios, the need for a commons to 
be on the same frequency across the country is not as great.
    Advances in technology are a boon to the use of wireless devices. 
The amount of information that can be transmitted on the same amount of 
spectrum is much greater because of advances in digital signal 
processing, microprocessors, etc. And future advances will increase 
substantially the carrying capacity. At the same time, demand for 
spectrum-based services will increase also, partially due to advances 
in capabilities and services offered and partially due to price 
decreases from cost reductions.
    However, the advances are unlikely to eliminate scarcity and 
interference concerns in the use of the spectrum. While it would be 
wonderful to have the spectrum be as bountiful as the ocean, the fact 
is that there is likely to be contention for the use of the spectrum in 
many areas. The increasing demands for extended area Wi-Fi use is 
likely to increase the amount of contention in Wi-Fi spectrum. 
Proponents argue that users will have the incentive to adopt efficient 
technologies that minimize the problem.
    However, in a similar, open-entry, non-propertized band for land 
mobile radio (the so-called ``private radio'' bands that are typically 
used for intracompany radio communications like taxicabs), users are 
stuck with old, technically inefficient equipment. Why? Because none of 
them has the incentive to adopt new equipment on their own that would 
free up spectrum for use by others. Instead, they came to the FCC with 
a proposal to transition over 27 years to equipment that was not quite 
state of the art at the time of their proposal.
    In the unlicensed bands, upgrades to reduce spectrum scarcity and 
contention are likely to require the same type of coordination that was 
required to begin to clear up the congestion in the private radio 
bands. There is no clear reason why this congestion and difficulty in 
coordination for upgrades will be absent in a shared unlicensed 
environment too. A private operator of an unlicensed commons would have 
incentives to require its tenants to upgrade equipment to provide 
better or higher capacity service.
    Many of the large licensed PCS and cellular providers have been 
migrating their networks to 3G (third generation) technologies that 
promise higher network capacity and much higher bandwidth to the 
consumer. This is the second transition for cellular carriers without 
any real government involvement or prodding--they transitioned millions 
of subscribers from analog to digital handsets because they had the 
incentive to conserve on spectrum use.
    Most of this has focused on unlicensed operations. There are also 
some concerns about UWB. For small numbers of users in a geographic 
area, it is almost assuredly possible to stay under the noise floor. 
However, when there are thousands or millions of users in an area, even 
if each is operating at low power, there is a real possibility that the 
amalgamation of their signals will cause interference above a noise 
floor for a licensed user. For both UWB and unlicensed broadcasters, it 
may also not be possible for the transmitter to know if it is causing 
interference.
    The UWB/underlay concept is very important for the introduction of 
new wireless uses. To the extent that a user can transmit without 
technically hurting the transmission of a licensed user, that is a true 
social benefit. (It may cause economic harm to the licensed user 
because of increased competition, but that should be considered a 
benefit). Spectrum policy should encourage the additional use of 
spectrum. However, when setting up the rules for non-interfering use, 
the Commission needs to have a system in place so that users understand 
the rights and responsibilities of ensuring against interference to 
licensed users. The tradeoffs are to set up a system where new users 
have to ask first and go through a process to prove they will not 
interfere in advance of beginning service, or where they can begin and 
then be shut down if they do cause interference. The SPTF report is 
silent on this important issue.
Conclusion
    The SPTF report lays out the major issues for policy makers: 
interference and allocation. But it does not set forth a very 
aggressive agenda, nor does it tackle many of the key issues that face 
Congress and the Commission. The recommended policy should be to get 
spectrum into the marketplace as quickly and flexibly as possible and 
set forth a way to deal with interference disputes in the marketplace. 
That would increase substantially the effective supply of spectrum in 
the marketplace and create the appropriate incentives for spectrum 
conservation.
    In areas where there truly is no contention, the Commission should 
allow entry so that consumers can benefit from the additional suppliers 
of communications services. Entry and the provision of new services has 
created billions of dollars of value to consumers and the Congress and 
the Commission should focus on ways to facilitate this happening in the 
future. The best way is to ensure that companies with innovative ideas 
can gain access to spectrum without having to go to the Commission and 
reveal their business plans and then wait for five years while the 
Commission works on a way to release the spectrum is to get more 
spectrum into the market.
    That spectrum should be released to the market in a way that will 
allow the market to determine the highest value use--exclusive use or 
commons. The best way to do this is to start with de facto property 
rights with broad flexibility and then to let owners of spectrum 
determine what consumers will demand.
    Hopefully, the SPTF report will cause some positive movement in 
spectrum policy, but it took a very small and tentative first step, and 
not completely in the right direction.

    The Chairman. Thank you very much. Dr. Kahn, welcome.

          STATEMENT OF DR. KEVIN KAHN, INTEL FELLOW, 
                       INTEL CORPORATION

    Dr. Kahn. Mr. Chairman and Senators, thank you for the 
opportunity to be here both on my personal behalf and on behalf 
of Intel Corporation. I am a senior technologist with Intel, 
and in addition to that, I am director of a research lab whose 
primary function, or one of its primary functions, is to look 
at issues having to do with wireless technologies.
    While we certainly are also very interested in increased 
flexibility in the licensed part of the spectrum problem, if 
you will, I would like to focus my comments today really on two 
major points. The first of those is the special sorts of 
opportunities that we see being made available to us now by 
what is happening in radio technology, and that transition that 
is going on in our technological capability is actually a major 
inflection point in the history, I believe, of wireless 
technologies.
    And then the second point I would like to cover is our view 
on how those changes in the technology ultimately will require 
further fundamental spectrum reforms in terms of how we 
actually regulate the use of spectrum.
    Before I do that, though, I would like to reference the 
802.11 story. I think it is an interesting situation. 802.11b, 
Wi-Fi, has really been exploding around the world. Just in the 
last month, I personally have accessed wireless hot spots on 
three continents while traveling on business. This is a major 
opportunity for consumers, business people, and travelers to 
access Internet capabilities in all the places that they 
inhabit on a regular basis, whether it be cafes, airports, or 
even in their homes.
    A recent count estimated that there were over 14,000 Wi-Fi 
access points on the island of Manhattan. If you compared the 
proliferation of this kind of data service to even the roll-out 
of 2.5 and 3G services, it is fairly clear that Wi-Fi really is 
quite an interesting phenomenon, and all of that has happened 
really in only 83 megahertz of spectrum normally considered to 
be pretty dirty spectrum. We are about to see the same sort of 
capabilities moving into the 5-gigahertz band, where there is 
considerably more spectrum available, and hopefully, as a 
result of the recent agreement between the DOD and industry 
players, we will see even more spectrum made available there.
    So let me go on to the comments about the current 
interesting inflection point we find in radio frequency 
technologies. For nearly all of its history, radio technology 
has been primarily an analog phenomenon. This is changing in 
fundamental ways today. Basically, what we are seeing is a 
collision between Moore's Law and Marconi's transmitter.
    Moore's Law has been the guiding light of the semi-
conductor industry for over 30 years, based on observations 
made by one of Intel's founders, Gordon Moore, that the 
doubling rate of capability on chips was about an 18-month 
cycle. If you think about the history that that has led to in 
the computer industry, we have gone in a very short period of 
time from massive mainframes with limited actual capabilities 
to the situation where pretty much anyone can buy for under 
$1,000 an enormous amount of computing power.
    That same transition is in front of us on the radio side. 
Old radio technology was very limited because of the 
capabilities of analog design, because of our ability to design 
radios in terms of how flexible they could be. New radios will 
be much more agile, much smarter, and I think these are some of 
the things the Spectrum Policy Task Force observed.
    If you look at the difference in the functions that users 
were used to using old analog wireline telephones and compared 
them to what users are used to today using digital cell phone 
technology, you can see the sorts of changes that that movement 
from analog capabilities to digital capabilities can mean to 
consumers. Enormously different function and capability. We 
believe that that technology, applied particularly in the 
short- to medium-range distance arena, will make a major change 
in the ability that consumers have to enjoy the capabilities, 
the convenience of wireless communication.
    So if those are the technological issues that we see 
ongoing, what does that mean when we consider the state of 
licensed and unlicensed spectrum? Well, the current regime for 
spectrum allocation really is fairly cumbersome, fairly 
litigious. It basically operates on bureaucratic time scales, 
and for good reason. The problem is that the cost of delaying 
change and innovation has increased because the fundamental 
rate at which technological innovation goes on within the semi-
conductor and computer industries has increased. If you look at 
the rate of transition, at the rate of improvement and 
innovation in the PC industry and the hand-held industry, and 
compare that against the typical regulatory time frames that we 
see, there is a real mismatch.
    Even looking at the recent ultra wideband proceedings that 
led to making ultra wideband an available technology, if you 
look at the period of time that that proceeding took, and many 
people consider it a relatively rapid proceeding, there were 
probably two to three generations of PC technologies rolled out 
within the time frame of that one set of discussions. Clearly, 
that innovation rate and that regulatory change rate are quite 
mismatched.
    Intel applauds any efforts to make available more 
unlicensed spectrum and, in that regard, we certainly are very 
happy about the recent negotiations between the Department of 
Defense and industry toward getting another 255 megahertz of 
spectrum available in the 5-gigahertz range, and we are also 
very much supportive of the Jumpstart Broadband Act, which 
makes the same point.
    As we go forward, though, we would like to look at a number 
of changes. In the short term, we believe that there are the 
possibilities for much more optimistic re-use of spectrum, and 
things like spectrum underlays. These are the sorts of things 
pointed out, I believe, in things of the sort, the recent FCC 
proceeding on broadcast TV notice of inquiry, and the ultra 
wideband proceeding, basically the opportunity to use some of 
the white spaces in space or in time, or to utilize spectrum at 
very low power that overlays other allocations.
    Longer term, we think that the real transition will be 
toward much smarter, much more agile radios, and this is the 
sort of change that is anticipated by the FCC Spectrum Policy 
Task Force, whose result we applaud greatly. We believe that 
the focus, moving toward interference, actual interference as 
seen by receivers, is a major improvement over the notion of a 
conservative approach of allocation command and control.
    Certainly, all these changes require a lot of research, but 
we are headed down the right direction and, in order for that 
research to actually go forward, it needs the possibility of 
actually being realized in the marketplace.
    In closing, I would like to say that I think serious 
spectrum reform is going to require hard work. There really are 
technical challenges that we have to solve. All the answers are 
not on the table. Certainly, incumbent users of spectrum have 
legitimate rights and interests that must be protected as we 
make this transition. However, I think policymakers must keep 
consumer interests front and center in this process.
    Certainly, existing holders of spectrum, while having those 
concerns, at the same time simply cannot use those concerns as 
a way to avoid the possibility of future competition. We have 
to balance incumbent rights, but at the same time not freeze 
the process of innovation because of the fear of the 
competition against those rights. Protectionist efforts of all 
sorts need to be resisted.
    It is certainly our belief that, just as the public and the 
U.S. economy has seen great benefit out of the revolution the 
computer industry has seen, that we will see great benefit out 
of the coming revolution in the spectrum space.
    Thank you again for the opportunity to testify this 
morning. I will be happy to answer any questions.
    [The prepared statement of Dr. Kahn follows:]

 Prepared Statement of Dr. Kevin Kahn, Intel Fellow, Intel Corporation
Introduction
    I am Kevin Kahn, Intel Fellow and Director of Intel's 
Communications and Interconnect Technology Laboratory. In my current 
position, I manage a research and development lab that explores future 
technologies in optics as well as wired and wireless communications. 
During my 26 years at Intel, I have worked in a variety of areas 
including software design, processor and systems architecture, and data 
communications. Intel Fellows, our company's highest technical 
position, provide strategic technical guidance to the company. 
Therefore, I have been deeply involved in the development of Intel's 
technology policy positions in broadband and wireless communications.* 
I have also served on advisory Committees and panels at the Federal 
Communications Commission, the National Science Foundation, and the 
National Academy of Sciences.
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    * Intel and Centrino are trademarks or registered trademarks of 
Intel Corporation or its subsidiaries in the United States and other 
countries.
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    As the Committee Members know, Intel is the world's largest semi-
conductor manufacturer and a leader in technical innovation. Since one 
of our founders first articulated it over 30 years ago, Moore's Law has 
guided the semi-conductor industry. Less well known, Intel is also a 
leading manufacturer of communications and networking chips. We believe 
that, in the future, all computers will communicate and all 
communications devices will compute. Our mission is to drive or to 
accelerate that convergence through silicon-based integration. The 
revolution in converging computation and communications has brought 
amazing benefits to the American public and the rest of the world.
    It is an honor to appear before this Committee to testify on the 
important topic of how the FCC's management of the electromagnetic 
spectrum can be improved. We are at the dawning of what will likely be 
the most significant technical revolution in radio technology in 70 
years. Put briefly, Moore's Law is going to meet Marconi's transmitter. 
Rapid improvements in microprocessors will soon make possible radios 
that are much smarter and more flexible than those in use today. In the 
not too distant future, any device that might benefit from being able 
to communicate will have a radio designed into it.
    One of the biggest obstacles in the path of this revolution is the 
artificial scarcity created by the current spectrum management system. 
Thus, spectrum reform represents a substantial opportunity to promote 
technical innovation, foster competition and benefit the American 
public. Today I would like to address three topics: (1) the benefits of 
making spectrum less scarce--using the Wi-Fi ** market as a case study, 
(2) the problem with the current spectrum management system and (3) 
suggestions for reform, particularly increased reliance on unlicensed 
spectrum use.
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    ** Other marks and brands may be claimed as the property of others.
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Spectrum Reform Benefits--the Wi-Fi Case Study
    All of the benefits from innovative spectrum usage are illustrated 
by the marketplace and technical success of Wi-Fi. Wi-Fi is the name 
that the Wireless Ethernet Compatibility Alliance (now the Wi-Fi 
Alliance) gave to the wireless standards collectively known as 802.11--
defined by the Institute for Electrical and Electronic Engineers 
(IEEE). Wi-Fi devices operate today in the 2.4 and 5 GHz unlicensed 
bands. The key to Wi-Fi's astonishing success has been the regulatory 
regime that prevails in these bands--which allows anyone to sell and 
use equipment in these bands without first obtaining a license from the 
FCC, provided only that the equipment meet certain technical 
specifications. This regime allowed manufacturers enormous freedom to 
innovate and to respond to changing market forces--knowing that no 
government licensing process would create a roadblock between their 
technology and consumers. This regime also allowed consumers, schools 
and businesses to build their own Wi-Fi networks by spending their own 
money as quickly or as slowly as they wished, without the need for 
government approval or having to navigate any kind of licensing 
process.
    As result of the freedom enjoyed both by technology manufacturers 
and technology users, the pace of Wi-Fi innovation has been brisk. The 
speed of Wi-Fi equipment has jumped from 1-2 Mbps to 54 Mbps. The range 
of the equipment has also improved, while its costs have plummeted. 
Products have moved from 4 to 5 chip solutions in 1999 to the 2-chip 
solutions prevalent today with much more of the radio frequency 
circuits integrated, allowing broad expansion into a number of 
products. In 1999, only 802.11b PC cards and enterprise access points 
were available. Today, users can choose between 802.11a, 802.11b, or 
dual-band (802.11a and 802.11b) products for enterprise, small offices, 
or homes.
    The pace of Wi-Fi deployment and the expansion of Wi-Fi product 
lines has also been brisk. Wi-Fi products have extended beyond PC cards 
and access points to PDAs, printers, and a host of consumer electronic 
goods. In addition to providing portable Internet access, Wi-Fi home 
networks are enabling consumers to use multiple computers with their 
broadband connections and peripherals. One company already incorporates 
a Wi-Fi (802.11a) transmitter in its personal media center allowing 
video streaming to TVs. These technological innovations have and will 
continue to generate a strong consumer response. Although 802.11 
products did not begin shipping in significant volume until 1999, the 
growth has been staggering. Sales have increased from 7.9 million 
wireless LAN chipsets in 2001 to a projected 23-25 million chipsets in 
2002, according to Allied Business Intelligence.\1\ Gartner estimated 
that over $2 billion worth of wireless LAN equipment was sold last 
year.\2\ In-Stat projects that the Wi-Fi hardware market will grow to 
nearly $4 billion in 2004.\3\
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    \1\ http://www.alliedworld.com/prhtml/wlic03pr.pdf.html.
    \2\ ``Wireless LAN Equipment: Worldwide, 2001-2007'', Gartner, 
January 2003.
    \3\ ``It's Cheap and It Works: Wi-Fi Brings Wireless Networking to 
the Masses'', Instat, December 2002.
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    The Wi-Fi Alliance, the leading Wi-Fi trade organization, has grown 
to over 200 companies and certified over 500 products in just three 
years. PublicInternetProject.org detected the presence of nearly 14,000 
access points in Manhattan alone.\4\ According to the Yankee Group, 
over 700,000 U.S. companies are now using more than one million access 
points.\5\ Public access locations are multiplying worldwide from 
airports to hotels to neighborhood coffee shops, and most recently, 
onboard commercial aircraft. In the United States, AT&T Wireless, 
Wayport, T-Mobile and others sell access for notebook users with 
wireless networking capability.
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    \4\ http://publicinternetproject.org/research/research_sum.html.
    \5\ http://www.nwfusion.com/news/2002/0801wlan.html.
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    And we believe that this is just the beginning. Many in the high-
tech community believe this technology--and the license exempt 
regulatory model--can be used to create wireless broadband networks to 
the home. From Athens, Georgia to Dartmouth University to Tacoma, 
Washington to San Jose, California, ``WLAN clouds'' providing wireless 
access for entire neighborhoods are appearing.
    The Wi-Fi phenomenon is also going global. Korea, already the 
world's broadband leader, also seems ready to lead in wireless 
networking. Leading Korean telecom providers have rolled out over 
10,000 public access locations since their launch last year. The 2003 
World Radio Conference, to be held in Geneva this June, seems poised to 
make a global spectrum allocation at 5 GHz for wireless data 
networking. From the U.K. to France to Hong Kong, regulators have 
already considered, or are now considering, the ability of this 
technology to provide a wireless broadband connection to the home or 
office. The Wi-Fi Alliance recently announced the creation of Wi-Fi 
Zone, a logo program/database directory for Wi-Fi public access 
worldwide.\6\
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    \6\ http://www.wi-fizone.org.
---------------------------------------------------------------------------
    Intel has been a leader in the effort to accelerate Wi-Fi adoption 
worldwide. We will continue to actively participate in multiple 
standards bodies that are working on further improving this technology. 
We will soon introduce Intel CentrinoTM Mobile Technology 
branded products, which will include a microprocessor (code-named 
``Banias''), related chipsets, and Wireless LAN networking capability. 
These components are designed, optimized and validated by Intel to 
maximize the wireless mobile computing experience. Over the past three 
years, Intel has increased our investment in wireless technologies 
fourfold. In addition to our research and development investments, 
Intel Capital's Communications Fund plans to invest $150 million in 
wireless networking technologies. We are making these investments in an 
attempt to accelerate the deployment of Wi-Fi networks and remove 
technical barriers to Wi-Fi growth and adoption.
    We are undertaking these efforts because we are excited by the 
promise that Wi-Fi holds. Especially noteworthy, recent Wi-Fi-related 
innovations may accelerate broadband adoption nationwide. Cometa plans 
on creating a network of wireless LAN access points in the top 50 
metropolitan service areas so that users will always be within five 
minutes of connectivity. Additional locations will be added as customer 
and usage grows. Technologies like Vivato's smart antennas offer 
promise by extending the range of wireless Internet access to up to 4 
miles. In the future, mesh configurations of access points could enable 
Wi-Fi to deliver Internet access over even longer distances in 
competition with DSL and cable modem service.
    I believe Wi-Fi is a success because we can operate in unlicensed 
bands, which allows technologists to innovate, while it allows 
consumers, businesses, schools and carriers to build their own networks 
at their own speed without government intervention. I invite Committee 
Members to visit our lab in Oregon to see the future of wireless 
computing. I am certain that you will share my excitement about the 
possibilities.
General Critique of Current Spectrum Management
    As recognized by the FCC's Spectrum Policy Task Force, the current 
``command and control'' spectrum management system is cumbersome, 
litigation-prone and politicized. Its tendency to ``lock in'' 
inefficient uses and technologies has become more costly with the 
burgeoning demand for diverse wireless uses and the increased ability 
of technology to minimize interference. The existing spectrum 
management approach was not illogical when created. But it was based on 
a technology in which the tuning range of a radio was necessarily quite 
limited, and the designs of radio were fixed and tightly tied to the 
specifics of the application they were intended for. Today, the advent 
of incredible computational power in microprocessors and related semi-
conductors has revolutionized what is technically possible. Moore's Law 
is moving us inexorably toward a technology in which extremely flexible 
and adaptable radio will become the standard. Shackling these advanced 
radios with the static spectrum management of the past will severely 
limit the benefits that can be gained from them.
    The Spectrum Policy Task Force identified some promising spectrum 
management techniques--for example, the creation of largely 
unregulated, unlicensed bands and the grant of increasing use and 
technical flexibility to exclusive licensees--that can serve as a guide 
for reform. These techniques give users more freedom to innovate and 
respond to changing market forces without seeking government approval. 
But they also require that the FCC specify interference and other 
rights and obligations objectively and in a manner designed to foster 
industry planning and private cooperation. These reforms need not be 
mutually exclusive and should be considered simultaneously.
Unlicensed Band Reforms
    Today, I want to focus on two unlicensed band reforms. First, there 
is an immediate need to allocate additional spectrum for unlicensed use 
to foster new applications and accommodate growth. Second, the FCC 
should follow-through on the proceedings it has begun to determine 
whether spectrum ``non-interfering easements'' or ``underlays'' for new 
technologies such as agile radios could be created that would not 
impose significant interference on existing licensees. Both reforms 
would create valuable new uses without creating significant 
interference to other users.
1. Additional Spectrum
    As a starting point, an additional 255 MHz in the 5 GHz band should 
be allocated to unlicensed uses to facilitate growth and harmonization. 
In this regard, Intel supports the ``Jumpstart Broadband Act'' 
introduced by Senators Boxer and Allen. If enacted, this legislation 
would make the needed 5 GHz spectrum available for unlicensed use. This 
legislation recognizes the importance of Wi-Fi broadband access to the 
economy and ordinary citizens.
    The main obstacle to the allocation of additional unlicensed 
spectrum at 5 GHz had been concerns that unlicensed devices in part of 
this band could harm US military radars, thereby posing a threat to our 
troops and homeland security. However, Intel and other high tech 
companies worked closely with the Department of Defense to find a 
technical solution to these concerns--and did so. We believed it was 
possible both to protect our military assets, and at the same time 
allow consumers to reap the benefits of innovation in wireless 
technology. A solution was possible because a Wi-Fi system can be 
designed with sufficient intelligence to identify when military radar 
begins to operate in its channel and rapidly move its operation to a 
different unused channel--thus avoiding interference to the radar.
    With this technical solution in place, the United States has now 
joined other countries in calling for a global 5 GHz allocation for Wi-
Fi and similar systems--but with a regulatory regime that would 
incorporate the technical solution to protect our military radars 
around the world. We believe that with industry and the U.S. Government 
jointly advocating this position at the World Radio Conference, common 
worldwide rules can be created to our mutual benefit. Intel applauds 
the efforts of those at the NTIA, FCC and DoD to develop acceptable 
technical parameters that will increase the amount of spectrum 
available for Wi-Fi operation at 5 GHz.
2. Non-interfering Easements
    The FCC should also determine whether non-interfering easements for 
new technologies such as agile radios could be created that would not 
impose significant interference on existing licensees. Much of the 
spectrum has already been allocated to dedicated uses, but at any 
instant little of the spectrum is typically being used, even in densely 
populated cities. Many applications use spectrum only intermittently or 
only in certain places, but foreclose all other uses because current 
radios have limited tuning range and use simple encoding methodologies. 
Moore's Law has begun to change that. Soon radios will be spectrally 
agile and very flexible in how they encode information in their signal. 
As a result, radio systems will be able to share the spectrum in much 
more efficient ways, thereby greatly relieving spectrum scarcity.
    For example, the FCC recently opened a Notice of Inquiry 
considering unlicensed use on broadcast television and the 3650-3700 
MHz bands. Given the current limitations of television receivers, most 
of the TV channels in any geographical area are unused. Advanced radio 
techniques, however, might permit unlicensed use, without any adverse 
impact on the broadcasters. Indeed, because the channels ``in use'' 
seldom change, agile radios within current technical capability may be 
able share these frequencies. Another method under consideration is to 
use Global Positioning System receivers built into the unlicensed 
devices to determine the device location relative to fixed broadcast 
transmitters. Experience in these bands could facilitate the 
development of more advanced applications where use varies much more 
rapidly over time and space.
    For this approach to work, the FCC will have to set interference 
limits for particular technologies specified in objective terms. Radio 
use of spectrum is not an ``all or nothing'' proposition. Rather, 
radios add to the background noise over which other radios must 
``shout'' to be ``heard.'' By analogy, someone whispering in the 
hallway creates far less ``interference'' than would someone shouting 
in the first row of this hearing room. The FCC will have to determine 
the amount of interference that a particular radio system adds to the 
environment and when that is too much (that is, when it should move 
elsewhere). These limits could define the boundaries of a non-
interfering easement. For example, a user of a particular frequency 
would be required to shut off within a few micro-seconds once it 
detects an incumbent user begins transmitting.
    Together with limitations on the amount of power such underlay 
radios might use, this approach could allow valuable transmissions with 
virtually no impact on the allocated users of the various bands. Using 
my previous analogy, we don't prohibit people from talking in the 
hallway--we just don't want them doing so during the hearing! The 
current FCC rules allow a person to scream here, a person to scream in 
Pittsburgh and everyone else has to remain quiet. Clearly, there are 
better ways to utilize a precious resource like spectrum. Given the 
pace of innovation in the electronics industry, we should begin 
reworking our regulatory structure to anticipate the future now.
Conclusion
    In closing I would like to make two points. First, serious spectrum 
reform is going to require hard work. The technical questions before 
the FCC are formidable. And incumbent users have a legitimate interest 
in assuring that their use is not significantly interfered with. The 
policy and political issues will also be difficult. But thanks to the 
work of the FCC and its Spectrum Task Force we are off to a promising 
start.
    Second, policy makers should always keep the consumer interest 
front and center. Some of the existing holders of spectrum or 
businesses that might face competition as a result of technological 
innovation may oppose these reforms. Let me be clear. Protectionist 
efforts should be resisted. In the end, the public and U.S. economy 
will benefit enormously if improved spectrum management techniques can 
eliminate the artificial scarcity created by the current system.
    Thank you.

    The Chairman. Thank you, Dr. Kahn. Mr. Berry.

      STATEMENT OF STEVEN K. BERRY, SENIOR VICE PRESIDENT,

                CELLULAR TELECOMMUNICATIONS AND

                      INTERNET ASSOCIATION

    Mr. Berry. Mr. Chairman, it is always interesting how 
different the room looks from this particular venue than from 
those uncomfortable seats behind the dais.
    The Chairman. They are uncomfortable in order to keep them 
awake.
    [Laughter.]
    Mr. Berry. I will try to do my best. I ask that my full 
testimony be included in the record, if I may.
    The Chairman. Without objection.
    Mr. Berry. Mr. Chairman, members of the Committee, thank 
you for the opportunity to appear before you today. I am Steven 
K. Berry, Senior Vice President of Government Affairs at the 
Cellular Telecommunications and Internet Association, CTIA. We 
represent all categories of commercial wireless 
telecommunication carriers, including cellular, personal 
communications services, manufacturers, and wireless Internet 
providers.
    Chairman Powell established the Spectrum Task Force in June 
of 2002, and he should be commended and congratulated for that 
effort. The good thing is that the Task Force initiated a 
comprehensive, systematic review of spectrum policy at the FCC. 
The bad thing is that the Task Force was the only comprehensive 
review of spectrum policy at the FCC in memory.
    Mr. Chairman, the wireless industry continues to experience 
incredible growth, from 16 million customers in 1994 to 140 
million customers in 2003. The wireless industry has invested 
more than $118 billion in building out networks on top of the 
$22 billion spent acquiring spectrum licenses in Government 
auctions. Competition continues to drive wireless prices down, 
by 32 percent in the last 4 years, and competition continues to 
drive wireless use up, but these are also challenging times for 
the wireless industry. We have lost 75 percent of our market 
cap in the last 18 months, more than $.5 trillion. We have also 
experienced the first reductions in wireless employment in the 
history of the industry. For these reasons, the Committee's 
review of our Nation's spectrum management policies could not 
come at a more important time, or confront more challenging 
circumstances.
    Allow me to suggest three fundamental principles of sound 
spectrum management: Certainty. The certainty that carriers 
will continue to have exclusive use within their licensed 
spectrum is vital to continued investment. Predictability, 
predictability that spectrum rules and spectrum availability 
will permit future growth, and flexibility, flexibility within 
spectrum assignments so that we can continue to innovate. 
Spectrum management policies that meet these three principles 
will allow our competitive industry to grow, to improve 
quality, to offer innovative services, create new jobs, and 
yes, contribute to the American economy.
    Let me also offer that the issues brought before this 
Committee should not be presented or seen as a false choice 
between stability on one hand and innovation on the other hand. 
For the competitive wireless industry, where billions have been 
invested and more will be invested, stability is the necessary 
element to promote innovation, but it is equally true, and it 
is essential, that stability not be the enemy of innovation.
    We need to have spectrum laboratories necessary for new 
models, new technologies to be tested and proven. I will be 
explicit. The wireless industry supports Wi-Fi technologies. 
The wireless industry is developing and providing Wi-Fi 
applications today. Wi-Fi and wireless are complements, not 
competitors.
    In the few minutes remaining, let me highlight some of the 
study recommendations that are positive, some that need work, 
and some that may be missing in action. Positive developments. 
Since Congress is most directly affected, I highlight the Task 
Force's strong support for the creation of the relocation fund. 
I thank the Chairman for his comments in that regard. The 
concept has strong bipartisan, Congressional, Administration, 
and FCC support. I urge the Committee to quickly act to 
streamline the relocation process.
    Auction funds would pay relocation expenses for Government 
users, particularly the Department of Defense. I would also 
recommend that the Committee consider expanding this concept to 
apply to commercial and public safety relocation initiatives.
    The need to clearly define rights and responsibilities of 
spectrum users was a recommendation. I concur. Licensees should 
have full use of their licensed spectrum, including the right 
to sell on the secondary market, but defining interference 
temperature thresholds will require much additional work.
    Flexibility of spectrum use. I concur. The flexibility, 
allocation, and service rules established before spectrum 
assignments balance the needs for both predictability and 
flexibility, but flexibility should not be an excuse to avoid 
tough allocation decisions.
    Interference protection. I concur. It must happen. It must 
be based on actual, real world tests, and require a great deal 
of additional work.
    Promoting spectrum efficiency. I concur. Grouping like 
services during the allocation and assignment phase will reduce 
interference, promote efficiency, and save spectrum resources.
    Global harmonization. I totally concur. It is important 
that we allocate spectrum and promote spectrum use in a 
globally harmonized manner.
    Policy recommendations missing in action. Congress delayed 
the auction of the 700 megahertz ban in order to help 
facilitate a more comprehensive solution to enhance spectrum 
for public safety. The broadcast policy and the public safety 
policy are intertwined. Public safety must be given access to 
the additional spectrum Congress authorized in 1995 to meet 
these urgent, enhanced public safety and emergency response 
needs.
    Broadcast spectrum was virtually not addressed. We can no 
longer support such inefficient uses of large chunks of 
spectrum. Underutilized or inefficiently used spectrum should 
be reallocated.
    I concur that we should also enhance planning for the World 
Radio Conference.
    And finally, the report should have recommended a national 
spectrum policy plan. The president should make its findings 
and report to Congress. In the 1993 Omnibus Budget and 
Reconciliation Act, and again in the Defense Authorization Act 
of 2000, Congress directed the development of a national 
spectrum policy plan. It is time to have a national spectrum 
strategy.
    In conclusion, Mr. Chairman, spectrum management is, 
indeed, an important national security issue. It is important 
to our economic well-being, and I thank you for the opportunity 
to speak to you today and I will answer any of your questions. 
Thank you.
    [The prepared statement of Mr. Berry follows:]

     Prepared Statement of Steven K. Berry, Senior Vice President, 
          Cellular Telecommunications and Internet Association
Mr. Chairman and members of the Committee:

    Thank you for the opportunity to appear before you today. I am 
Steven K. Berry, Senior Vice President of Governmental Affairs at the 
Cellular Telecommunications & Internet Association (CTIA) representing 
all categories of commercial wireless telecommunications carriers, 
including cellular and personal communications services (PCS), 
manufacturers, and wireless Internet providers.
    CTIA is pleased that the FCC's Spectrum Task Force has chosen to 
examine comprehensive spectrum management and believes that this report 
is an important first step towards positive spectrum management reform 
beneficial to wireless consumers and the wireless industry. Spectrum is 
the key ingredient. Efficiently and effectively managed, it will enable 
us to continue to build out our service areas, improve service quality, 
offer innovative new services to help wireless technology touch the 
lives of all American consumers, and contribute to our nation's 
economy.
    In my testimony before you today I would like to discuss the 
wireless industry reaction to the Task Force Report. First, the Report 
positively addressed many issues and I would like to highlight some of 
these. Second, I would like to discuss the particular issues of 
spectrum rights, interference and the need for additional spectrum. 
Last, I would like to talk about some of the issues that were not 
addressed in the Report and discuss where the wireless industry would 
suggest spectrum policy go from here.
    Reforming our nation's spectrum policies is of paramount importance 
to the wireless industry because additional spectrum will be necessary 
to serve consumers needs in the future. Reform of the spectrum 
management process, particularly how spectrum is allocated, is an 
essential step in ensuring that the wireless industry will have a 
known, predictable path to more spectrum over the next decade and 
beyond. A certain, sure path for spectrum allocation is vital to our 
plans to meet the increasing demands of consumers for mobile wireless 
voice and data services. The tremendous effort that the Spectrum Policy 
Task Force has expended in developing the Task Force Report--a 
significant first step in the spectrum policy reform process--must be 
applauded. At the same time, a great deal of challenging work remains 
to be done because the benefits of reform can only be realized if 
critical details are resolved effectively. The need for spectrum policy 
reform cannot be overstated, however, and CTIA believes such reform 
can, and indeed must, occur in the near future.
    In general, CTIA supports the key elements of new spectrum policy 
identified in the Report. First, CTIA supports maximizing the 
flexibility of spectrum use through the adoption of ``flexible'' 
allocation and service rules established before spectrum is assigned or 
made available to new uses, so that these rights can be factored into 
auction decisions. However, the grant of unbridled flexible use to 
incumbent licensees who do not have a market incentive to use spectrum 
efficiently may cause interference with third-party operations, create 
inequities that harm competition and consumers, and perpetuate--instead 
of fixing--inefficient allocation and assignment schemes.
    Second, CTIA has traditionally supported, and continues to support, 
incentives designed to promote efficient use of the spectrum. Certain 
basic mechanisms for promoting efficiency, such as rigorous pre-
allocation cost-benefit analyses and licensing practices that encourage 
applicants with concrete and realistic spectrum use plans, can and 
should be applied to all spectrum bands. CTIA also agrees that in those 
instances where market forces are lacking, alternative measures to 
improve efficiency should be considered.
    Furthermore, CTIA concurs with the Task Force that clearly defining 
the rights and responsibilities of spectrum users, especially the 
rights and responsibilities regarding interference protection, is a key 
element of reform. CTIA believes that a periodic review of the 
Commission's rules is also essential, provided those reviews are timed 
and executed in a manner that does not undermine efforts and resources 
invested by licensees in bringing communications services to the 
American public.
Spectrum Rights
    CTIA generally agrees with the Task Force's conclusion that ``one 
size does not fit all'' when it comes to effectively managing spectrum 
and supports the Task Force's recommendation that future spectrum 
policies should move away from command-and-control regulation towards 
an increased reliance on both the exclusive use and commons models, 
where appropriate. The exclusive use model, with its ``property-like'' 
rights of exclusivity, flexibility and transferability, creates a 
strong incentive to put spectrum to its highest valued use and should 
be applied to most spectrum bands. The potential for harmful 
interference from unlicensed systems raises a possible conflict with 
the exclusive use model. For this reason, the authorization of 
unlicensed ``underlay'' operations in licensed spectrum should be 
approached with extreme caution. Clear and explicit policies and 
procedures must be in place to protect licensed users from harmful 
interference caused by these types of operations prior to authorization 
and widespread deployment. In a similar vein, the secondary markets 
mechanism of increasing access to licensed spectrum--rather than an 
``easements'' approach--will best fulfill the Commission's goals of 
encouraging more efficient, more effective use of the spectrum.
    The wireless industry sees new and innovative growth in the 
marketplace each day. Some Members of this Committee have shown an 
interest in advancing deployment of Wi-Fi and many of our members have 
acquired this new technology and are making it part of their business 
plan. We understand that additional ``commons'' spectrum may be needed 
to accommodate these new unlicensed technologies. Recently, the NTIA, 
FCC, Department of Defense and industry representatives came together 
and agreed to modify the United States' position on unlicensed devices 
in the 5 GHz band for the World Radio Conference. The agreed position 
provides 255 MHz (between 5470 MHz and 5725 MHz) for unlicensed devices 
by resolving the interference concerns of federal users, principally 
the Department of Defense. This also provides globally harmonized 
spectrum for unlicensed technologies. CTIA is pleased that this 
consensus has been forged. This would appear to satisfy additional 
spectrum needs for unlicensed technologies. We note, however, that 
providing yet more unlicensed spectrum is still under consideration in 
or near spectrum bands where CMRS licensees operate. Thus, it is 
essential that the existing right of licensed users to remain free from 
interference and the existing responsibilities of unlicensed users to 
remedy any such interference should it occur must be made explicit if 
any additional unlicensed allocations occur. Unlicensed users should 
gain no new rights above and beyond the current circumstances under 
which they operate, including the right to protection from 
interference. Additionally, as encouraging as these new technologies 
are, we must not lose sight of the fact that obtaining increased access 
to additional harmonized and licensed spectrum is the most pressing 
challenge facing the CMRS industry, both in the near and far terms.
Interference
    CTIA supports the broad concept of understanding interference and 
protecting users. Especially, as CTIA member companies and others 
examine the issue of unlicensed spectrum, there is strong emphasis on 
the importance of guarding against harmful interference. CTIA agrees 
that it is essential to establish a more quantitative approach to 
interference management that accurately reflects real-time spectrum use 
and provides incumbent licensees with greater certainty regarding the 
right to be protected from interference. While CTIA supports the 
general concept of establishing of a clearly defined ``threshold'' to 
set maximum permissible levels of interference, the precise meaning of 
the Report's ``interference temperature'' approach remains unclear, and 
CTIA cannot support the concept without understanding how the theory 
would be rendered into practice. Any proposed interference threshold 
must be conclusively demonstrated, based on actual tests, to protect 
licensed operations from interference before being implemented in any 
band.
Additional Spectrum
    Currently CMRS carriers have access to only 189 MHz of spectrum. In 
November of last year, the Federal Government--with the help of many 
members of this committee--affirmatively allocated 90MHz of additional 
spectrum for licensed wireless use. We are very pleased with this 
decision and would like to commend the NTIA and FCC for their extensive 
efforts on this issue. The best way to boost growth to the economy is 
to make wise and practical spectrum allocation decisions based on a 
clearly demonstrated need. Wireless minutes are growing by an average 
of 68 percent over the past three years, and tens of millions of new 
cell phone users are expected to enter the market in the next several 
years. The wireless industry will surely need more spectrum over time 
to accommodate consumers' appetite for improved quality and new 
services--including limitless data capabilities, and ubiquitous service 
areas.
Other Issues Must Be Addressed
    The wireless industry believes that this Task Force Report 
addressed many issues of great importance; however, perhaps what is as 
important are several issues that the report did not address. The Task 
Force highlights the importance of sound spectrum decisions, spectrum 
efficiency, and rational planning, yet doesn't address these very 
important spectrum management issues. First, no thorough examination of 
spectrum can be conducted that ignores big blocks of spectrum. We do 
not believe that inefficient users of spectrum should be let off the 
hook--including broadcasters, federal users, satellite, etc. Positive 
market incentives are needed to maximize this limited resource. These 
efforts should include positive incentives for users who are not 
typically forced by market pressures to make their spectrum more 
efficient.
    The 2 GHz Mobile Satellite Service (MSS) proceeding is a good 
example of the importance of spectrum reform for such users. Prior even 
to obtaining their initial licenses, MSS proponents requested an 
ancillary terrestrial component (``ATC'') for their businesses to be 
viable. CTIA has argued that the Commission should consider such 
requests--the proposal to provide an entirely new and separate service, 
combined with evidence that the original service is not economically 
viable--to be a signal that the spectrum at issue should be a candidate 
for reallocation. In spite of this evidence, the FCC recently granted 
the surviving MSS licensees the right to provide ATC (albeit, under 
significant conditions). In essence, this allows them to provide some 
form of terrestrial service in the satellite spectrum they obtained for 
free. The FCC should not reflexively resort to the ``easy fix'' of 
giving inefficient or commercially non-viable incumbents flexibility to 
provide any service under the guise of increasing innovation.
    CTIA recognizes that the underlying problem here is the lack of 
market incentives to use spectrum efficiently. Therefore, CTIA strongly 
supports the Task Force's recommendation that the Commission consider a 
statutory proposal for Congress to assess whether the Open-Market 
Reorganization for the Betterment of International Telecommunications 
Act of 2000 (ORBIT Act) should be clarified to permit the Commission to 
utilize competitive bidding when considering applications for global 
and international satellite services.
    Second, I believe this report underemphasized the importance of 
systematic long-term spectrum planning. The report needs to examine the 
importance of harmonizing our spectrum allocations with the rest of the 
world and think ahead as to how to accommodate the growing needs of the 
spectrum users, including the public safety community.
    We were pleased that NTIA recognized the importance of this goal in 
making their affirmative decision in the 3G Viability Assessment, and 
wish the Task Force report had shown greater emphasis on harmonization 
in its blueprint for the future. Harmonization is crucial to the 
wireless industry. Wireless manufacturers, in particular, need to 
create products that possess the flexibility to operate globally. 
Harmonization is more efficient, is vital to economies of scale, and 
enhances the United States position as a global competitor.
    Third, I find it inexcusable that the Task Force failed to address 
in this report how to facilitate a long-term plan to improve public 
safety over the next twenty years. Since September 11th, we have heard 
the calls from our public safety community for updated 21st Century 
technology so that they can effectively communicate with one another in 
the event of another terrorist attack on this nation. Yet, this report 
fails to explain how and where public safety will be able to evolve to 
new technology that will provide interoperability, security, video 
streaming, as well as data and voice communication. The public safety 
community awaits a way to communicate with each other at all levels of 
government, as well as interface with national security apparatus. New 
demands for homeland security have intensified the pressure for money 
to spent by those on the local, state and federal levels. Throwing 
money away to create an uneven patchwork of updated systems makes no 
sense. When we discuss spectrum policy in this country, we must layout 
a practical blueprint to accommodate the needs of all spectrum users--
especially public safety--over the next few decades.
    Last, the wireless industry strongly supports creation of a 
relocation fund to provide reimbursement to federal entities that are 
relocated from their spectrum assignment. Last year, the President 
called for the creation of a relocation fund in his FY03 Budget, and 
the Administration submitted legislation to the Senate and House. We 
anticipate that the Administration will not only support the concept 
again in their Budget for FY2004, but also will quickly resubmit draft 
legislation. We hope the Senate will introduce it and work towards 
passing the bill into law. A relocation fund injects certainty into our 
current reimbursement process. It streamlines the spectrum management 
process by creating a migration plan for the federal entity that is 
beneficial to not only the government but to the wireless industry and 
the consumer. Auction revenues are used to directly fund relocation and 
modernization. Costs are identified with clear rights for both parties 
ahead of time, creating definitive timelines to expedite relocation. 
The practical effect is that the federal entity can upgrade and 
transition to more modern and efficient systems, while freeing up 
valuable harmonized spectrum that will bring new and innovative 
services to the marketplace for consumers. Again, we hope that each of 
you will lend your support.
Future Wireless Needs
    To close, I would like to emphasize what the wireless industry 
feels is necessary to achieve a spectrum policy that makes sense for 
all. First and foremost, we heartily advocate the creation of a 
spectrum relocation fund. The Task Force put forth a list of 
legislative recommendations, and the creation of a spectrum relocation 
fund was one suggestion. This mechanism is a critical part of the 
delivery of the 90 MHz to the marketplace and will assist in injecting 
practicality to the spectrum reimbursement process. Creation of such a 
reimbursement process would help the Department of Defense to receive 
compensation as they migrate out of their existing spectrum and upgrade 
their aging and spectrum inefficient systems, establish concrete 
timelines and certainty for the wireless industry, and ultimately 
expedite innovative services to the market for the consumer. This 
report does look at many of the vexing problems facing the current 
process of spectrum allocation. However, we must look to all blocks of 
spectrum, examine how they are used and what future needs will be. 
Large blocks of spectrum held by the broadcasters, satellite providers, 
federal government and public safety community need to be addressed in 
a comprehensive, deliberative manner, as well. Policymakers must 
scrutinize these incumbents for efficient use, just as those in 
industry have: current and future needs, how efficiently they utilize 
what has already been allocated, etc. Flexibility should not be used as 
an excuse to avoid making tough spectrum decisions.
    I thank the Committee for allowing me to be here today and again 
applaud the Spectrum Task Force for their Report. The Task Force 
proposes innovative and constructive means to address many of the 
shortfalls of historical spectrum planning and we look forward to 
hearing more detail in how to pursue real reforms. Thank you.

    The Chairman. Thank you. Mr. Calabrese.

           STATEMENT OF MICHAEL CALABRESE, DIRECTOR, 
        SPECTRUM POLICY PROGRAM, NEW AMERICA FOUNDATION

    Mr. Calabrese. Thank you, Mr. Chairman, and especially for 
awarding me that honorary doctorate in your introduction. I 
should confess I am an attorney with an MBA, and I hope you 
will not hold that against me.
    [Laughter.]
    My name is Michael Calabrese, Director of the Spectrum 
Policy Program at the New America Foundation, a nonpartisan 
policy institute here in Washington. My testimony today 
summarizes comments we filed with the FCC task force on behalf 
of a coalition of national consumer arts and other nonprofit 
groups. Although we agree with the goals outlined by Dr. 
Kolodzy and the Task Force, we strongly disagree with the means 
by which the Task Force would pursue them.
    Our consumer group coalition strongly endorses what are 
perhaps the report's two most central recommendations. First, 
we agree that the traditional licensing system, which is based 
on rigid zoning of the airwaves, should be modernized by 
granting licensees more flexible and marketable usage rights. 
Second, we agree that the Nation should expand unlicensed 
spectrum sharing and thereby facilitate low-cost broadband 
wireless networking. Progress on the second objective, 
expanding wireless broadband access, is already being made 
thanks to bipartisan efforts such as the Jumpstart Broadband 
Act sponsored by Senators Allen and Boxer.
    However, although we agree that flexibility will enhance 
economic efficiency, the staff's proposed means to this end 
suggest a path at odds with the fundamental principles of the 
Communications Act and of the First Amendment. The Task Force 
report and the paper by senior FCC economists released along 
with it, which was referred to by Dr. Rosston, embraces a 
blueprint for the biggest special interest windfall in American 
history. The Task Force essentially recommends giving today's 
incumbent licensees permanent and exclusive property interests 
in their frequencies with no compensation at all to the public.
    Although we strongly favor more flexible, market-driven 
license rights, we believe this Committee should reject any 
transition to flexibility that is premised either on giveaways 
at taxpayer expense, or upon the vesting of permanent property 
interests in frequencies. We believe this for two very 
fundamental reasons. First, it is completely unnecessary. The 
benefits of flexibility can be achieved within the basic 
framework of the Communications Act, which is licensing for 
limited terms, reserving residual rights to the public, and 
obtaining a return to taxpayers for the exclusive commercial 
use of this public asset.
    Unless license terms are limited and conditional, as under 
current law, policymakers will lose the ability to accommodate 
the dynamic sharing of frequencies, or to otherwise reorganize 
access to the airwaves as technology and social needs evolve in 
the future.
    The second reason is that the transition to flexible, 
market-oriented licensing can be accomplished without 
conferring a windfall worth hundreds of billions of dollars. 
The Task Force recommends that Congress amend Section 309(j) to 
authorize what it calls two-sided auctions with simultaneous 
exchanges. Although dressed up as an auction, this 
unprecedented process would allow incumbents to acquire 
permanent ownership of their licensed spectrum, as well as 
ownership of adjacent guard bands and white spaces, at little 
or no cost. Because incumbents can decide after the last bid is 
made not to sell their spectrum, to remove it from the auction, 
and still receive ownership of the frequencies they now 
license, the incumbent would be the only likely bidder in most 
bands.
    The Task Force fails to consider alternatives that achieve 
the efficiencies of flexibility without giveaways. One 
alternative is the spectrum leasing idea that Senator Burns 
referred to at the outset. Fully flexible licenses can be 
assigned in exchange for modest annual payments by all 
commercial licensees. Today's incumbents can be given the 
option either to accept a new, fully flexible license in 
exchange for paying rent, or to return their license at its 
expiration for reauction.
    The precedent for this approach is current law governing 
the allocation of TV channels for digital broadcasting. 
Congress granted broadcasters the flexibility to use their DTV 
channel, which is the one they will keep going forward, to sell 
ancillary services, but only in exchange for a market-based fee 
the FCC set at 5 percent of gross revenue. We call this the 5 
percent solution to the problem of spectrum reform. Although 
spectrum is not a tangible public resource, to the extent that 
competing commercial users value exclusive access to prime 
frequencies, which do remain scarce, leasing fees for fixed 
periods can best optimize the policy goals specified in the 
Communications Act.
    First, it avoids unjust enrichment, and returns ongoing 
revenue to the public.
    Second, fees create a market-based incentive for spectrum 
use efficiency, particularly by licensees that pay nothing now.
    Third, a fee system would reduce the upfront cost of 
auctioning new license rights, since companies would not be 
bidding for permanent cost-free control of the band. As Senator 
Burns mentioned, because the future value of the airwaves is 
unknown, leasing shares the risk between industry and 
Government, as we do with off-shore oil-drilling leases.
    Finally, leasing encourages capital investment, or protects 
capital investment, by giving incumbents an option to convert 
after the initial license term to a leasing arrangement with 
expectation of renewal.
    One final reason is what can be done with the revenue. 
Congress and the States have often chosen to earmark revenue 
from a public asset for broad public benefit. Examples include 
the Land and Water Conservation Fund, which is funded by 
royalties collected for offshore oil drilling, and the Alaska 
Permanent Fund, which pays an annual dividend to every citizen 
of that State from income earned on State oil royalties.
    Perhaps the most relevant way to think about reinvesting 
spectrum revenue is for the purpose of fulfilling the public 
interest obligations that originally justified giving 
broadcasters free access to the airwaves. One of these 
obligations, free air time for candidates, which could be 
financed by a small spectrum fee, is embodied in the 
legislation introduced last year by Chairman McCain and Senator 
Feingold.
    Another compelling use for spectrum revenue, focused on 
modernizing American education for the digital era, is the 
digital opportunity investment trust proposed by former FCC 
Chairman Minow and former PBS President Larry Grossman.
    Finally, with respect to the future of unlicensed spectrum, 
we were disappointed by the report's tepid commitment to 
expanding unlicensed spectrum in the low frequencies below 5 
gigahertz, and by its restrictive approach to the opportunistic 
sharing of underutilized spectrum. As smart radio technologies 
facilitate bandsharing, we should keep in mind the public 
interest at the very core of this Nation's communications 
policy, which is the First Amendment.
    The proper balance between exclusive licensing on the one 
hand and unlicensed sharing on the other must not be decided 
only, or even primarily using economic criteria. Because only 
the practical need to manage scarcity can justify exclusive 
licensing at all, we believe Congress should seek to minimize 
the need for licenses and facilitate bandsharing wherever that 
is practical.
    Whereas the analog era may have justified exclusive rights, 
digital and smart radio technologies will make it feasible for 
individual citizens, entrepreneurs, and local governments to 
dynamically share underutilized bands of the spectrum. The 
burden should rest with licensees to demonstrate that actual 
and harmful interference will result when low-power devices 
seek to share empty spectrum space.
    In conclusion, we urge this Committee to achieve the 
benefits of spectrum flexibility and marketability without a 
big giveaway, and without converting the public asset of the 
airwaves into private property.
    Thank you.
    [The prepared statement of Mr. Calabrese follows:]

          Prepared Statement of Michael Calabrese, Director, 
            Spectrum Policy Program, New America Foundation
    Good morning. My name is Michael Calabrese, Director of the 
Spectrum Policy Program at the New America Foundation, a nonpartisan 
public policy institute here in Washington. I actively participated in 
the FCC Task Force process, primarily by speaking at two of the public 
workshops last August and by filing three sets of comments on behalf of 
a coalition of national consumer and other nonprofit groups. My 
testimony today reflects the substance of the comments we filed in 
January, with the Media Access Project, on behalf of the Consumer 
Federation of America, Consumers Union, the National Alliance for Media 
Arts and Culture, and other citizen groups.
    Before highlighting our concerns about the Report, I'd like to 
congratulate Dr. Paul Kolodzy and the rest of the FCC staff who served 
on the Task Force for the dedication and high-caliber professionalism 
they contributed to this policy review. As an outside participant, I 
can attest that the staff process was as thorough, thoughtful and open 
to diverse views as any I have seen in Washington.
    We generally agree with the Task Force's ``Major Findings'' and 
consider them to be important building blocks for comprehensive 
spectrum management reform. Particularly significant is the finding 
that ``spectrum access is a more significant problem than physical 
scarcity of spectrum, in large part due to legacy command-and-control 
regulation . . .''. The Report finds that emerging technologies--such 
as frequency-hopping ``smart'' radio technologies--create ``the 
potential for development of services and uses that are not tied to 
specific frequency bands,'' or which can dynamically share ``white 
space'' within and between existing allocations that currently lay 
fallow.
    In particular, the consumer group coalition strongly endorse what 
are perhaps the Report's two most central recommendations:

    First, that the traditional licensing system, based on 
        rigid zoning, be replaced by new, more valuable usage rights 
        with enhanced service, technical and market flexibility;

    Second, that allocations of unlicensed spectrum for open 
        and shared access by the public should be expanded--
        particularly for broadband wireless networking.

    Concerning this second objective--expanding the share of spectrum 
open to the public for unlicensed sharing--important progress is 
already being made, most recently thanks to the bipartisan efforts of 
Senator George Allen and Senator Barbara Boxer. Their Jumpstart 
Broadband Act, which calls for additional unlicensed bands to 
facilitate high-speed and low-cost wireless Internet access, has 
already helped to facilitate the recent agreement between the 
Department of Defense and industry that will enable unlicensed wireless 
networking in the 5 GHz band without harmful interference to military 
radar.
A. The Future of Licensed Spectrum
    While we agree with the Task Force that a new balance between the 
``exclusive'' rights model and the ``commons'' model is needed, the 
staff's proposed means to this end suggests a path at odds with the 
fundamental principles of the Communications Act and the First 
Amendment. The Task Force essentially recommends giving incumbent 
licensees exclusive and permanent property interests in their 
frequencies (with no compensation to the public) and also designating 
additional unlicensed ``parks'' for shared public access (perhaps, if 
needed, but primarily on less desirable high frequencies). In the 
future, access to the airwaves would be a commodity traded on secondary 
markets and free of all obligations except to avoid harmful 
interference with other users.
    However sensible such a ``balance'' between private property and 
public parks may sound in theory, in practice the staff Report has 
embraced a blueprint for the biggest special interest windfall at the 
expense of American taxpayers in U.S. history. The Report implicitly 
endorses two transition mechanisms--one based on a proposal by two of 
the Commission's senior economists, who served on the Task Force, 
released concurrently with the Report--whereby permanent and exclusive 
rights to frequencies would be given away to incumbent licensees at no 
charge.
    We believe this Committee should reject any transition to 
``flexibility'' that is premised either on giveaways at taxpayer 
expense, or upon the vesting of permanent property interests in 
frequencies, for two fundamental reasons:
    First, the economic benefits of ``flexibility'' can be achieved 
while maintaining the Communications Act's basic framework of granting 
exclusive licenses only for limited (and relatively short) terms, 
reserving residual rights to the public and obtaining, as appropriate, 
a return to taxpayers for the exclusive, commercial use of frequencies.
    Unless license terms are limited and license rights are 
conditional, as under current law, policymakers will lose the ability 
to accommodate greater sharing of frequencies, or otherwise reorganize 
access to the airwaves, as technology and social needs evolve in the 
future. Just a few years ago, the possibility of facilitating low-cost, 
wireless Internet access using frequency-agile, software-defined radios 
capable of dynamically sharing underutilized bands across wide ranges 
of the spectrum was virtually unknown. Without the ability periodically 
to review and refashion the rights of both licensed and unlicensed 
users of the public airwaves, the ability of Congress or of the 
Commission to exploit such advances for the general public interest 
could indeed be squandered.
    Second, the transition to a more flexible, market-oriented 
licensing system can be accomplished without conferring a windfall 
worth hundreds of billions of dollars on incumbents at taxpayer 
expense--and also without ``selling'' spectrum at a one-off auction 
that imposes massive up-front payments on bidders. The consumer 
coalition comments submitted to the Task Force argued that auction and 
user fee methods are available to accomplish the goals of spectrum 
allocation policy mandated by Congress. These statutory goals include 
the efficient assignment of new license rights among competing firms, 
securing a fair return to the public and avoiding ``unjust 
enrichment.'' \1\
---------------------------------------------------------------------------
    \1\ With few exceptions Section 309(j) of the Communications Act 
requires the FCC to use auctions to award mutually exclusive 
applications for spectrum license rights assigned to commercial users. 
The enumerated objectives of spectrum auction policy specified by 
Congress in the 1996 Telecommunications Act include ``recovery for the 
public of a portion of the value of the public spectrum resource made 
available for commercial use and avoidance of unjust enrichment through 
the methods employed to award uses of that resource.'' 47 U.S.C. 
Sec. 309(j)(3)(C).
---------------------------------------------------------------------------
    In contrast, the Task Force recommends two options that would 
deprive the public of a return on the airwaves and confer unearned 
windfalls on incumbent license holders to the detriment of competitors. 
Under one option, ``the Commission grants expanded flexible rights 
directly to incumbents through modification of their existing 
licenses.''
    The other option, noted above, is dressed up as an ``auction,'' but 
one in which incumbents can opt to sell a permanent property interest 
in the spectrum they now license and retain 100 percent of the 
revenue--money that under current law would flow to the public 
treasury.\2\ Because incumbents can decide after the last bid is made 
not to sell their spectrum--and still receive ownership of the 
frequencies they now license--the incumbent is the only likely bidder 
in most bands. The practical effect of the unusual two-sided auction 
and band restructuring process proposed by the FCC economists is to 
allow incumbents to acquire permanent ownership of their licensed 
spectrum, as well as of adjacent guard bands and ``white space'' 
(reserve spectrum), at little or no cost. This is not only unfair, but 
inefficient. When the government fails to get market value for the 
commercial use of public assets, the foregone payments increase other 
taxes, or increase the deficit. A conservative estimate, based on the 
economic literature, is that for every three-dollar increase in income 
taxes, there is an additional dollar of lost productivity--a deadweight 
loss on top of the windfall to incumbents.
---------------------------------------------------------------------------
    \2\ See Evan Kwerel and John Williams, ``A Proposal for a Rapid 
Transition to Market Allocation of Spectrum,'' OPP Working Paper 
Series, No. 38 (FCC, November 2002).
---------------------------------------------------------------------------
    Because the Commission does not have the legal authority to pursue 
the two-sided giveaway transition described above, the Task Force 
Report recommends ``that Congress amend Section 309(j) of the Act to 
include an express grant of authority to the FCC to conduct two-sided 
auctions and simultaneous exchanges.'' The logic of both giveaway 
proposals favored by the Task Force appears to be that spectrum 
incumbents have so much clout that the only practical way to reduce 
scarcity is to bribe them to bring their spectrum to market. We urge 
this Committee to deregulate spectrum management using a mechanism that 
is consistent with the current legal framework of public ownership, 
limited-term licensing and increased allocations of spectrum for 
unlicensed sharing.
A Modest Proposal: Spectrum Leasing
    By embracing a false choice between ``property'' and ``commons,'' 
the Task Force fails to consider an alternative that achieves the 
efficiencies of ``flexibility'' without abandoning other statutory and 
Constitutional values. Fully flexible and hence more valuable licenses 
can be assigned in exchange for modest lease payments to the public by 
all commercial licensees. Rather than giving away valuable new spectrum 
rights to incumbents for nothing, or ``selling'' spectrum at one-off 
auctions that impose massive up-front payments on bidders, the 
Commission should ``lease'' spectrum for a set term of years, allowing 
commercial users complete flexibility during the term of the lease.
    We recommend that Congress adopt a process that combines limited 
auctions (for new assignments) with annual lease fees that would attach 
after the initial license period (e.g., after 8 or 10 years), or sooner 
in the case of current incumbents. All commercial incumbents could be 
given the option to either accept the new, fully flexible license in 
exchange for paying an annual lease fee, or to return their license at 
its expiration for re-auction.
    The precedent for this approach is current law governing the 
allocation of TV channels for digital broadcasting. When Congress 
granted broadcasters the flexibility to use a portion of the new DTV 
channel under the 1996 Act for ancillary services (for paid services 
separate from the obligation to broadcast a primary ``free'' signal), 
it provided that licensees must pay a market-based fee the FCC has set 
at 5 percent of gross revenue. Similarly, the ``rent'' on spectrum 
could be calculated as a percentage of the revenue generated through 
the use of spectrum, or imputed based on the value evidenced by 
secondary market transactions for spectrum with similar propagation 
characteristics.
    The giveaway proposed by the FCC Task Force is contrary to all 
federal and state practice. Where scarce and valuable public assets are 
made available for commerce, a combination of auctions and lease fees 
generate billions of dollars in public revenue. The Bureau of Land 
Management and most states administer combinations of auction and 
leasing fees for the commercial use of public lands for extracting 
minerals, logging timber, grazing animals and securing rights-of-way 
for pipelines.\3\ For example, in the early 1980s Congress authorized a 
method known as ``intertract competition'' to auction mining rights to 
federal coal tracts in a similar situation, where incumbent owners of 
adjacent tracts were the only logical bidder.\4\ This auction process 
forces incumbents to compete with each other and with potential market 
entrants to acquire the new flexible license rights proposed by the FCC 
Task Force.
---------------------------------------------------------------------------
    \3\ An example of auction, lease and royalty fees paid on a public 
asset is the Outer Continental Shelf Lands Act of 1953, which has 
yielded over $122 billion in revenues to the federal government and 
coastal state governments since 1954. The OCSLA aims to provide 
``orderly leasing of these lands, while affording protection of the 
environment and ensuring that the federal government receives fair 
value for both lands leased and the production that might result.'' 
Successful bidders for tracts pay a combination of ``bonuses'' (up-
front cash payments to secure a lease tract), rent of leased tracts (to 
incent active use of the tract), and royalties (on oil or gas 
production). Congressional Research Service, ``Outer Continental Shelf: 
Oil and Gas Leasing and Revenue,'' May 2000. Federal OCS revenue is 
earmarked for investment through the Land and Water Conservation Fund, 
a trust fund established in 1964 for the purpose of acquiring new 
recreation lands, and the National Historic Preservation Fund.
    \4\ See Michael H. Rothkopf and Coleman Bazelon, ``Spectrum 
Deregulation Without Confiscation or Giveaways,'' New America 
Foundation, Working Paper (forthcoming, April 2003). Intertract 
competition complete reviewed favorably by the Linowes Commission 
established by Congress in the wake of scandals that shut down federal 
coal leasing. See Report to Congress: Commission on Fair Market Value 
Policy for Federal Coal Leasing, David F. Linowes, Chairman (1984).
---------------------------------------------------------------------------
    Although spectrum is less tangible and less exhaustible than most 
other public assets, to the extent that competing commercial users 
value exclusive access to prime frequencies, which remain scarce, then 
leasing fees for fixed periods can best optimize the policy goals 
specified in the Communications Act. Leasing fees would serve several 
important objectives: first, to avoid unjust enrichment and recover for 
the public an ongoing and market-based return on the public resource of 
spectrum; second, to provide a market-based incentive for spectrum use 
efficiency, particularly by incumbent licensees that now use the 
resource completely free of charge; third, to reduce the up-front 
auction cost of the new flexible license rights (and of new commercial 
assignments generally), since bidders would not be anticipating 
permanent cost-free control of the frequency; and, finally, to 
encourage capital investment by giving the new incumbents an option to 
convert, after the initial license term, to a leasing arrangement with 
expectation of renewal. All commercial licensees would end up on a 
level playing field, benefit from a more flexible and valuable 
licensing arrangement, and in return pay a modest annual lease fee back 
to the public.
    Our consumer group comments outlined a possible transition based on 
flexible licenses, secondary markets, protecting incumbent capital 
investments, and putting all commercial licensees on a level playing 
field with respect to the cost of spectrum. One mechanism, most 
favorable to incumbents, would give current incumbents an option to 
renew their license with enhanced rights, including service flexibility 
and the ability to sell or sublease (for the period of the license), in 
return for paying a market-based user fee. If an incumbent declines to 
participate, then these additional flexibility rights would be 
auctioned as an ``overlay'' license, initially permitting any use that 
did not cause harmful interference to the incumbent service already 
operating on the band. Ideally the incumbent's protection from harmful 
interference would ``wear away'' after a reasonable number of years. In 
any case, auctions should be used only for the competitive assignment 
of the initial term, which could be quite short (and therefore not 
prohibitively expensive). After the initial license term, the holder of 
a new flexible license could choose to renew the license subject to a 
modest annual fee, or return it for re-auction.
Reinvesting Spectrum Revenue in New Public Assets
    Finally, when our Nation monetizes a common asset, Congress and the 
states have often chosen to earmark that windfall to pay for new public 
assets of broad public benefit. Examples include the Land and Water 
Conservation Fund, which is funded by a portion of the more than $122 
billion that has been collected under the federal Outer Continental 
Shelf Lands Act, and the Alaska Permanent Fund, which pays an annual 
dividend to every citizen of that state (nearly $2,000 per Alaskan last 
year) from income earned on public royalties from North Slope oil.
    Perhaps the most relevant way to think about reinvesting spectrum 
revenue is for the purpose of fulfilling the ``public interest 
obligations'' that originally justified giving broadcasters free access 
to the airwaves. These unmet public needs include quality children's 
programming, educational innovation, local public service media and 
free media time for political candidates to communicate with voters. Of 
course, this last purpose--free airtime for federal candidates, 
financed by a modest spectrum fee on broadcast licensees--was 
introduced last year by Chairman McCain. We were proud to host the 
policy forum where Senators McCain and Feingold first described the 
proposal.
    Another compelling use for spectrum revenue focuses on modernizing 
American education. The ``Digital Opportunity Investment Trust,'' 
initially proposed by former FCC Chairman Newton Minow and former PBS 
President Lawrence Grossman, would support innovative uses of digital 
technologies for education, lifelong learning, and the transformation 
of our civic and cultural institutions. Under their proposal, an 
initial $18 billion in future spectrum revenue would be allocated to 
capitalize the trust fund, yielding a permanent revenue stream of $1 
billion or more for investments. We urge the Committee to earmark 
future spectrum revenue for this important purpose.
B. The Future of Unlicensed Spectrum Sharing
    Although we applaud the Task Force recommendation that ``the 
Commission should consider designating additional bands for unlicensed 
use,'' we were disappointed both by the Report's tepid commitment to 
reallocating frequencies below 5 GHz for unlicensed consumer devices in 
the future, and by its restrictive approach to the opportunistic 
sharing of underutilized spectrum.
    As technology facilitates the sharing of frequencies, it becomes 
critical that Members of this Committee keep in mind the public 
interest at the very core of this nation's communications policy: the 
First Amendment. The proper balance between what the Task Force calls 
the ``exclusive rights'' model and the ``commons'' model for access to 
the airwaves cannot be decided only, or even primarily, using economic 
criteria. We must keep firmly in mind that when government requires a 
license to communicate--or grants certain parties instead of others 
``exclusive rights'' to frequencies--this is a form of intrusive 
regulation that necessarily burdens the ability of other citizens to 
communicate.
    Accordingly, where government does grant exclusive licenses to 
communicate, it must do so for a good reason and in a manner that 
promotes First Amendment values. Because only the practical need to 
manage scarcity can justify licensing exclusive access to the 
airwaves,\5\ Congress should seek to minimize the need for licenses 
wherever possible. This Committee should therefore adopt an express 
preference for unlicensed access over exclusive licensing. And when the 
FCC considers additional unlicensed allocations or band-sharing 
arrangements, the burden should fall to licensees to demonstrate that 
actual harmful interference will result.
---------------------------------------------------------------------------
    \5\ See Red Lion Broadcasting Co., Inc. v. FCC, 395 U.S. 367, 387-
95 (1969).
---------------------------------------------------------------------------
    The Task Force's own findings support the conclusion that whereas 
the analog era may have justified a government grant of exclusive 
rights to a band of frequencies, the development of digital and 
software-defined (``smart'') radio technologies will make it feasible 
for individual citizens to dynamically share wide ranges of 
underutilized spectrum without imposing harmful interference on 
licensed or on other unlicensed users. Unfortunately, however, rather 
than embrace this opportunity to expand unregulated citizen access and 
more efficient sharing of frequencies, the Task Force recommends ``that 
in the first instance'' the Commission should rely on private secondary 
market transactions to facilitate shared access by citizens, 
entrepreneurs and local governments. The Report opines that licensees 
``will generally find it advantageous to allow others to use unused 
portions of their spectrum if they are adequately compensated'' and 
that this will occur ``at reasonable transaction costs.''
    We agree with this approach to the extent that the access sought 
would result in actual harmful interference to a licensed incumbent's 
ongoing operations. To the extent that the unlicensed user would cause 
harmful interference, the concept of enhancing license rights with 
complete service, technical and market flexibility anticipates the 
licensee's ability to negotiate compensation in return for sacrificing 
(i.e., subleasing) its own access.
    However, the Task Force recommends initial and primary reliance on 
negotiated private transactions whenever the user seeking shared access 
would be operating above a hypothetical ``interference temperature 
threshold''--a new quantitative measure that would define the total 
level of RF emission a licensed operator must tolerate in a given band. 
To the extent this ``interference threshold'' is more restrictive than 
necessary to protect against actual harmful interference--or to the 
extent the threshold concept is not applied to today's incumbent 
licensees (as the Report implies), or is not reviewed and adjusted 
upward periodically to reflect advances in receiver technology--it will 
deter access and sharing.
    Moreover, the efficiency of requiring private secondary market 
transactions breaks down precisely in the situation where dynamic 
sharing will be most beneficial to the public interest--that is, with 
low-power, relatively short range and spread spectrum transmissions 
associated with sharing high-speed Internet access on a wireless basis. 
Although the Report rather summarily concludes that private secondary 
market mechanisms can be developed ``at reasonable transaction costs,'' 
this will be least true for individual consumer devices, similar to Wi-
Fi and emerging ``smart'' broadband networks, that could easily be 
deterred by access charges.
The `Special Case' of Broadcast Spectrum
    The Task Force Report expresses skepticism concerning the 
Commission's ability to reallocate to unlicensed citizen use another 
band comparable to the 83.5 MHz available for a variety of consumer 
devices (from cordless phones, to Wi-Fi, to microwave ovens) at 2.4 
GHz, observing ``there is little `low-hanging fruit' left for 
unlicensed band use.'' Yet with only 12 percent of U.S. households 
still relying on terrestrial over-the-air broadcasting to receive their 
primary TV signal--and with such a small share of the upper UHF 
channels in operation nationwide--the broadcast TV bands may be the 
ideal space to evolve in a controlled manner, over a period of years, 
into a new ``national park'' for open citizen access to the airwaves.
    In this regard, the FCC's current Notice of Inquiry on the 
compatibility of spread spectrum unlicensed uses in the broadcast bands 
makes a good beginning. This NOI has the potential to open more space 
to unlicensed uses without `propertizing' the spectrum first or 
disrupting existing uses. It focuses on expanding the current benefits 
of the broadcast bands to the American people, such as through the 
potential delivery of new broadband services on an unlicensed basis. As 
the combination of cellular 3G and unlicensed networking makes mobile, 
high-speed Internet access a reality, consumers and companies will be 
clamoring for more low-frequency airwaves that penetrate walls, trees 
and bad weather. The TV bands are the ``national spectrum park'' that 
in the not-too-distant future could boost the economy by facilitating 
high-speed broadband access for both mobile and ``last mile'' 
connections.
    Yet our nation's outdated industrial policy concerning broadcast 
spectrum will keep the broadcast bands encumbered for a decade or more. 
We are making the wrong DTV transition; nearly 90% of American homes 
rely on cable or spectrum-efficient satellite subscriptions for their 
primary TV signal. Rather than subsidize broadcasters to continue 
analog broadcasts indefinitely for fewer than 10% of the country, a 
hard giveback date could be combined with a refundable tax credit for 
consumers still relying on analog over-the-air. Paid for with just a 
fraction of the potential auction or leasing revenue from the returned 
spectrum, a credit on the order of $150 could give consumers the choice 
to buy a converter box, or connect to a lifeline cable or satellite 
subscription service.
    This alternative--subsidizing consumers with a fraction of the 
spectrum revenue--is opposite the Task Force approach, which suggests 
both bribing the broadcasters with spectrum ownership and relieving the 
broadcasters of their statutory public interest obligations. Last June, 
this Committee wisely shepherded through last-minute legislation to 
cancel the FCC's scheduled auction of TV Channels 52-to-69--auctions 
designed to allow a handful of broadcast companies, led by Paxson 
Communications, to pocket two-thirds or more of the billions that 
wireless phone companies seemed willing to bid for space on Channels 
60-to-69. The FCC action would have pared as much as $20 billion from 
the President's budget. Senator Hollings, then Chairman, wrote in a 
letter to FCC Chairman Powell that allowing firms to ``transfer 
spectrum and earn profits on the spectrum through such arrangements is 
outrageous'' and violates the FCC's role as ``public trustee of the 
spectrum.''
    Now, less than a year later, the FCC Task Force returns with 
essentially the same posture, stating that ``the continued application 
of command-and-control policies to commercial broadcasting spectrum 
could be substantially relaxed, or may not be needed at all, . . .'' 
This ignores the fact that the 1996 Act gave broadcasters additional 
spectrum valued at $70 billion on the specific condition that it be 
returned after the DTV transition for public auction. We urge this 
Committee to reject this giveaway approach and instead to move 
affirmatively to hasten the return and reallocation of broadcast 
spectrum--ideally to create a new unlicensed band for shared access and 
high-speed wireless networking.

    The Chairman. Thank you very much, Mr. Calabrese. The great 
$70 billion spectrum rip-off by the broadcasters still stands 
to this day as a monument to the lobbying power of the National 
Association of Broadcasters, one of the more disgraceful 
chapters, I think, of our legislative history and by the way, 
as you know, Mr. Calabrese, there is still no movement to give 
that analog spectrum back that they were supposed to, again 
exercising their political clout.
    Dr. Kolodzy, you have heard basically comments and 
suggestions and not a whole lot of criticism about the work of 
the Task Force here. I would like you to take a minute and sort 
of respond to some of the other witnesses' comments, but I 
would also like for you to couch your response in the aspect of 
all this that bothers me a great deal, and that is that how can 
we be sure that what we do today will not be overtaken by 
advances in technology?
    If you look at the 1996 telecom deregulatory act, many of 
those provisions have been rendered obsolete because of 
advances in technology. Two years ago, I never heard of Wi-Fi. 
You probably did, but I was struck by Dr. Kahn's statement that 
there are 14,000 Wi-Fi installations just in the island of 
Manhattan. The last mile used to be our critical issue here, 
and it still is a critical issue, but certainly the dynamics of 
it have been changed.
    And specifically, would you also address what Mr. Calabrese 
and others have discussed concerning leasing versus auction 
versus giveaway, since I think that will be a very critical 
part of any spectrum management policy that we adopt, and then 
I will go down and let the other witnesses respond, too.
    Go ahead.
    Dr. Kolodzy. Okay. That is a large list. First of all, I 
will start with the technology issues.
    You do not want a spectrum policy that actually gets 
overtaken by events in technology, and one of the reasons I 
think that the Commission may have brought me onboard is 
because I was developing, like Dr. Kahn, a lot of advanced 
technology pieces. I was working at DARPA, Defense Advanced 
Research Projects Agency, in advanced telecommunication 
technology, and so we were always looking 20, 30 years out and 
asking what is going on in materials and all of the 
technologies.
    So what we did when we actually did the Task Force, we 
stepped back a few steps in trying to ask the questions, what 
kind of policies would we try to put forth to make sure they 
were not overtaken by technology change, so in a sense, we were 
not trying to be agnostic with it. We were trying to make sure 
we were not also antagonistic. We wanted to make sure that 
technology could adapt, the policies could adapt with the 
technology, and that is one reason that we came up with stuff 
like the interference temperature and the like, trying to get 
things on a more localized basis and more adaptive to whatever 
occurs in a localized area, so in some sense, we did try to 
pull that into place, but we have 90 years, what we have 
currently. It takes a little while to bring forth some of those 
new changes of technology into the policies.
    Second of all, in the sense of the differences between 
leasing and auctions and giveaways, the Task Force actually 
looked at a variety of mechanisms in which to try to transition 
from where we are currently to this new era where we have 
actually a balancing act between the command and control sides. 
Therefore what we did when we looked at the Task Force is 
basically a variety of mechanisms, and not picking any one 
mechanism as being the appropriate mechanism. So in some sense, 
we actually looked at four possible mechanisms in a sense of 
transitioning. Auctions are just one mechanism associated with 
that. There is a variety of other ways of actually providing 
flexible rights and transitioning those out to the users.
    The Chairman. Dr. Rosston.
    Dr. Rosston. I think you are absolutely right when you say 
we need to have a spectrum policy that can adapt to 
technological change. This is something that the FCC has done 
in the old command and control system, when private radio moved 
from 60 kilohertz technology to 30 kilohertz technology, the 
FCC had to help mandate the transitions. I think that what you 
want to have is a spectrum policy that does not have somebody 
have to go to the FCC, or a group of people to say, ``We have a 
mess. We have this band that is overcrowded. We need you to 
tell us what technology to adopt.''
    You want to have users and technology people determine what 
technology they think is best, and to adapt to the new 
technology. Just as Intel has adapted technology for the PC 
industry, we want to have the communications industry do its 
own technological change as well.
    The second thing I want to address is the so-called 
windfall that may or may not occur because of an auction for 
additional spectrum flexibility. I think the most important 
thing is that if we do get a lot more spectrum in the 
marketplace, and by more spectrum, that can either mean 
additional new, unused spectrum, or rights for additional 
flexibility, which is effectively more spectrum, that that will 
hopefully drive the price of spectrum down so that it becomes 
much more affordable, much more plentiful. I think that is 
probably the key that is making spectrum so scarce, is that the 
price is high because the rights are restricted, and we should 
try to figure out a way to increase spectrum supply.
    The auction mechanism that was proposed would get spectrum 
out in the marketplace, and the other thing is getting new 
consumer value out of it is really important, and the way the 
auction is designed, it would not necessarily be a windfall to 
the existing users, especially if the spectrum price goes way 
down.
    And the other thing, as you have mentioned, it is extremely 
difficult to take spectrum back from people who already have 
it. The OPP working paper says we can increase supply within 2 
years. If we try to take spectrum back from people if they are 
not using it, or not doing the flexibility, we could be here 
forever, not getting the benefits of spectrum.
    The Chairman. Is that an argument for Mr. Calabrese's idea 
of leasing?
    Dr. Rosston. Well, leasing has a couple of things. One is, 
if you do--you can think about, an auction, the auction 
combined with the lease payment, essentially people will bid 
less in the auction to pay it off, and the lease has another 
risk, which is, I think the FCC should not be in the business 
of being business partners. The NextWave debacle proved that 
point, I think, and I worry extremely about the FCC sort of 
being business partners with people in these things.
    The Chairman. Thank you. Dr. Kahn.
    Dr. Kahn. Well, I think not being an economist, I will stay 
away from the leasing question, but I think it is important to 
realize that if you look at all the kind of prime real estate, 
if you will, in the spectrum space, I think the estimate is it 
is something less than 5 percent that is currently available. 
It is unlicensed, and something like 5 percent or less is 
actually available in sort of really flexible licensed 
spectrum, so our main conclusion from that is that there is a 
lot of room for experimentation here.
    As far as the kind of obsolescence of policy by technology, 
I think what we are seeing right now is sort of a major kind of 
continental shift here on the technology as we go from 
primarily analog to primarily digital. Those kinds of changes 
do not happen that often. You know, I believe, as Dr. Kolodzy 
was saying, that we are able to anticipate the general shape of 
the technology at least for a window of 10, 15, 20 years, as we 
go into the digital domain.
    I certainly would not be so bold as to say we could be 
sitting here 100 years from now with the same policy in place 
and being very happy with it. We will have to reexamine the 
question on a continuing basis. I hope we can do better than 
the sort of half-life, if you will, of the 1996 Act, and I 
think we should be able to, but our main concern is that a lot 
of these things are going to require quite a bit of real hard 
work and experimentation with how this affects innovation in 
the marketplace.
    I do not know that any of us have complete answers. It is 
pretty important to set up a regime under which those 
experiments can take place, and up until now, it has been 
pretty hard to do that, with very few exceptions.
    The Chairman. Mr. Berry.
    Mr. Berry. Thank you, Mr. Chairman. I guess I would say 
that one of the strengths of the Task Force was that it had a 
healthy mix of options that you could apply, and techniques you 
could apply to very complicated spectrum management issues. 
That is why in some cases, you may want to remain with command 
and control. For example, if it deals with public safety, you 
may want to sacrifice some flexibility there to have dedicated 
capability.
    On the other hand, the spectrum task force very astutely 
identified exclusivity and exclusive rights as a way that 
actually creates certainty, the predictability, and the 
flexibility, and I think leasing does have a role in the sense 
that it can help encourage people getting off a spectrum which 
is not being efficiently utilized.
    I do not think that leasing the entire--the process of 
leasing spectrum throughout the gamut, bringing everyone back 
to the FCC in order to say ``Mother, May I,'' encourages 
innovation. I think it is another step in a process to a 
regulatory fiat.
    What I would like to see is spectrum prices go down so the 
consumer, the end user actually improves, or receives the 
benefit of it, not money coming back to the Federal Government 
which--and I know in Mr. Calabrese's testimony I understand 
there would be a whole series of discussions on how you would 
expend the funds after the additional money would come into the 
Treasury. There is a place for leasing. I do not think it is 
the panacea offered up.
    The Chairman. Mr. Calabrese can defend himself, but I do 
not think he offered it up as a panacea, did you?
    Mr. Calabrese. No, Mr. Chairman. There is no single best 
solution, and I think we need to find a balance that, as you 
said, preserves our flexibility to adapt to technology as it 
changes.
    I mean, it may well turn out, the way technology is going, 
that freezing today's spectrum zoning right, which is based on 
analog technologies, we have sliced the spectrum into these 
thin strips, and now freezing that into private property may 
turn out in the future to be as inefficient as requiring that 
land be sold only in circular plots, where you cannot use all 
the pieces in between.
    You will notice in the Task Force report that one word that 
is never used is the word, licensing, because it is the clear 
intent of the Task Force that there shall be no licensing in 
the future, that spectrum will be owned as private property by 
licensees, because they believe that is most efficient, and as 
I said, I just think it is not necessary to achieve the 
efficiency goals that they have.
    Several of us, and most of the senior staff at the FCC, 
just spent a weekend at Stanford hearing from companies like 
Intel and Microsoft, Alvarion and others, about all of these 
smart radio technologies that are coming online in the next 3 
to 5 years that will allow a dynamic sharing of the airwaves 
without creating harmful interference.
    Bands, particularly the broadcast bands, which, for 
example, the fifties and sixties channels now are operating--
only in about 20, at most, 20 percent of the markets is there a 
station operating on those 20 channels, so there is lots of 
white space that could be shared, but rather than embrace this 
opportunity, the Task Force recommends a reliance on private 
secondary market transactions to facilitate broadband 
networking, but this would have enormous transaction costs and 
really be a detriment precisely in a situation where dynamic 
sharing would be most beneficial to the public interest, and 
that is with low-power, short-range, and spread-spectrum 
transmissions associated with sharing high-speed Internet 
access.
    The Chairman. Thank you. We have a vote on. If it is 
agreeable to Senator Burns, I will leave and go and vote, and 
you can proceed with the questioning, and I will either get 
back or we will take a brief recess until I get back, if that 
is agreeable to you, Senator.
    Senator Burns. That is fine. Tell them we are on our way.
    The Chairman. Thank you. I think there is about 10 minutes 
left in the vote.
    Senator Burns. Thank you, Mr. Chairman.
    I want to ask a pretty direct question. In the first place, 
I am one of these people, and a minority of one, who has had a 
hard time accepting the fact that spectrum is a national 
resource. I think it is a technology, and our charge is that 
once it is developed, that everybody kind of stay in their 
lanes. That was the original concept that formed the FCC, is to 
make sure that everybody stayed in their lanes, and that is not 
the majority thought now, and we will work in the concept of 
the majority, and if you are looking into leasing, I came up 
with that idea a couple of years ago as I was sitting and 
thinking about spectrum and how important it was. How many of 
you have ever heard of the Taylor Act?
    [A show of 1 hand.]
    Senator Burns. It is the Taylor Grazing Act. When you 
mention that in this little club, your eyes sort of glaze over, 
but basically it has been pretty successful in managing a 
national resource, so that is kind of what I have taken as my 
pattern, and it is not the answer.
    I want to ask a very specific question and get your 
response. The U.S. industry spent considerable time and effort 
to obtain international spectrum allocation at the 
International Telecommunications Union World Radio 
Communication Conferences. Unfortunately, there has been a 
considerable gap between when the U.S. obtains all-important 
allocation at the ITU and when the FCC implements that 
allocation domestically.
    While the regulatory gap serves neither the wireless nor 
the satellite industry, it is particularly harmful to the 
satellite industry and the availability of new services due to 
the unique treaty requirements that all proposed satellite 
systems must follow. U.S. satellite operators' applications 
often remain pending for years, putting them at a severe 
disadvantage in relation to other countries and the operators 
in those countries. What should the FCC commit to doing to 
minimize the regulatory gap of the international and domestic 
process?
    I am concerned about these conferences that are coming up, 
and our inability to have any effect on those conferences with 
regard to how we manage our spectrum domestically, and I would 
like just a response to that, please, and anyone can start who 
wants to, but everybody can comment.
    Mr. Berry. I will take a stab at it. Since the FCC is an 
independent entity, I think they have to be able to address the 
issues as they come before the Commission and have their own 
opportunity to consider the issues, but we can improve this gap 
by improving our coordination and cooperation with the WRC 
ambassador.
    Janice Obuchowski, I think an excellent appointment, just 
got named to the ambassadorial slot for the WRC. I think if we 
improve the SHERPA process, the process that goes on before the 
actual negotiation, we can actually close that gap. I would be 
very much favor of appointing either a permanent ambassador to 
WRC, or an ambassador with longer than a 6-month tour of duty 
that normally is assigned to that slot, so that you can, in 
fact, work these issues at the FCC, at the State Department, at 
DOD and NTIA long before we have to work the 183 other 
countries that are members of the ITU.
    Senator Burns. Dr. Kolodzy.
    Dr. Kolodzy. This is an area that really we did not go into 
great detail, and I do not really feel like I am the right 
person to answer that question. However, if you would like to, 
I will take the question back to the Commission and try to get 
back to you on that one.
    Senator Burns. I would like some response to this, because 
we are losing out on the international scene, and here we go in 
there and we only appoint an ambassador for 6 months. There is 
no institutional knowledge, it is a quick study, and so I am 
very much concerned by that.
    Dr. Rosston.
    Dr. Rosston. I have some comments not necessarily about the 
international process, but you mentioned the delay in satellite 
licensing that occurs at the FCC. I may sound like a one-trick 
pony, but the way the process works is, they try to accommodate 
everybody in the satellite bands and to have people trade off. 
The FCC evaluates which system needs how much spectrum and how 
they can share the spectrum, and it goes through this 
incredibly long and drawn-out process, instead of doing 
something like they did in the satellite DARS band, or other 
bands, where they had an auction. They said, put up or shut up, 
and we will allocate it to the people who actually have a real 
business plan.
    The way it works now, they allocate spectrum and then 
satellite companies go through this process and then go out of 
business, so then other people have less spectrum than they 
would have gotten in a regular process of going to the 
marketplace.
    Senator Burns. We have been notified we have got about 4 
minutes, and this is a cloture vote on Mr. Estrada, and they 
said they are cranky over there, so we do not want to miss the 
vote. I will just put the Committee in recess and--subject to 
the call of the Chairman.
    Thank you very much.
    [Recess.]
    The Chairman. I want to thank the panel for their patience. 
We had an important vote, and I expect that maybe one or two of 
the other Committee members will be back to ask you questions, 
and then we will try and complete the hearing.
    Dr. Kolodzy, Mr. Calabrese suggests your report embraces a 
blueprint for the biggest special interest windfall at the 
expense of American taxpayers in U.S. history. How do you 
respond to that?
    Dr. Kolodzy. I think that if you look at the report and 
what actually that group worked on, which was the rights and 
responsibilities group, they actually showed a variety of 
mechanisms to go after in the sense of trying to do this 
transition.
    One of them was a two-sided auction and the like, and they 
actually pointed out during the two-sided auction that there 
was some balancing that had to take place, and especially 
worrying about possible windfalls, so that actually was looked 
at and recognized by the report and by the Task Force, but 
there was also other mechanisms that we actually looked at that 
could actually be balanced against that to see which ones would 
be more appropriate for which bands and for what applications.
    So my response is, yes, that is a possibility, we recognize 
that possibility, but there are other mechanisms that could be 
employed versus just that one, depending upon what the 
Commission thought was the most optimal way to go about that 
transition.
    The Chairman. Mr. Berry, what is the expectation of current 
commercial wireless licensees when the licenses they won at 
auction expire? What is their expectation? In other words, do 
you believe they should have to pay usage fees, as suggested by 
Mr. Calabrese, or should they be automatically renewed, or put 
up for auction? What are your expectations?
    Mr. Berry. We would hope that if we are meeting the terms 
and conditions identified by the FCC when the licenses were 
originally bought, for the most part bought at open auction, 
that they should continue to be renewed.
    The Chairman. Free of charge?
    Mr. Berry. We paid a spectrum price at an auction for a 
defined right, and the expectation was that if you continued to 
meet the terms and conditions, that the FCC provided you that 
right, that you would in fact have--the FCC would actually have 
an obligation to continue that license.
    The Chairman. Why do you think the licenses had an 
expiration date on them?
    Mr. Berry. They had an expiration date in the sense that it 
at the end of a certain year the license would be reviewed for 
renewal. If the FCC would have said, the license at the end of 
10 years expires and you have no guarantee of renewing that 
license, I suggest that there would be no one wanting to invest 
billions of dollars to acquire that license in the first place.
    The Chairman. Dr. Kahn, I would be interested in your 
response to that, and what effect would you expect expanded 
availability of unlicensed spectrum bands to have on the value 
of the licenses?
    Dr. Kahn. Well, again not being an economist, I am not sure 
I am very credible on the value of the licenses. I do think 
that what we are seeing--I mean, it has been interesting, I 
think, from our perspective, being concerned primarily with 
unlicensed, to see the reaction of the licensed cellular 
providers to Wi-Fi, which I think has changed, as I think was 
pointed out, from originally, I believe, a reasonable amount 
of--I do not know, hostility, but certainly distance, to one 
where I believe most of the operators see Wi-Fi as an adjunct 
to the kind of services they offer.
    It is certainly the case that in a local area, they can 
offer much higher bandwidth and much better services to their 
subscribers using technologies like Wi-Fi, and the future 
technologies that follow on from Wi-Fi.
    At the same time, it is unlikely that Wi-Fi is ever going 
to be a cost-effective solution to provide coverage over huge 
tracts of distant territories, and so they are actually quite 
complementary technologies, and I think that the real question 
here is the value that the consumer puts upon the kind of 
access that they would get, say, when they are sitting in an 
airport waiting room waiting to get on an airplane and have, 
perhaps, a laptop open and are using it, versus when they are 
perhaps in motion in a car on a highway, where the modalities 
with which they can interact with information are quite 
different.
    So we may actually find that there is a very nice match in 
terms of the kinds of applications that want to run at the data 
rates that will be supportable in the licensed long distance 
regimes from the sorts of applications that are more likely to 
run in local hot spots.
    So I think they are very complementary, and I think most of 
the operators I speak with these days see them that way.
    The Chairman. Dr. Rosston, you said that the Task Force 
report does not set forth any aggressive goals. What goals 
would you advocate?
    Dr. Rosston. Getting much more spectrum out. The Task Force 
report has a goal of 100 megahertz of spectrum within 5 years. 
They said this should be a goal to get that out, whereas the 
OPP working paper said we could get 438 megahertz out for 
flexibility within 2 years. To me, that is a much different 
goal and the magnitude is sufficiently large that consumer 
benefits could be substantial in that period of time and with 
that much more spectrum available. That would be the best 
example of the goal that I would see getting out there.
    The Chairman. Senator Sununu.

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman. Could I ask each 
of you to give me a specific answer, one specific answer to the 
following question:
    As you look back on current policy, or past policy or 
decisions made by the FCC or made by Congress dealing with 
spectrum, what one regulation or policy prescription would you 
want to avoid, want to expunge from the record, want to have 
avoided and, as a result, want us to avoid allowing to happen 
again, forgetting at least for the moment, for a very brief 
moment about the political ramifications, and could you be 
specific? We will go left to right.
    Dr. Kolodzy. That is an interesting question, since I was 
at the FCC, trying to talk about my colleagues there. I am 
trying to think about that for a moment.
    Senator Sununu. That is why we brought you here.
    [Laughter.]
    Dr. Kolodzy. Yes. I guess I do not have a particular case 
that I think I can mention, but I believe that----
    Senator Sununu. You cannot think of any bad choices, 
mistakes? I am not trying to assign blame. I am trying to 
understand what we need to avoid doing again in the future as 
we look at spectrum management.
    Dr. Kolodzy. I think that instead of a particular case, if 
I could answer it a little differently, is that taking into 
consideration that there are a lot of other modalities that we 
can be regulating upon, and not just in the sense of time and 
frequencies, understanding that technology is changing so 
rapidly that we need to basically step back and ask the 
question, is there a different way of getting access to the 
spectrum versus just looking at the scarcity issue.
    So what I am doing is, I am pushing back, saying, scarcity 
is not the issue, it is access, so how do we actually change 
our rules to allow more access into that spectrum and more 
dynamics into the spectrum.
    Senator Sununu. Dr. Rosston.
    Dr. Rosston. I have actually two, sorry. The first--I think 
I am glad that Chairman McCain is here. The first is the 
digital television giveaway. This was a nonmarket-oriented 
approach to technology and the FCC gave spectrum away, as 
opposed to letting the market decide, and said, here is the 
technology you have to use, and it was a huge giveaway and has 
encumbered the prime television spectrum. I think that was a 
very poor decision.
    The other that I will allude to is also the use of 
installment payments in auctions that got the FCC in the job of 
bearing a lot of the risk of spectrum policy, and business 
decisions by spectrum users in the NextWave decision.
    So those would be the two that come right to the top of my 
head.
    Senator Sununu. Thank you. Dr. Kahn.
    Dr. Kahn. It is a tough question. I think I would probably 
say just the entire philosophical approach of narrow-sliced 
fixed dedicated use allocations that do not distinguish high- 
and low-power use modalities of the spectrum.
    Now, to be fair, those were correct decisions in their 
time, because that matched the technology capabilities, but I 
think it is that set of decisions that said that we have to 
essentially chop the land up into lots of little plots, that it 
is very difficult to kind of put Humpty Dumpty together again 
in some cases, is probably what has caused us difficulty and 
will actually cause us a lot of difficulty going forward as we 
try to revamp this stuff, simply because we already have a 
checkerboard to deal with that that is very complex.
    Senator Sununu. Mr. Berry.
    Mr. Berry. I assume you are talking just about spectrum 
issues.
    Senator Sununu. I am sorry, what is the title of the 
hearing here?
    [Laughter.]
    Future of Spectrum Policy.
    Mr. Berry. Yes. Well, there are mandates that the FCC 
continues to foist upon the industry that have a direct impact 
on spectrum and spectrum utilization.
    Senator Sununu. Any particular mandate that you think is 
unjustified?
    Mr. Berry. Well, those are more nonspectrum issues, I think 
I would agree with----
    Senator Sununu. Oh, but putting a mandate on the use of 
spectrum is a spectrum issue.
    Mr. Berry. No, I am talking about mandates such as local 
number portability and other mandates on the utilization of the 
spectrum. I would have to agree with Greg that the broadcasters 
not vacating the spectrum in the 700 megahertz arena so that 
you can have long-term, sane, reasonable planning and efficient 
utilization of resources has been probably one of the most 
difficult things to plan around.
    Senator Sununu. Mr. Calabrese.
    Mr. Calabrese. I will mention two quickly, if you do not 
mind, one which was mentioned, the DTV spectrum giveaway, 
particularly the fact that there was no----
    Senator Sununu. I am aware of that, and I have a sneaking 
suspicion the Chairman is aware of that issue, so you can move 
to your second suggestion, not that it does not carry merit. I 
just want to save everyone a little time here.
    The Chairman. I would be glad to hear more.
    [Laughter.]
    Mr. Calabrese. I would just point you to my written 
testimony, where I suggest subsidizing consumers to make that 
transition very rapidly, rather than subsidizing the 
broadcasting industry, which has every incentive to hold out 
for a buyout.
    The other one, though, which I think my friend Steve Berry 
here got caught in the crossfires of just now, was with respect 
to the way the auctions were designed, as one-off auctions 
where, with a kind of a wink, and really contrary to the 
Communications Act, to the literal language, it was suggested 
to the digital cell phone companies that if they bid billions 
of dollars at these auctions, that they would have this 
spectrum forever, despite the fact the Communications Act, as 
the Chairman said, makes very clear that there is no residual 
interest by the licensee at the expiration of the license. And 
so that is why, as I also say in my written testimony, that as 
we move to leasing, ideally, that we should also change the 
auction process.
    When we assign new spectrum, the auction should explicitly 
be just for the initial term of 8 or 10 years, with a 
conversion at the incumbent's option to a fee at the expiration 
of that first term. That way, there are not these billions of 
dollars of upfront costs, because that is a real roll of the 
dice that is burdening the telecommunications industry when, if 
the auction is simply for one single term, and they know that 
if they want to keep that spectrum, that it is going to switch 
over to a lease fee, then the auction prices will be much 
lower, but the public's revenue will be ongoing.
    Senator Sununu. But the issue of fixing or designing a term 
and clarifying the duration of a term, that is an issue whether 
you go to a leasing structure or not, correct? I mean, you do 
not necessarily have to have a leasing structure as you 
described in your testimony to get the benefit that you 
describe of having a fixed term.
    Mr. Calabrese. Correct, and we have fixed-term licensing 
right now.
    Senator Sununu. They are two different suggestions, each 
with its own merits.
    Mr. Calabrese. The problem is, the incumbents--in fact, Mr. 
Berry's members are at a competitive disadvantage because they 
are the only companies that paid billions of dollars for access 
to the public airwaves, and other incumbents pay nothing, and 
so what we need is to internalize the opportunity cost of 
spectrum for all commercial users and give them far greater 
flexibility. Then they can just compete.
    The Chairman. Can I just follow up on your question? Mr. 
Berry and others would say, if you are not going to have a 
permanent granting of a license, then they will not make the 
investments that are necessary to maximize the use of that 
spectrum. What do you say to that?
    Mr. Calabrese. Well, that we can maintain the strong 
presumption of license renewal. So for example, if we were 
going to convert from where we are today to spectrum leasing, 
what we should probably do, I mean, realistically--it is not 
perhaps, again, ideal--but we would probably give incumbents 
the option at the expiration of their license to begin paying 
fees for their new, flexible license.
    They would receive these valuable flexibility rights and in 
return, at their option, they could either start paying the 
rental fee going forward, or return the spectrum for reauction, 
and anticipating Mr. Berry's point, I think his members who 
have already paid billions of dollars--now, that is not true 
for all cellular spectrum, but for a good part of it--they 
would have a good case that they should be exempted from those 
lease fees because they have already, in a sense, paid the 
present value of expected future rents, but that is less than 5 
percent of the prime beachfront frequencies.
    I think for everybody else, we ought to switch over, and 
this will protect sunk investment if you give them the option 
to renew with the lease fees.
    Mr. Berry. If I might, Mr. Chairman, since several have 
spoken about what I would say, I think what I believe is that 
you want to encourage investment and encourage innovation, and 
changing the rules, it is sort of like the guy who switches 
horses in the middle of the stream and he falls off. I do not 
think you want to change those rules after billions of dollars 
have been invested and millions, 140 million consumers are 
expecting the utilization of that same asset when they pick up 
their phone.
    I think that if you have a lease structure--and what I 
tried to say earlier was, there is a place for lease, and there 
is a way that you can structure a lease so that everyone has 
the anticipation at the time the spectrum becomes available so 
they can figure the cost, and figure the risks, and figure the 
assumptions. That is not what was done when billions of dollars 
were paid for current spectrum.
    And I think that going forward, that is why I like the Task 
Force concept, because it did not preclude a mixture of 
solutions, because we have a whole different mixture and class 
of citizens that are currently out there with extremely high 
capital investment.
    The Chairman. Thank you. Senator Sununu, go ahead.
    Senator Sununu. Thank you. I guess I am not really keeping 
anyone. I do have just a couple more questions. One, again from 
each of you, because I think you have probably looked at this 
certainly in more detail than we would as policymakers, is 
there anything out there that you would say, here is an issue 
we have talked about that is in the spectrum report, or that 
you read about in the papers, an issue that we have talked 
about that is important, but, the message to us, this is 
something, a choice and a decision that ultimately should be 
left to the FCC, rather than prescribed in legislation?
    Dr. Kolodzy. Okay, the FCC provides a mechanism to 
understand at least a lot of the technical issues associated 
with these very complex spectrum problems, and so, therefore, 
when you are actually talking about trying to keep up with the 
pace of technology, and trying to understand exactly, for 
instance, should opportunistic spectrum be available, should it 
be allowed, which is, if there is a hole in the spectrum can I 
jump into it and use it, should that be a legislative thing, or 
should that be an FCC, maybe giving the FCC the capability to 
be allowed to do that----
    Senator Sununu. I am looking for an example where perhaps 
Congress has stepped in in the past to offer legislative 
solutions, where you want to right now tell us, this is an area 
where, if not left completely to the FCC, you ought to be very 
careful before you move any legislation that prescribes a 
solution in this area. Do you have an area?
    Dr. Kolodzy. One of the recommendations was, in a sense, in 
the ORBIT Act, and the questions associated with that, and one 
of our recommendations to the Commission was to take a look at 
the ORBIT Act and allowing auctions for satellite spectrum. It 
does not necessarily mean we are going to exercise that option, 
but the idea was to possibly give the Commission the 
capability, or the availability of that tool in the toolbox.
    Senator Sununu. Doctor.
    Dr. Rosston. This is sort of a little bit hard, not being 
in Washington and knowing what you are considering, but I would 
follow up----
    Senator Sununu. But my point here is, we are considering 
everything.
    Dr. Rosston. I would say in terms of thinking about 
flexibility, that a directive from you to, say, give maximum 
flexibility would be good, and allowing the FCC to figure out 
the right way to implement that would be then the right thing 
to go ahead and do.
    Senator Sununu. You would be very careful about prescribing 
specific uses for specific bands?
    Dr. Rosston. Absolutely.
    Senator Sununu. Dr. Kahn.
    Dr. Kahn. Yes. I think I am pretty much in the same place. 
This is an extremely technically complex set of issues, and I 
think the danger always is that it is easy to make 
oversimplifying assumptions, even for those of us on the 
technical side. The FCC is far more technical, obviously, than 
Congress could possibly be, and they may not be technical 
enough for some of these questions, so I think shaping kind of 
general policy and requesting them to become more flexible and 
to examine some of those things is probably very good.
    I would be very cautious about anything that prescribed any 
specific technology or use of a piece of the spectrum, because 
that is subject to an awful lot of very difficult technical 
questions I think that are best handled by a set of people who 
are dedicated to studying those kinds of issues.
    Senator Sununu. Briefly, Mr. Berry.
    Mr. Berry. Congress does not often legislate with a 
scalpel. Normally it is a sledgehammer, and you cannot 
legislate the laws of physics or market forces, so I would 
concur that there is flexibility authorities granted, and then 
a lot of oversight.
    Senator Sununu. As the Chairman will point out, though, we 
seem to have been awfully sure about that whole HDTV thing.
    Mr. Berry. But flexibility and encouraging new technologies 
is correct. The wireless industry only has 189 megahertz of 
spectrum available to it.
    Senator Sununu. How much?
    Mr. Berry. 189 megahertz of spectrum. 159 of it is in use. 
The other 30 is still tied up in litigation, and probably now 
becoming available under the NextWave, so it is incredible what 
the wireless industry has done in less spectrum than is left on 
the floor between the broadcasters.
    Mr. Calabrese. One area that would be important coming up 
is the degree to which unlicensed sharing will be allowed in 
bands that are licensed for high power uses, because it will be 
possible, with these smart radio technologies that Dr. Kahn 
described, to have sharing of bands for broadband networking 
that does not cause harmful interference, but Congress should 
not, I think, draw that line.
    I think that would have to be a periodic review by the 
Commission, using its expertise to decide--Dr. Kolodzy 
mentioned the interference frequency temperature. If we use 
that concept, that has to be changed probably over time.
    Senator Sununu. Last question. With all this talk about 
flexibility, flexibility means multiple variables. You allow 
greater flexibility, there are greater variables associated 
with someone's potential return on a given investment in 
spectrum. It would seem to me that--if you want to take 
advantage of the Government giving these rights, you want to 
have a pretty sophisticated auction process.
    My question is, to what extent do you all believe that the 
current state of the auction designs used by the FCC are 
sufficient to meet sort of the needs, the goals, the ideas that 
are laid out in the Task Force recommendations? Kind of on a 
scale of 1 to 10, the sophistication, the design of the 
auctions, are the most recent auctions by the FCC up to the 
task completely, being a 10, or do we have an awful lot of work 
to do in experimenting and developing more sophisticated 
techniques? Scale of 1 to 10.
    Dr. Kolodzy. Scale of 1 to 10, I would say that you are 
probably around a 6, or a 5. We learned an awful lot from the 
most recent auctions that we have gone through, and we started 
adding flexibility in all the different aspects, and 
flexibility for people trying to understand what is possible, 
what is not, and then trying to overlay as to how you actually 
can make sure you prevent interference with all this 
flexibility, what you are actually going to be trying to put 
forth in these auctions, or actually in the rules associated 
with those bands, that is going to add a new complexity 
associated with this.
    Senator Sununu. When you say the most recent experience, 
you are talking about the combinatorial auctions that were used 
for the most recent wireless?
    Dr. Kolodzy. Yes.
    Dr. Rosston. This is actually a great question for me, 
because my institute has----
    Senator Sununu. I hope they are all great questions for 
you.
    [Laughter.]
    Dr. Rosston. They are. For me, I said. My institute has co-
sponsored two conferences on combinatorial auctions with the 
FCC, and we have been working with the FCC to try to push the 
envelope forward, and are tentatively planning another 
conference to push further forward on the combinatorial 
auctions in October.
    Senator Sununu. So you think you are doing a great job.
    Dr. Rosston. I think we are doing a pretty good job. I 
think one of the keys that you mentioned is having the rights 
defined clearly as you go into the auction. Then I think, I am 
not sure, but I think there may be some legislation needed for 
the FCC to conduct a two-sided auction, because it is a buyer 
and a seller. I am not positive about that, because I am not a 
lawyer, but I think the auction mechanisms that have been going 
forward will be able to work in this kind of environment. My 
guess is it is more like a 7 or an 8. There is still, 
obviously, room to improve, because no one has ever done these 
kinds of auctions before.
    Senator Sununu. Dr. Kahn.
    Dr. Kahn. I think I am going to have to pass on this one. I 
am really not an expert on auctions.
    Senator Sununu. Fine. I appreciate your candor there.
    Mr. Berry. I think they are improving on how they do 
auctions. I think the definition of the rights that you are 
auctioning on is very, very key. Authority for auction at the 
FCC expires at the end of 2006, and one of the recommendations 
in the report was they have authority to be able to resolve 
exclusive use issues within the satellite spectrum by a use of 
some type of competitive bidding in an auction process, so they 
are thinking more innovatively on it.
    Senator Sununu. Thank you.
    Mr. Calabrese. I partially answered this before saying that 
I think these one-off auctions that suggest that the term is 
indefinite are a bad idea. I also, as I said at the beginning, 
would oppose the two-sided auctions. The Task Force report 
asked Congress----
    Senator Sununu. In all cases? You do not think it is a good 
idea, it should never be used in dealing with spectrum 
management?
    Mr. Calabrese. Right. Yes. It is a bad idea because it is a 
recipe for a giveaway. It basically ensures that the incumbent 
is the only bidder, and what I am surprised is that the Task 
Force does not at least discuss an alternative means of 
auctioning these valuable flexibility rights that they propose 
handing out, which has been authorized by Congress, and that it 
is intertract competition, which is an auction mechanism used 
in auctioning Federal mining leases, which has been authorized 
by Congress, and it was done specifically to auction tracts 
that are adjacent to tracts owned by incumbents, because they 
would be the only logical bidders, and that would mean there 
would be hardly any money coming back to the public.
    And so Congress authorized in the early 1980s the 
intertract competition model, which was reviewed favorably by 
the Linowes Commission--it is in my written testimony--and I 
think that would be a better alternative if we were going to 
auction flexibility rights.
    Senator Sununu. Thank you. Thank you very much, Mr. 
Chairman. You have been very generous.
    The Chairman. Thank you. I want to thank the panel, and you 
have provided us with a lot of very helpful information, and we 
will look forward to communicating with you in the future. This 
hearing is adjourned.
    [Whereupon, at 11:30 a.m., the Committee adjourned.]

                                  
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