[Senate Hearing 109-686]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-686
 
                  WIRELESS ISSUES AND SPECTRUM REFORM

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 14, 2006

                               __________

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


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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 14, 2006...................................     1
Statement of Senator Allen.......................................    73
Statement of Senator Burns.......................................    75
Statement of Senator Dorgan......................................     2
Statement of Senator Kerry.......................................    14
    Prepared statement...........................................    14
Statement of Senator Lautenberg..................................     2
Statement of Senator Lott........................................    27
Statement of Senator Pryor.......................................    71
Statement of Senator Stevens.....................................     1

                               Witnesses

Hecker, JayEtta Z., Director, Physical Infrastructure Issues, 
  U.S. Government Accountability Office..........................    15
    Prepared statement...........................................    17
Hubbard, Robert W., President/CEO, Hubbard Television Group; Vice 
  President, Hubbard Broadcasting, Inc.; Secretary/Treasurer, 
  Association for Maximum Service Television, Inc................    40
    Prepared statement...........................................    42
Kahn, Kevin C., Senior Fellow and Director, Communications 
  Technology Lab, Intel Corporation..............................    32
    Prepared statement...........................................    34
Kenney, Jeannine, Senior Policy Analyst, Consumers Union; on 
  behalf of the Consumers Union, Consumer Federation of America, 
  and Free Press.................................................    53
    Prepared statement...........................................    55
Kneuer, John M.R., Acting Assistant Secretary for Communications 
  and Information, National Telecommunications and Information 
  Administration (NTIA)..........................................     8
    Prepared statement...........................................    10
Seidel, Catherine W., Acting Bureau Chief, Wireless 
  Telecommunications Bureau, Federal Communications Commission...     3
    Prepared statement...........................................     6
Sugrue, Thomas J., Vice President, Government Affairs, T-Mobile 
  USA, Inc.......................................................    49
    Prepared statement...........................................    51
Walsh, Thomas F., General Manager, Illinois Valley Cellular; 
  President of the Board, Rural Cellular Association.............    28
    Prepared statement...........................................    30
White, Lawrence J., Co-Chair, Spectrum Policy Working Group, The 
  Digital Age Communications Act (DACA) Project, Progress & 
  Freedom Foundation (PFF); Professor of Economics, Stern School 
  of Business, New York University...............................    64
    Prepared statement...........................................    66

                                Appendix

Inouye, Daniel K., U.S. Senator from Hawaii, prepared statement..    81
Joint prepared statement of Jerry Ellig, Ph.D., Senior Research 
  Fellow/Jerry Brito, J.D., Legal Fellow, Mercatus Center, George 
  Mason University...............................................    88
Letter, dated March 14, 2006, to Hon. Ted Stevens and Hon. Daniel 
  K. Inouye from a group of digital television and set top box 
  manufacturers..................................................    91
Response to written questions submitted by Hon. John D. 
  Rockefeller IV, to Catherine W. Seidel.........................    90
Shure Incorporated, prepared statement...........................    81


                  WIRELESS ISSUES AND SPECTRUM REFORM

                              ----------                              


                        TUESDAY, MARCH 14, 2006

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m. in room 
SD-106, Dirksen Senate Office Building, Hon. Ted Stevens, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. Thank you for coming. We obviously will not 
have the presence of the Co-Chairman today, after his sad loss 
yesterday. This is the tenth in the series of hearings on 
communications. Today, we want to look at various wireless 
issues, including the use and management of spectrum. Spectrum 
is one of our most important national resources. Americans 
increasingly rely on its use daily for family communications, 
work, education, and entertainment. Moreover, wireless services 
are essential to the ability of first responders and the 
military to save lives and protect our homeland. In the past, 
Congress has responded to advances in technology and changes in 
the communications market by updating laws concerning the use 
and management of spectrum. In 1993 Senator Inouye and I 
participated in moving legislation through Congress that 
directed the FCC toward licenses by auction. And earlier this 
year, Congress set a hard date of February 17, 2009, for the 
DTV transition, which will provide spectrum for public safety 
and wireless broadband service able to reach rural America. As 
part of the DTV legislation Congress at our request extended 
the FCC's auction authority to September 30, 2011. Senator 
Allen and I have proposed legislation that will allow 
unlicensed wireless devices to provide new services over the 
unused or white spaces of television's broadcast spectrum, so 
long as such devices did not cause harmful interference to TV 
service. Today, we hear whether Congress needs to address any 
particular wireless issue or further address spectrum reform. 
We have two panels. Let me call the first panel to the table if 
you will. Catherine Seidel, Acting Bureau Chief, Wireless 
Telecommunications Bureau of the FCC. Mr. John Kneuer, Acting 
Assistant Secretary for Communications and Information of NTIA. 
JayEtta Hecker, Director of Physical Infrastructure of the U.S. 
Government Accountability Office, GAO. While you are there, let 
me turn to my colleague here, Senator Dorgan.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much. As is 
always the case there are competing hearings. We have an 
appropriations subcommittee hearing going on in another room, 
so I won't be at all of this hearing. But I wanted to come by. 
First, let me say I know all of this Committee feels terrible 
about Senator Inouye's loss and the death of Mrs. Inouye is a 
real blow to the U.S. Senate. And our thoughts and prayers are 
with Senator Inouye today.
    As Co-Chair of the congressional wireless caucus, along 
with Senator DeMint and with Congressman Pickering and Wynn, we 
are very interested in these new wireless technologies and what 
they can mean for our country. I have always felt, Mr. 
Chairman, and perhaps the same is true with you, coming from 
Alaska, that many new technologies offer promise to provide 
additional service to rural areas of the country. And I believe 
wireless certainly does that and is a technology that I want to 
embrace to help expand further deployment of broadband to rural 
areas, which is so very important. And I support wireless for 
that purpose.
    I also support Senator Snowe's bill to promote auctioning 
off spectrum in smaller geographic areas so that rural carriers 
can more easily access spectrum. And I also support the 
legislation you just described to free up unused spectrum for 
unlicensed wireless use.
    There is a lot happening in this area, including, Mr. 
Chairman, the issue of concentration, which ought to be a 
concern for us and also for the FCC. I was on the Committee in 
1996 when we wrote the Telecommunications Act. The world has 
changed since then. I mean, it is an unbelievably different 
landscape since that time, but one relentless push has been 
concentration. Concentration in virtually every area of 
communications, including a recent announcement in the last 
week or two about another very, very large merger. So, I think 
as we talk about the technology and the use of spectrum, we 
also need to think about this issue of concentration and what 
it is going to mean to the landscape, if unchecked five and 10 
years from now, but again I think this is the right hearing to 
have. I appreciate, Mr. Chairman, your willingness to proceed 
to have this hearing and I look forward to hearing from the 
witnesses.
    The Chairman. Thank you very much, Senator.
    Senator Lautenberg?

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

    Senator Lautenberg. Mr. Chairman, this is an appropriate 
time to call this hearing, given the serious interest of what 
is happening with spectrum. I think it leaves us notably behind 
other countries. And we all share an interest in expanding 
telecommunications and broadband to every corner of the United 
States. If we plan to remain competitive in this 
technologically connected world, we can't afford to miss any 
opportunities to provide information to every American wherever 
we can do so. High speed Internet is a 21st century utility, 
one that obviously not only improves communication, education 
and, of course, the economy. Now many Americans don't have 
broadband because they live in smaller towns and coming from 
the most densely populated state in the country, it seems 
challenging to talk about smaller towns. We have a lot of them 
in New Jersey and they need to have these services available. 
And where a company won't make it available or they simply 
can't afford broadband services, we have to help that 
availability. And that is why unlicensed spectrum offers so 
much promise. It is an important resource. It can provide a 
catalyst for broadband deployment in all parts of the country, 
both urban and rural. And already we have seen unlicensed 
spectrum at work in our local coffee shops or the public park 
in the middle of town. On a larger scale, cities and towns 
across the country are using unlicensed spectrum to aid their 
residents by creating their own municipal networks. And we 
should embrace this effort, which is why I was pleased to join 
Senator McCain to introduce the Community Broadband Act to make 
sure local communities can continue to make broadband available 
for all their residents. But that is only one piece of the 
puzzle. Greater availability of unlicensed spectrum could 
improve the speed and reliability of these networks while 
reducing costs to consumers. Obviously, large parts of the 
spectrum are and should be reserved for government and 
business, but the airwaves are, after all, a public resource. 
Unlicensed spectrum can be used to promote the public interest. 
As for portions of the spectrum that are auctioned 
commercially, we have got to ensure that women-owned and 
minority businesses are getting equal opportunities. It is 
quite unclear as to whether or not this is happening. I look 
forward to hearing from our witnesses and perhaps we can get 
some light shed on these issues. Thank you very much, Mr. 
Chairman.
    The Chairman. Thank you, Senator, for the information of 
all the witnesses, your statements that you presented will be 
printed in the record in full. We would appreciate it if you 
could keep your statements as short as possible. We do want to 
hear you though because we are winding down now on these 
hearings. We have got these hearings today and we are going to 
have one more hearing, I believe. We have one this afternoon 
and then one in addition to that. We will then complete our 
series of some 17 hearings on communications. So our first 
witness is Catherine Seidel, Acting Bureau Chief of the 
Wireless Telecommunications Bureau with the FCC. If I have my 
way, we will drop the ``Tele'' and just talk about 
communications from that. Now, Ms. Seidel.

STATEMENT OF CATHERINE W. SEIDEL, ACTING BUREAU CHIEF, WIRELESS 
                  TELECOMMUNICATIONS BUREAU, 
               FEDERAL COMMUNICATIONS COMMISSION

    Ms. Seidel. Good morning, Chairman Stevens, Members of the 
Committee. I am Cathy Seidel, Acting Chief of the Wireless 
Bureau at the FCC. I appreciate the opportunity to appear 
before you today to discuss wireless issues and spectrum 
reform.
    The central focus of the FCC's early spectrum policy and 
regulation was management of the problem of interference among 
the adjacent spectrum users. Initially, the FCC sought to 
address this problem by employing a prescriptive, band-by-band 
approach whereby it allocated spectrum blocks to limited 
categories of spectrum users for a specific service subject to 
detailed and restrictive service rules.
    Spectrum policy, however, must keep up with the pace and 
innovation in wireless technologies to increase opportunities 
for technologically innovative and economically efficient 
spectrum use. The FCC has sought to move its spectrum policy 
toward more flexible and market-oriented regulatory models, 
both licensed and unlicensed, as alternatives to more 
traditional spectrum regulation. The licensed model has focused 
on providing exclusive, more easily transferable licensed 
rights to flexible use frequencies, subject to limitations on 
harmful interference. The Commission has also used the 
``commons'' or ``open access'' model, which allows users to 
share frequencies on an unlicensed basis, with the usage rights 
that are governed by technical standards, but with no right to 
protection from interference.
    Because each of these models offers benefits to spectrum 
users and the public, the Commission has sought to apply them 
in a balanced way, rather than attempting to rigidly apply a 
single regulatory model. This balanced approach has yielded 
positive results and given service providers the freedom they 
need to develop innovative new service offerings and to 
structure their network efficiently.
    Wireless communications are also vital to the Federal, 
state and local authorities responsible for maintaining public 
safety and responding to emergencies. Accordingly, the 
Commission has taken steps to ensure that public safety 
authorities have access to sufficient spectrum to meet their 
needs. Over the past year, the Commission has continued to 
dedicate significant effort to implementing a reconfiguration 
of the 800 MHz band. The Commission is also addressing whether 
public safety broadband communications can be accommodated 
within the current 24 megahertz of public safety spectrum in 
the 700 MHz band.
    Another essential aspect of the FCC's role as spectrum 
steward is to promote the use of spectrum to provide wireless 
voice and data services throughout the country, including rural 
and hard-to-serve areas. Over the past year, the Commission has 
implemented a number of policies in order to fulfill this goal. 
For example, the Commission reconsidered its band plan for the 
Advanced Wireless Service to ensure that it contains a mix of 
spectrum block sizes and geographic license areas. The revised 
band plan provides additional spectrum for licensing on a 
smaller geographic area basis, both to promote entry by smaller 
and regional carriers, and to provide all potential bidders 
with the flexibility to obtain spectrum in the increments that 
best suit their needs.
    A central foundation of the Commission's spectrum 
management policy is the mechanism it uses to award spectrum 
licenses. Since 1993, when Congress authorized the Commission 
to assign licenses through competitive bidding, the Commission 
has used auctions to assign commercial spectrum. All FCC 
licenses are subject to auction except public safety, public 
broadcasting, and international satellites.
    The Commission's experience has shown that auctions 
efficiently distribute spectrum to the applicants that value it 
most and compensate the public for use of a valuable and scarce 
resource. In the years since we received auction authority, 
bidders have won over 28,500 licenses at auction, and paid over 
$14.5 billion to the General Fund of the U.S. Treasury.
    Later this year, the Commission will conduct several 
significant auctions, including the auction of 4 megahertz of 
spectrum in the 800 MHz band for new nationwide air to ground 
services, and the auction of 90 MHz of paired spectrum for the 
Advanced Wireless Service.
    We are also taking steps to implement Congress's directive 
with respect to the auction of commercial spectrum in the 700 
MHz band that is being made available by the digital television 
transition.
    In granting the Commission the authority to assign license 
by competitive bidding, Congress directed that we ensure that 
small businesses have the opportunity to participate in the 
provision of spectrum-based services. To achieve this mandate, 
the Commission has established various incentives to provide 
small businesses with opportunities to participate in auctions. 
As the Commission's spectrum policies have developed we have 
repeatedly examined these incentives to ensure that our rules 
achieve their purpose of promoting opportunities for small 
businesses without unintended consequences. Currently, the 
Commission has an open rulemaking examining proposed 
modifications to the Commission's rules regarding relationships 
between small businesses and large communications providers.
    In its regulation of the wireless industry generally, the 
Commission has relied largely on competition to drive 
innovation, lower prices, and protect consumer interests. This 
light-handed approach has produced robust competition in the 
commercial wireless sector, to the benefit of consumers. In the 
past 5 years, the number of subscribers to commercial mobile 
services has more than doubled from 97 million in June of 2000 
to 195 million in June of 2005. Mobile telephones have gone 
from high-end luxury services to commonly available 
communication devices. In addition to providing voice services, 
wireless providers are increasingly bringing broadband 
capability to subscribers in the places where they live and 
work.
    Finally, although the Commission has taken a light-handed 
regulatory approach to wireless regulation, the government 
continues to play an important role in setting rules for the 
spectrum use, and in national consumer protection issues. For 
example, the Commission has implemented regulations to ensure 
that individuals who use hearing aids have access to wireless 
services and that all wireless consumers have access to 
enhanced 911 and local number portability.
    Thank you for the opportunity to testify before you today 
regarding wireless issues and spectrum reform. I would be happy 
to answer questions.
    [The prepared statement of Ms. Seidel follows:]

    Prepared Statement of Catherine W. Seidel, Acting Bureau Chief, 
 Wireless Telecommunications Bureau, Federal Communications Commission

Introduction
    Good Morning Chairman Stevens, Co-Chairman Inouye, and Members of 
the Committee. I appreciate the opportunity to appear before you today 
to discuss wireless issues and spectrum reform.
    In my testimony, I will describe briefly the background and 
development of the Federal Communications Commission's (FCC) spectrum 
and other regulatory policies for wireless services. I will also 
discuss our efforts to implement these policies to license and manage 
the Nation's non-Federal spectrum resources and wireless services.

Background
    As you know, the FCC is an independent agency charged with 
regulating interstate and international communications by radio, 
television, wire, satellite and cable. The FCC's role is to regulate 
non-Federal use of electromagnetic spectrum, while the National 
Telecommunications and Information Administration (NTIA) oversees 
Federal use of spectrum. The two agencies work cooperatively to 
encourage sharing of spectrum when possible, and to transition spectrum 
use between Federal and non-Federal users.
    I am Cathy Seidel, Acting Chief of the Wireless Telecommunications 
Bureau. Under the direction of Chairman Martin and the Commissioners, 
the Bureau oversees the use of spectrum for domestic terrestrial 
services. In developing and implementing the Commission's spectrum 
policy, we collaborate with our colleagues in the Office of Engineering 
and Technology, which oversees spectrum allocation for non-Federal use, 
the Media Bureau, which oversees broadcast radio and television 
services, and the International Bureau, which oversees satellite 
services.

Spectrum Management
    The central focus of the FCC's early spectrum policy and regulation 
was management of the problem of interference among adjacent spectrum 
users. Initially, the FCC sought to address this problem by employing a 
prescriptive, band-by-band approach whereby it allocated spectrum 
blocks to limited categories of spectrum users for specific services 
subject to detailed and restrictive service rules.
    Spectrum policy, however, must keep up with the dizzying pace of 
change and innovation in wireless technologies. In the last several 
decades, wireless technology has advanced rapidly, bringing new 
services and capabilities to the American people. These technological 
advances create the potential for systems to use spectrum more 
intensively than in the past. The Commission's challenge has been to 
accommodate more intensive spectrum use while ensuring that existing 
spectrum users are protected from harmful interference.
    To increase opportunities for technologically innovative and 
economically efficient spectrum use, the FCC has sought to move its 
spectrum policy toward more flexible and market-oriented regulatory 
models, both licensed and unlicensed, as alternatives to more 
traditional spectrum regulation. The licensed model has focused on 
providing exclusive, more easily transferable licensed rights to 
flexible-use frequencies, subject to limitations on harmful 
interference. The Commission has also used the ``commons'' or ``open 
access'' model, which allows users to share frequencies on an 
unlicensed basis, with usage rights that are governed by technical 
standards, but with no right to protection from interference.
    Because each of these models offers benefits to spectrum users and 
the public, the Commission has sought to apply them in a balanced way, 
rather than attempting to rigidly apply a single regulatory model to 
all spectrum. This balanced approach has yielded positive results. 
Wireless licensees have provided consumers with advanced mobile 
communications capabilities through use of exclusive and technically 
flexible licenses. Unlicensed services, on the other hand, have 
provided a wealth of innovation recently. Both models have proven 
valuable because they give service providers the freedom to develop 
innovative new service offerings and to structure their networks 
efficiently.
    Wireless communications are also vital to the Federal, state and 
local authorities responsible for maintaining public safety and 
responding to emergencies. Accordingly, the Commission has taken steps 
to ensure that public safety authorities have access to sufficient 
spectrum to meet their needs. Over the past year, the Commission has 
continued to dedicate significant effort to implementing a 
reconfiguration of the 800 MHz band to eliminate interference problems 
caused by the historical interleaving of public safety and commercial 
wireless channels in the band. The Commission is also addressing 
whether public safety broadband communications can be accommodated 
within the current 24 megahertz of public safety spectrum in the 700 
MHz public safety band.
    Another essential aspect of the FCC's role as spectrum steward is 
to promote the use of spectrum to provide wireless voice and data 
services throughout the country, including in rural and hard-to-serve 
areas. Over the past year, the Commission has implemented a number of 
policies in order to fulfill this goal. For example, the Commission 
reconsidered its band plan for the Advanced Wireless Service to ensure 
that it contains a mix of spectrum block sizes and geographic license 
areas. The revised band plan provides additional spectrum for licensing 
on a smaller geographic basis, both to promote entry by smaller and 
regional carriers, and to provide all potential bidders with the 
flexibility to obtain spectrum in the increments that best suit their 
needs. This band revision builds on other Commission policies intended 
to increase the efficiency and flexibility with which service providers 
can obtain access to spectrum in rural areas, including permitting 
licensees to partition, disaggregate, and lease their spectrum in 
secondary market transactions.

Auctions
    A central foundation of the Commission's spectrum management policy 
is the mechanism it uses to award spectrum licenses. Since 1993, when 
Congress authorized the Commission to assign licenses through 
competitive bidding, the Commission has used auctions to assign 
commercial spectrum. All FCC licenses are subject to auction except 
public safety, public broadcasting, and international satellites.
    The Commission's experience has shown that auctions efficiently 
distribute spectrum to applicants that value it most and compensate the 
public for use of a valuable and scarce resource. In the years since we 
received auction authority, bidders have won over 28,500 licenses at 
auction, and paid over $14.5 billion to the General Fund of the U.S. 
Treasury.
    Later this year, the Commission will conduct several significant 
auctions, including:

   Air-Ground--The auction of four megahertz of spectrum in the 
        800 MHz band for new nationwide air-ground services is 
        scheduled to begin on May 10, 2006. For this spectrum, the 
        Commission has developed a flexible licensing approach, 
        offering three alternative band plan configurations. Thus, the 
        band will ultimately be configured and licenses will be awarded 
        based on the band plan that receives the highest aggregate bid.

   Advanced Wireless Service--On June 29, 2006, the auction of 
        90 MHz of paired spectrum in the 1710-1755 and 2110-2155 MHz 
        band is scheduled to begin. The Commission has adopted flexible 
        service rules for the Advanced Wireless Service, to promote 
        innovation and development of next-generation services and 
        capabilities in the band. Notably, this auction will occasion 
        the first use of the Spectrum Relocation Trust Fund. 
        Established by Congress in the Commercial Spectrum Enhancement 
        Act, the Trust Fund allows the use of auction proceeds to 
        reimburse Federal agencies for the cost of relocating existing 
        operations in the 1710-1755 MHz band. Another potential change 
        to the Commission's auction processes that could facilitate the 
        transition of non-Federal incumbent spectrum users in future 
        auctions would be the use of ``two-sided auctions'' or 
        ``auction vouchers.''

    We are also taking steps to implement Congress's directive with 
respect to the auction of commercial spectrum in the 700 MHz band that 
is being made available by the digital television transition. Congress 
has recently passed legislation directing the Commission to begin an 
auction for this spectrum no later than January 28, 2008. This spectrum 
is particularly well-suited for wireless broadband uses, and promises 
to yield significant benefits and innovative services for consumers.
    In granting the Commission the authority to assign license by 
competitive bidding, Congress directed that we ensure that small 
businesses have the opportunity to participate in the provision of 
spectrum-based services. To achieve this mandate, the Commission has 
established various incentives, such as bidding credits and spectrum 
set-asides, to provide small businesses with opportunities to 
participate in auctions. As the Commission's spectrum policies have 
developed, we have repeatedly examined these incentives to ensure that 
our rules achieve their purpose--promotion of opportunities for small 
businesses--without unintended consequences. Currently, the Commission 
has an open rulemaking examining proposed modifications to the 
Commission's rules regarding relationships between small businesses and 
large communications service providers.

Wireless Service Regulation
    In its regulation of the wireless industry generally, the 
Commission has relied largely on competition to drive innovation, lower 
prices, and protect consumer interests. This light-handed approach has 
produced robust competition in the commercial mobile wireless sector, 
to the benefit of consumers. In the past five years, the number of 
subscribers to commercial mobile services has more than doubled from 97 
million in June 2000 to 195 million in June 2005. Mobile telephones 
have gone from high-end luxury services to commonly available 
communications devices. In addition to providing voice services, 
wireless providers are increasingly bringing broadband capability to 
subscribers in the places that they live and work.
    Although the Commission has taken a light-handed regulatory 
approach to wireless regulation, the government continues to play an 
important role in setting the rules for spectrum use, such as 
protection from harmful interference. The government also plays an 
important role in national consumer protection issues. For example, the 
Commission has implemented regulations to ensure the hearing disabled 
have access to wireless handsets and that all wireless consumers have 
access to enhanced 911 and local number portability.

Conclusion
    Thank you for the opportunity to testify before you today regarding 
wireless issues and spectrum reform. I would be pleased to answer any 
questions.

    The Chairman. Thank you very much. The next witness is John 
Kneuer, Acting Assistant Secretary for Communications and 
Information of NTIA. Pardon me, Senator Lott, did you wish to 
make an opening statement?
    Senator Lott. No, thank you, Mr. Chairman.

        STATEMENT OF JOHN M.R. KNEUER, ACTING ASSISTANT 
         SECRETARY FOR COMMUNICATIONS AND INFORMATION, 
          NATIONAL TELECOMMUNICATIONS AND INFORMATION 
                     ADMINISTRATION (NTIA)

    Mr. Kneuer. Thank you, Chairman Stevens, Members of the 
Committee, for inviting me here to testify about NTIA's role in 
spectrum management and reform. My name is John Kneuer; I serve 
as the Acting Administrator at NTIA.
    NTIA's responsibilities in general include, advising the 
Secretary of Commerce and the President on telecommunications 
policy matters, as well as managing the Federal radio spectrum. 
It is really the intersection of these two roles, 
telecommunications policy and spectrum management that has been 
the focus of NTIA during the Bush Administration.
    We have strived to make additional spectrum available, both 
on an unlicensed basis and a licensed basis to ensure that 
there is adequate spectrum for competitive services and new 
technologies, but at the same time making sure that we continue 
to maintain access and preserve the ability of critical Federal 
missions, public safety, homeland security, and our national 
defense.
    I would like to talk about three recent experiences that we 
have had that have really underscored the challenges of 
balancing these competing interests. Working with the FCC, we 
were able to identify 90 MHz of new spectrum to be licensed 
through an auction scheduled for this June, for advanced 
wireless services, that required the relocation of the Federal 
systems that were in those bands. We also worked to come up 
with a technical solution to allow unlicensed broadband 
wireless devices, WiFi-like devices, to co-exist in the 5 GHz 
band with spectrum that had previously been for the exclusive 
use of Federal radar systems.
    Last, we worked again with the FCC to come up with 
technical rules to allow for the introduction of a brand new 
technology, ultra-wideband (UWB). UWB operates across huge 
bands of spectrum that are reserved for Federal and non-Federal 
systems, very challenging to our spectrum policies. Each of 
these proceedings, while they were ultimately successful, 
really underscored the challenges and the limitations of our 
regulatory environment. In fact in 2003, the President observed 
that, ``the existing legal and policy framework for spectrum 
management has not kept pace with the dramatic changes in 
technology and spectrum use.'' It was based on that observation 
that the President launched his spectrum policy initiative. 
This is an inter-agency initiative that has four principal 
goals: (a) foster economic growth; (b) ensure our national and 
homeland security; (c) maintain the U.S. global leadership in 
communication technology development and to satisfy other 
needs, such as public safety, scientific research, and 
transportation infrastructure.
    This morning I want to talk about some of the objectives 
and some of the accomplishments that we have been making in 
satisfying this initiative. It is important to recognize that 
this is not just an NTIA initiative; this is not just a 
Department of Commerce initiative; this is an inter-agency 
government-wide initiative. One of the things that underscores 
this is that in June of 2005, the Office of Management and 
Budget gave guidance to each of the Federal agencies, that 
beginning with the Fiscal Year 2007 budgets, the agencies are 
required to consider the economic value of the radio spectrum 
when they propose funding for a spectrum-dependent system in 
their budget. This is a big deal. This is the first time that 
agencies and the Federal Government don't just look at spectrum 
as a free resource, when they are making their plans on 
building new systems and presenting their budgets. They need to 
recognize the economic value and the opportunity costs in that 
regard. To underscore this point the Department of Defense has 
made great strides working in this regard. DOD really led the 
way in coming up with their systems and their plans in this 
regard, not just in the capital planning process, but the 
Department of Defense has been a very strong partner of ours in 
the initiative and advancing the state of radio art. So I 
wanted to give them their credit in that regard.
    While the initiative is not limited to the Department of 
Commerce, we do have a significant role. In May of last year, 
we submitted to the White House an implementation plan that 
laid out dozens of steps that we will undertake to meet the 
President's initiative. Let me quickly just go through a few. 
The implementation plan itself is available on our web page and 
you can see all the different activities we are doing, but I 
thought I would underscore a few this morning.
    We are identifying opportunities for sharing systems 
between Federal and non-Federal public safety systems. I think 
the experiences in the Gulf and Katrina and Rita really 
underscored the need for Federal, state, and local first 
responders, and public safety entities to work together, to 
communicate together, by identifying opportunities for us to 
partner together. We identify capital savings. We don't need to 
build redundant systems. We identify spectrum savings and we 
clearly ensure continued interoperability.
    We are also working on a strategic spectrum plan, I think 
GAO in their report called for increased planning, long range 
planning. Each of the agencies has supplied to NTIA, their 
long-range spectrum needs plans, and we are coordinating those 
into an overall Federal plan. For the first time, we will look 
at the Federal spectrum use in one holistic way, rather than 
individual agencies in that limited way. We are also working on 
producing a plan for bringing incentives to Federal spectrum 
use. The FCC has a number of tools at their disposal to bring 
market forces to create incentives for spectrum use, whether it 
is auctions or creating secondary markets, we are limited in 
our ability to get that done. In the Federal space, we are 
working on plans to come up with rational incentives. I think 
it is important we recognize that each of those, not every 
system, not every application, is the same. We can't have a 
one-size-fits-all approach. We should try to identify 
opportunities to bring market-based incentives as well as other 
incentives to increase efficient use of the Federal spectrum.
    Finally, one of the recommendations that was included in 
the President's spectrum initiative was to work with the 
Congress to pass the Commercial Spectrum Enhancement Act, which 
would create a process where Federal entities are reimbursed 
for the relocation of their bands to clear up spectrum.
    I want to thank you, Senator Stevens, for your leadership 
in getting that bill passed last year, because of that 
legislation the FCC will be able to auction that 90 MHz of 
spectrum this June and that auction will bring billions of 
dollars into the Treasury. It will give every wireless carrier 
the ability to be a broadband provider, and we think that is 
important. So, I want to thank you again for your leadership in 
that regard.
    Thank you for my invitation. I am happy to take any 
questions.
    [The prepared statement of Mr. Kneuer follows:]

Prepared Statement of John M.R. Kneuer, Acting Assistant Secretary for 
    Communications and Information, National Telecommunications and 
                   Information Administration (NTIA)

    Thank you, Chairman Stevens, Senator Inouye, and Members of the 
Committee, for inviting me here to testify about the National 
Telecommunications and Information Administration's (NTIA) role in 
spectrum management and reform. My name is John Kneuer, and I serve as 
the Acting Assistant Secretary for Communications and Information and 
Acting Administrator of NTIA.
    Among its responsibilities, NTIA is the principal 
telecommunications policy advisor to the Secretary of Commerce and the 
President, and the manager of Federal Government use of the radio 
spectrum. Throughout the Bush Administration this intersection of 
telecommunications policy and spectrum management has been the key 
focus of NTIA.
    By identifying new spectrum for both licensed and unlicensed 
services, and working with the Federal Communications Commission (FCC) 
to authorize entirely new services, NTIA has worked to ensure that 
commercial wireless services have adequate access to spectrum to 
compete with incumbents and provide new services to consumers, while at 
the same time preserving spectrum access for critical Federal systems 
and public safety services. Achieving this balance between commercial 
and government interests, while critical, has not always been easy in 
the current regulatory environment.
    Three recent experiences underscore this challenge: (1) identifying 
90 MHz of spectrum to be auctioned for licensed advanced wireless 
services; (2) finding a technical solution to allow unlicensed 
broadband systems to share spectrum with critical government systems in 
the 5 GHz band; and (3) working with the FCC to accommodate ultra-
wideband devices that operate across huge bands of both Federal and 
non-Federal frequency bands. While ultimately successful, the effort 
required to introduce these technologies exposed the limits of our 
spectrum management system.
    Based on these experiences, in 2003, President Bush stated that 
``the existing legal and policy framework for spectrum management has 
not kept pace with the dramatic changes in technology and spectrum 
use.'' As a result, and in order to ensure that America has a spectrum 
policy for the 21st Century, President Bush established his Spectrum 
Policy Initiative. The objectives of this inter-agency Initiative are 
to:

        (a) foster economic growth;

        (b) ensure our national and homeland security;

        (c) maintain U.S. global leadership in communications 
        technology development and services; and

        (d) satisfy other vital U.S. needs in areas such as public 
        safety, scientific research, Federal transportation 
        infrastructure, and law enforcement.

    This morning I will highlight the progress that the Administration 
is making in spectrum management reform in implementing the President's 
Spectrum Policy Initiative.
The President's Spectrum Policy Initiative
    The Secretary of Commerce chairs and directs the work of the 
President's Spectrum Policy Initiative, which consists of two broad 
courses of activity: an inter-agency Spectrum Task Force, and regular 
public outreach. In June 2004, the Secretary of Commerce submitted two 
reports to the President, one with recommendations of the Spectrum Task 
Force, and one including recommendations submitted during public forums 
and in response to a public notice of inquiry.
    In November 2004, the President issued his second Executive 
Memorandum on spectrum reform and directed the Department of Commerce, 
the Office of Management and Budget, and the Department of Homeland 
Security and other agencies to implement the recommendations included 
in the two reports. The following is a summary of the activities that 
the Department of Commerce, and certain other Executive Branch Offices 
and Departments, have undertaken to implement the recommendations.
Progress in Implementing the President's Spectrum Policy Initiative
Capital Planning and Investment Control Procedures
    The President directed the Office of Management and Budget (OMB) to 
``provide guidance to the agencies for improving capital planning and 
investment control procedures to better identify spectrum requirements 
and the costs of investment in spectrum-dependent programs and 
systems.'' In June 2005, OMB instructed the Federal agencies to 
consider the economic value of radio spectrum when developing 
justifications for new spectrum-dependent systems, beginning with 
Fiscal Year 2007 budget requests. The Secretary of Commerce asked each 
agency to report on its progress on this directive.
    Several agencies identified a number of potential improvements to 
capital planning and investment control procedures related to spectrum-
dependent technologies. Each has begun the process of implementing 
these improvements. NTIA is now working with OMB and the Federal 
agencies to review the individual agency capital planning processes as 
they relate to spectrum-dependent investments. This review will 
identify best practices with the objective of defining a consistent 
approach for including spectrum in the Federal capital planning 
process.

Department of Commerce Progress
    Pursuant to the November 2004 Executive Memorandum, the Department 
of Commerce is directed to complete various tasks to implement the 
recommendations set forth in the June 2004 Reports. These tasks 
include: (a) developing a plan to implement recommendations for which 
it is responsible; (b) producing a Federal Strategic Spectrum Plan; and 
(c) developing a plan to identify and implement incentives for more 
efficient spectrum use. There have been numerous accomplishments to 
date in meeting these tasks.
    Implementation Plan: The President directed the Secretary of 
Commerce to establish a plan for the implementation of all other 
recommendations included in its June 2004 Reports. On May 30, 2005, the 
Department of Commerce transmitted this plan to the Executive Office of 
the President and has commenced working on the recommendations it set 
forth. This plan sets forth milestones and timelines for implementation 
of the Intitiative over several years. Milestones and accomplishments 
to date include:

        Policy and Plans Steering Group: In order to enlist the 
        leadership of Federal agencies in the resolution of spectrum 
        policy matters, the Department of Commerce established the 
        Policy and Plans Steering Group, or PPSG, in January 2005. This 
        advisory group is composed of top leadership officials, at an 
        Assistant Secretary-level or equivalent, from the Federal 
        agencies that are major users of radio spectrum. The PPSG 
        advises NTIA's Administrator on spectrum policy and strategic 
        plans. The PPSG has committed to resolve major contentious 
        spectrum issues affecting Federal and non-Federal spectrum 
        users. The PPSG first met in January 2005 and will hold its 
        third meeting at the end of this month to provide input on the 
        implementation of the Spectrum Policy Initiative's 
        recommendations.

        Commerce Spectrum Management Advisory Committee: The Department 
        of Commerce chartered the Commerce Spectrum Management Advisory 
        Committee in 2005. This Committee, organized pursuant to the 
        Federal Advisory Committee Act, will consist of private sector 
        experts in spectrum and spectrum policy. It will advise the 
        Assistant Secretary for Communications and Information on a 
        broad range of issues regarding spectrum policy and on needed 
        reforms to domestic spectrum policies and management. This 
        advice will include suggested reforms to facilitate the 
        identification of spectrum for new technologies and services.

        Improvement of Spectrum Management Processes: NTIA has laid out 
        a program for the next five years to modernize and improve 
        spectrum management processes. The program includes: (1) a 
        review and improvement of our international spectrum management 
        policies including the improvement of our World 
        Radiocommunication Conference preparation process and the 
        international policy and framework that could become barriers 
        to the implementation of new spectrum efficient technologies; 
        (2) standardization and implementation of methods and analysis 
        tools to assess new technologies to reduce the time it takes to 
        provide access to spectrum; (3) adopt a spectrum management 
        career development program to maintain our expertise in 
        adapting new technologies and using the spectrum more 
        efficiently and effectively; and (4) application of modern 
        information technology (IT) to provide more rapid access to 
        spectrum and make the spectrum management process more 
        effective and efficient.

        Federal/Non-Federal Public Safety Demonstration Program: The 
        Department of Commerce has identified a number of candidate 
        pilot programs to test the operational and cost effectiveness 
        of sharing spectrum and communications infrastructure among 
        Federal, state and/or local governments. NTIA coordinated with 
        Federal agencies to consider existing demonstration programs 
        for use in the pilot program. NTIA is evaluating seven programs 
        in accordance with selection criteria that include factors such 
        as whether the program demonstrates cost-effectiveness of 
        sharing, whether the program is in existence and funded, and 
        whether the program operates within existing allocations.

        Federal Strategic Spectrum Plan: As directed by the President, 
        the Department of Commerce requested spectrum plans from 15 
        agencies. The agency plans include: (1) current and future 
        spectrum requirements for future technologies or services; (2) 
        the planned uses of new technologies or expanded services 
        requiring spectrum over a period of time agreed to by the 
        selected agencies; and (3) suggested approaches to meeting 
        identified spectrum requirements in a spectrally efficient way.

    NTIA is integrating these individual agency plans into the 
foundation for the development of a comprehensive Federal Strategic 
Spectrum Plan. It will address the fragmentation, shortage, 
interference and security issues related to spectrum used by public 
safety organizations. Additionally, the President called for the 
Department of Homeland Security's Spectrum Needs Plan in the Federal 
Strategic Spectrum Plan.
    The President directed this plan to be completed within six months 
after receiving the agency plans. It will be completed this summer and 
will lay the foundation for spectrum management for the 21st Century.
    Plan to Identify and Implement Incentives: The President also 
directed the Secretary of Commerce to develop a plan identifying and 
implementing incentives to promote more efficient and effective use of 
the spectrum, while protecting national and homeland security, critical 
infrastructure, and government services. NTIA's Incentives Plan is 
organized around projects at several stages:

        Public Outreach: NTIA identified two tasks as part of its 
        public outreach---a public workshop on economic and other 
        incentives that it sponsored at the National Academy of 
        Sciences, and a review of the use, or proposed use of, economic 
        incentives in other counties. NTIA's workshop was held on 
        February 28 and March 1, 2006. This forum brought together 
        world-renowned experts and spectrum managers to present and 
        discuss ideas on how incentives could apply to Federal 
        Government and commercial spectrum users. NTIA will use the 
        information gained from this workshop to guide and inform 
        development of further studies identified as part of the plan.

        Spectrum Valuation: Economic incentives for more efficient 
        spectrum use are based on the premise that spectrum rights have 
        measurable value. NTIA plans to study methods to estimate the 
        economic value for spectrum used by Federal agencies and the 
        opportunity cost of government spectrum versus other uses.

        Federal User Fees: NTIA proposes to study the possible 
        effectiveness of user fees designed specifically to encourage 
        Federal agencies to make more efficient use of spectrum, as 
        well as questions regarding whether such fees would be 
        effective or appropriate for Federal Government spectrum use.

        Non-Fee Incentives: On the premise that positive incentives 
        through the granting of greater rights are basic to economic 
        approaches to spectrum management, NTIA plans to examine 
        incentives other than fees for Federal users, including, for 
        example, the feasibility of granting agencies tradable rights 
        and allowing agencies to accept payment for, or otherwise 
        benefit from, allowing others to access their spectrum.

        Sharing: With new technologies offering advances in spectrum 
        sharing, NTIA plans to examine increased sharing of spectrum 
        among Federal agencies or between agencies and other uses. This 
        inquiry will look at such issues as frequency availability for 
        such systems, different dynamic spectrum access techniques, and 
        preemptive spectrum rights.

        Spectrum Rights and Secondary Markets: On a broader level, NTIA 
        plans to study spectrum rights and how they apply to all 
        spectrum users, including how the FCC and NTIA define rights, 
        and what changes, if any, would be beneficial and practical. 
        NTIA will explore ways to enhance secondary markets, including 
        increasing technical flexibility, developing real time 
        electronic trading mechanisms, and expanding the trading of 
        spectrum to Federal as well as non-Federal users.

    This Incentives Plan also reflects NTIA's efforts to support the 
President's legislative proposals on spectrum. The President in his 
Fiscal Year 2007 budget recommended: (1) the FCC's auction authority, 
which was extended through Fiscal Year 2011 in the Deficit Reduction 
Act of 2005, be made permanent; and (2) new authority be given to the 
FCC to charge fees for unauctioned spectrum licenses and construction 
permits.
    Spectrum Relocation Fund: The Department of Commerce is 
implementing the Commercial Spectrum Enhancement Act, which was passed 
by Congress and signed by the President in December 2004. This Act 
establishes a spectrum relocation fund for Federal agencies from the 
proceeds of an auction that is scheduled to be held by the FCC in June 
2006. The fund streamlines the process for reimbursing Federal agencies 
that must relocate from Federal spectrum that is being reallocated to 
commercial use. NTIA has worked with the Federal agencies that operate 
microwave radio-relay communications systems in the 1710-1755 MHz band 
to identify the systems requiring relocation, to identify new microwave 
bands or non-spectrum options, such as fiber optics, and to make the 
relocation cost estimates. NTIA led the multi-agency activity, which 
resulted in identifying 2,240 microwave radio-relay systems that will 
be relocated, at a relocation cost of nearly $936 million. The 
relocation-fund process has worked very well thus far, and the auction, 
referred to as the ``Advanced Wireless Services'' or ``AWS'' auction, 
is expected raise several billion dollars. New spectrum will become 
available by this process, and American consumers and businesses will 
reap the benefits of more bandwidth for mobile technologies. For 
business, this means greater productivity; and for the consumer, more 
choices and improved services. At the same time, Federal agencies will 
also benefit as they are able to upgrade their services and equipment.
Conclusion
    Thank you again for inviting me to testify. I welcome any questions 
that you may have for me.

    The Chairman. Thank you very much. Our next witness is Ms. 
Hecker of the GAO. Does any Senator have a time problem and 
wish to make a statement before Ms. Hecker speaks?
    Senator Kerry. Mr. Chairman, that is very generous of you. 
Could I take advantage of that?
    The Chairman. Yes.

               STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. First of all, thank you, Mr. Chairman. I 
thank the witnesses and thank you, Mr. Chairman for holding 
this hearing. I have heard you describe how reliable broadband 
connection in Alaska would make a difference for folks who are 
in remote areas and who need some economic opportunity. I could 
not agree with you more. There are just too many people who 
either don't have access to broadband Internet service or they 
can't afford it, one of the two. Almost 60 percent of the 
country is unconnected as a consequence. Despite the 
President's promise of ubiquitous broadband by 2007, we are 
clearly now well into 2006, short of that goal. Only 40 percent 
of the households in America are subscribing and it seems, 
incredibly, that the FCC is sitting on a rulemaking proceeding 
that will help correct these problems. I have been pleased to 
join in a bipartisan effort with Senator Allen, to sponsor 
legislation that will better utilize spectrum and accomplish 
that goal. I just think that this is the only way we are going 
to make real all of our talk about competitiveness and secure 
America's place in the marketplace.
    What our legislation would do, Mr. Chairman, is enable 
entrepreneurs to provide affordable competitive high-speed 
wireless broadband in areas that have no connectivity. It does 
so by providing additional unlicensed spectrum, which is now 
spurring an outpouring of innovation and creates an 
affordable--and broadly available wireless broadband solution--
for unconnected rural homes, small businesses and public safety 
agencies. It allows kids, parents, just a whole bunch of people 
to suddenly connect, who can't connect. We have specifically 
put in the bill a provision that will prevent any interference 
with licensed entities and to avoid any kind of spectrum clash 
or interference.
    So I think that it is important not to have false arguments 
put in the way of this. I think this really could be helpful. 
So, Mr. Chairman, thanks so much for bringing the Committee 
together around this. It could not be more important to all of 
us. Thank you.
    [The prepared statement of Senator Kerry follows:]

               Prepared Statement of Hon. John F. Kerry, 
                    U.S. Senator from Massachusetts

    Mr. Chairman, I thank you for holding this hearing. We often talk 
about the importance of greater broadband deployment--and it is time to 
set Federal policy that will encourage it.
    I have heard you describe how reliable broadband connections in 
Alaskan villages could change the economic opportunities in those 
villages. I really believe you are on to something Mr. Chairman and I 
applaud your leadership on this issue.
    Unfortunately, many people either do not have access to broadband 
Internet service or simply cannot afford it. Despite President Bush's 
promise of ubiquitous broadband by 2007--we are well short of that goal 
(currently 40 percent of households subscribe).
    Incredibly, it seems that the FCC is sitting on a rulemaking that 
will help correct this problem. I am pleased to join Senator Allen in 
sponsoring legislation that seeks to better utilize spectrum and 
accomplish this goal.
    I have talked repeatedly in recent months about broadband as a key 
to economic growth--a job creator--a tool for learning and innovation. 
Indeed, it is a central pillar of our long-term competitiveness.
    Our legislation will enable entrepreneurs to provide affordable, 
competitive high-speed wireless broadband services in areas that 
otherwise have no connectivity.
    It does so by providing additional unlicensed spectrum--which is 
spurring an outpouring of innovation and creating affordable and 
ubiquitous wireless broadband solutions--for unconnected rural homes, 
for small business, for public safety agencies, and more.
    It is my hope Mr. Chairman that we can come to agreement for a 
timely mark-up of the Allen/Kerry bill.

    The Chairman. Thank you very much. Ms. Hecker.

      STATEMENT OF JayEtta Z. HECKER, DIRECTOR, PHYSICAL 
            INFRASTRUCTURE ISSUES, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Ms. Hecker. Thank you, Mr. Chairman, I am very pleased to 
be here to speak on this important topic. As somebody has 
already said, the spectrum is really critical to our economy. 
At the same time, there is a rapid growth in demand, and 
concerns about scarcity, since most of the useable spectrum is 
already assigned. Similarly, there are concerns about 
underutilization, so we have done some work and have raised 
some concerns about whether the Federal framework that we have 
is really adequate to respond to the growing and future demand. 
We have in fact concluded that the need for attention to this 
matter is acute.
    What I will cover is four topics and try to sweep through 
them pretty quickly. The first is the extent to which the FCC 
has adopted market-based mechanisms. Second, the extent to 
which government has adopted market mechanisms. Third, based on 
a review that we have done for this Committee, what some of the 
key options are for improving spectrum management. Finally, our 
summary of some of the institutional barriers that we believe 
there are to comprehensive spectrum reform.
    The first issue about FCC: there is no doubt that FCC, with 
Congressional support, has moved forward incrementally to adopt 
market-based approaches. Clearly, and most importantly, is use 
of auctions. Also important are enhancing the use of secondary 
markets and introducing flexibility in certain bands. While 
auctions represent a substantial improvement, we would note 
that only a very small portion of total licenses, outstanding 
licenses, have actually been auctioned. Our analysis shows it 
is less than 2 percent of licenses.
    On the allocation issue, we are concerned that basically 
FCC still employs largely a command-and-control process for the 
allocation of spectrum. And again, as I mentioned, while there 
is some flexibility in some bands, like CMRS, where the users 
are allowed to choose technology, have flexibility in their 
business models and services, that is not the case for most of 
the spectrum that is allocated. Concerns have been raised that 
the allocation process is slow and inefficient, leading to 
underutilization and not getting spectrum in the hands of the 
users who can make the most efficient and intense use of it.
    Quickly then, to the governments use. Again, I think you 
have heard from Mr. Kneuer, there are clear initiatives on 
NTIA's part. But, it is certainly not comparable to what some 
other countries have done to truly adopt market-based 
mechanisms or proxies for market mechanisms and improving the 
incentives for efficient use by government users.
    The current status quo, consistent with the limitations of 
Federal law, is that the fees that are imposed on government 
users are actually based on the number of assignments and are 
designed to spread the cost across the widest range of 
government users, and is not at all even a beginning proxy for 
the intensity of use of spectrum.
    So, only 80 percent of the spectrum management cost of NTIA 
is recovered by the fees that are imposed on agencies. The 
premise is for some kind of incentive based fees and getting 
some transparency for the distribution and utilization in 
different government agencies; I think the inventory and first 
Federal plan that Mr. Kneuer talked about is definitely a first 
step forward. That is definitely a first step and we do 
acknowledge that there are definitely difficulties and 
challenges in applying market incentives, but we believe that 
the data show that there are substantial gaps and 
underutilization of spectrum by the government and improvements 
are definitely needed.
    The two options that our work has identified to improve 
spectrum management are basically extending and refining 
auction authority, and reexamining the use and distribution of 
spectrum.
    Obviously, the auction authority has been extended, but 
there is actually still some opportunity for some further 
refinements of auction authority. By Congress talking about 
better definition or clarity or flexibility in license rights, 
similar to your legislation allowing for unlicensed use of TV 
broadcast, white space as an example. Also, there are 
opportunities for further enhancement of secondary markets and 
further refinement of small business incentives.
    The second major proposal put forward is basically that 
what we really need is a national spectrum census, and we are 
beginning to do that on a Federal level. We really do not have 
it on the commercial side. We need a broader evaluation of the 
tradeoffs between government and commercial use, licensed and 
unlicensed. Some steps are underway.
    Our major concern, though, and this is really the bottom 
line is that there are fundamental institutional barriers to 
comprehensive reform of spectrum with a current government 
structure. While we have these two agencies, and each of them 
is talking about reform, neither has ultimate government 
decision-making authority or the authority to impose 
fundamental reform and that is why we really have a piecemeal 
approach in our view.
    We have two outstanding recommendations. One is that the 
agencies really need to work together to have a complete 
national spectrum plan. The other recommendation is for 
potentially to have a commission like a base closing commission 
to be established by either Congress or the President that 
would do a comprehensive examination of current spectrum 
management and opportunities for reform.
    In conclusion, the Congress has taken a vital first step 
with the extension of auction authority, but substantial work 
remains to be done and is vital to promote or perhaps even 
ensure the more efficient and effective use of this vital and 
national resource. Thank you, Mr. Chairman.
    [The prepared statement of Ms. Hecker follows:]

      Prepared Statement of JayEtta Z. Hecker, Director, Physical 
      Infrastructure Issues, U.S. Government Accountability Office

    Mr. Chairman and Members of the Committee:
    We appreciate the opportunity to provide testimony on spectrum 
reform issues. As you know, the radio-frequency spectrum is used to 
provide an array of wireless communications services that are critical 
to the U.S. economy and various government missions, such as national 
security. Demand for radio-frequency spectrum has exploded over the 
past several decades as new technologies and services have been--and 
continue to be--brought to the market in the private sector, and new 
mission needs unfold among government users. As a result, nearly all 
parties are becoming increasingly concerned about the availability of 
spectrum for future needs because most of the usable spectrum in the 
United States has already been allocated to existing services and 
users. Compounding this concern is evidence that some of the spectrum 
is currently underutilized. Many parties believe that spectrum 
management reform--such as greater reliance on market-based mechanisms 
that invoke the forces of demand and supply--is essential to meeting 
the growing and unpredictable demand for spectrum.
    My statement today will identify (1) the extent to which the 
Federal Communications Commission (FCC) has adopted market-based 
mechanisms for commercial uses of spectrum, \1\ (2) the extent to which 
market-based mechanisms have been adopted for Federal Government use of 
spectrum, (3) options for improving spectrum management, and (4) 
potential barriers to spectrum reform. My comments are based on our 
body of work on spectrum management, including our recently issued 
report to this Committee; \2\ these reports were prepared in accordance 
with generally accepted government auditing standards.
    In summary:

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

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

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

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

Background
    The radio-frequency spectrum is the part of the natural spectrum of 
electromagnetic radiation lying between the frequency limits of 9 
kilohertz and 300 gigahertz. \5\ It is the medium that makes wireless 
communications possible and supports a vast array of commercial and 
governmental services. Commercial entities use spectrum to provide a 
variety of wireless services, including mobile voice and data, paging, 
broadcast radio and television, and satellite services. Additionally, 
some companies use spectrum for private tasks, such as communicating 
with remote vehicles. Federal, state, and local agencies also use 
spectrum to fulfill a variety of government missions. For example, 
state and local police departments, fire departments, and other 
emergency services agencies use spectrum to transmit and receive 
critical voice and data communications, and Federal agencies use 
spectrum for varied mission needs such as national defense, law 
enforcement, weather services, and aviation communication.
    Spectrum is managed at the international and national levels. The 
International Telecommunication Union (ITU), a specialized agency of 
the United Nations, coordinates spectrum management decisions among 
nations. Spectrum management decisions generally require international 
coordination, since radio waves can cross national borders. Once 
spectrum management decisions are made at the ITU, regulators within 
each nation, to varying degrees, will follow the ITU decisions. In the 
United States, responsibility for spectrum management is divided 
between two agencies: FCC and NTIA. FCC manages spectrum use for non-
Federal users, including commercial, private, and state and local 
government users under authority provided in the Communications Act. 
NTIA manages spectrum for Federal Government users and acts for the 
President with respect to spectrum management issues. \6\ FCC and NTIA, 
with direction from the Congress, jointly determine the amount of 
spectrum allocated to Federal and non-Federal users, including the 
amount allocated to shared use.
    Historically, concern about interference or crowding among users 
has been a driving force in the management of spectrum. \7\ FCC and 
NTIA work to minimize interference through two primary spectrum 
management functions--the ``allocation'' and the ``assignment'' of 
radio spectrum. Specifically:

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

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

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



    In some frequency bands, FCC authorizes unlicensed use of 
spectrum--that is, users do not need to obtain a license to use the 
spectrum. \10\ Rather, an unlimited number of unlicensed users can 
share frequencies on a non-interference basis. Thus, the assignment 
process does not apply to the use of unlicensed devices. However, 
manufacturers of unlicensed equipment must receive authorization from 
FCC before operating or marketing an unlicensed device.
FCC Has Adopted Several Market-Based Mechanisms for Commercial Uses
    To promote the more efficient use of spectrum, FCC is incrementally 
adopting market-based approaches to spectrum management. For instance, 
FCC has introduced some flexibility in the spectrum allocation process, 
although it remains largely a command-and-control process. In addition, 
in 1994, FCC instituted auctions to assign certain spectrum licenses. 
According to industry stakeholders, FCC's use of auctions is seen as an 
improvement over comparative hearings and lotteries, the primary 
assignment mechanisms employed in the past. Finally, FCC has taken 
steps to facilitate greater secondary market activity, which may 
provide an additional mechanism to promote the more efficient use of 
spectrum.

FCC Has Introduced Some Flexibility in the Spectrum Allocation Process 
        but 
        Allocation Remains Largely a Command-and-Control Process
    FCC currently employs largely a command-and-control process for 
spectrum allocation. \11\ That is, FCC applies regulatory judgments to 
determine and limit what types of services--such as broadcast, 
satellite, or mobile radio--will be offered in different frequency 
bands by geographic area. In addition, for most frequency bands FCC 
allocates, the agency issues service rules to define the terms and 
conditions for spectrum use within the given bands. These rules 
typically specify eligibility standards as well as limitations on the 
services that relevant entities may offer and the technologies and 
power levels they may use. These decisions can constrain users' ability 
to offer services and equipment of their choosing.
    However, FCC has provided greater operational and technical 
flexibility within certain frequency bands. For example, FCC's rules 
for Commercial Mobile Radio Service (CMRS), which include cellular and 
Personal Communications Services (PCS), are considered less 
restrictive. Under these rules, wireless telephony operators are free 
to select technologies, services, and business models of their 
choosing. FCC has not provided comparable flexibility in other bands. 
\12\ For example, spectrum users have relatively little latitude for 
making similar choices in frequency bands allocated to broadcast 
television services.
    Further, the Spectrum Policy Task Force Report, a document produced 
by FCC staff, identified two alternatives to the command-and-control 
model: the ``exclusive, flexible rights'' model, and the ``open-
access'' model. \13\ The exclusive, flexible rights model provides 
licensees with exclusive, flexible use of the spectrum and transferable 
rights within defined geographic areas. This is a licensed-based 
approach to spectrum management that extends the existing allocation 
process by providing greater flexibility regarding the use of spectrum, 
and the ability to transfer licenses or to lease spectrum usage rights. 
The open-access model allows a potentially unlimited number of 
unlicensed users to share frequency bands, with usage rights governed 
by technical standards, but with no rights to interference protection. 
This approach does not require licenses, and as such is similar to 
FCC's Part 15 rules (which govern unlicensed use in the 900 MHz, 2.4 
GHz, and 5.8 GHz bands)--where cordless phones and WiFi technologies 
operate. Both models allow flexible use of spectrum, so that users of 
spectrum, rather than FCC, play a larger role in determining how 
spectrum is ultimately used. FCC's Spectrum Policy Task Force 
recommended a balanced approach to allocation--utilizing aspects of the 
command-and-control; exclusive, flexible rights; and open-access 
models. FCC is currently using elements of these two alternatives 
models, although it primarily employs the command-and-control model.

FCC's Use of Auctions for Commercial Licenses Is Seen as an Improvement 
        Over Past Assignment Mechanisms
    In 1994, FCC began using auctions--a market-based mechanism that 
assigns a license to the entity that submits the highest bid for 
specific bands of spectrum. FCC's implementation of auctions mitigates 
a number of problems associated with comparative hearings and 
lotteries--the two primary assignment mechanism employed until 1993. 
For example:

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

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

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

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

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

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

FCC Has Acted to Facilitate Secondary Market Transactions
    While FCC's initial assignment mechanisms provide one means for 
companies to acquire licenses, companies can also acquire licenses or 
access to spectrum through secondary market transactions. Through 
secondary markets, companies can engage in transactions whereby a 
license or use of spectrum is transferred from one company to another. 
These transactions can incorporate the sale or trading of licenses. In 
some instances, companies acquire licenses through the purchase of an 
entire company, such as Cingular's purchase of AT&T Wireless. 
Ultimately, FCC must approve transactions that result in the transfer 
of licenses from one company to another.
    Secondary markets can provide several benefits. First, secondary 
markets can promote more efficient use of spectrum. If existing 
licensees are not fully utilizing the spectrum, secondary markets 
provide a mechanism whereby these licensees can transfer use of the 
spectrum to other companies that would utilize the spectrum. Second, 
secondary markets can facilitate the participation of small businesses 
and introduction of new technologies. For example, a company might have 
a greater incentive to deploy new technologies that require less 
spectrum if the company can profitably transfer the unused portion of 
the spectrum to another company through the secondary market. Also, 
several stakeholders with whom we spoke noted that secondary markets 
provide a mechanism whereby a small business can acquire spectrum for a 
geographic area that best meets the needs of the company.
    In recent years, FCC has undertaken actions to facilitate 
secondary-market transactions. FCC authorized spectrum leasing for most 
wireless radio licenses with exclusive rights and created two 
categories of spectrum leases: Spectrum Manager Leasing--where the 
licensee retains legal and working control of the spectrum--and de 
Facto Transfer Leasing--where the licensee retains legal control but 
the lessee assumes working control of the spectrum. FCC also 
streamlined the procedures that pertain to spectrum leasing. For 
instance, the Spectrum Manager Leases do not require prior FCC approval 
and de Facto Transfer Leases can receive immediate approval if the 
arrangement does not raise potential public interest concerns. \16\ 
While FCC has taken steps to facilitate secondary market transactions, 
some hindrances remain. For example, some industry stakeholders told us 
that the lack of flexibility in the use of spectrum can hinder 
secondary market transactions.

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

Incentive-Based Fees Have Not Been Used to Promote Spectrum Efficiency 
        Among Federal Government Users of Spectrum in the United States
    Spectrum managers in some countries have adopted market-based 
mechanisms for government users of spectrum. For example, in Australia, 
Canada, and the United Kingdom, spectrum managers have implemented 
incentive-based fees for government users of spectrum. Incentive-based 
fees are designed to promote the efficient use of spectrum by 
compelling spectrum users to recognize the value to society of the 
spectrum that they use. In other words, these fees mimic the functions 
of a market. These incentive-based fees differ from other regulatory 
fees that are assessed only to recover the cost of the government's 
management of spectrum.
    In the United States, NTIA has not adopted incentive-based fees, or 
other market-based mechanisms, for Federal Government users of 
spectrum. Currently, NTIA charges Federal agencies spectrum management 
fees, which are based on the number of assignments authorized to each 
agency. In our 2002 report, we noted that, according to NTIA, basing 
the fee on the number of assignments, rather than the amount of 
spectrum used per agency, better reflects the amount of work NTIA must 
do for each agency. \17\ Moreover, NTIA stated that this fee structure 
provides a wider distribution of costs to agencies. However, NTIA's fee 
does not reflect the value of the spectrum authorized to each agency, 
and thus it is not clear how much this encourages the efficient use of 
spectrum by Federal agencies. The fee also recovers only a portion of 
the cost of administering spectrum management. NTIA does not currently 
have the authority to impose fees on government users that exceed its 
spectrum management costs. \18\

Applying Market-Based Mechanisms to Federal Government Users May Not Be 

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

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

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

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

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

Extend FCC's Auction Authority
    Panelists on our expert panel and industry stakeholders with whom 
we spoke overwhelmingly supported extending FCC's auction authority. 
For example, 21 of 22 panelists on our expert panel indicated that the 
Congress should extend FCC's auction authority beyond September 2007--
the date auction authority was set to expire at the time of our expert 
panel. Given the success of FCC's use of auctions and the overwhelming 
support among industry stakeholders and experts for extending FCC's 
auction authority, we suggested that the Congress consider extending 
FCC's auction authority. In February 2006, the Congress extended FCC's 
auction authority to 2011 with the passage of the Deficit Reduction Act 
of 2005. \20\
    While panelists on our expert panel overwhelmingly supported 
extending FCC's auction authority, a majority also suggested 
modifications to enhance the use of auctions. \21\ However, there was 
little consensus on the suggested modifications. The suggested 
modifications fall into the following three categories:

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

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

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

Reexamine the Use and Distribution of Spectrum
    Panelists on our expert panel suggested a reexamination of the use 
and distribution of spectrum to ensure the most efficient and effective 
use of this important resource. One panelist noted that the government 
should have a good understanding of how much of the spectrum is being 
used. To gain a better understanding, a few panelists suggested that 
the government systematically track usage, perhaps through a ``spectrum 
census.'' This information would allow the government to determine if 
some portions of spectrum were underutilized, and if so, to make 
appropriate allocation changes and adjustments. \24\
    A number of panelists on our expert panel also suggested that the 
government evaluate the relative allocation of spectrum for government 
and commercial use as well as the allocation of spectrum for licensed 
and unlicensed purposes. While panelists thought the relative 
allocation between these categories should be examined, there was 
little consensus among the panelists on the appropriate allocation. For 
instance, as shown in figure 2, 13 panelists indicated that more 
spectrum should be dedicated to commercial use, while 7 thought the 
current distribution was appropriate; no panelists thought that more 
spectrum should be dedicated to government use. Similarly, as shown in 
figure 3, nine panelists believed that more spectrum should be 
dedicated to licensed uses, six believed more should be dedicated to 
unlicensed uses, and five thought the current balance was appropriate. 



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

The Current Framework for Spectrum Management May Pose Barriers to 
        Reform
    Under the current management framework, neither FCC nor NTIA has 
been given ultimate decision-making authority over all spectrum use or 
the authority to impose fundamental reform, such as increasing the 
reliance on market-based mechanisms. FCC manages spectrum for non-
Federal users while NTIA manages spectrum for Federal Government users. 
\26\ As such, FCC and NTIA have different perspectives on spectrum use. 
FCC tends to focus on maximizing public access to and use of the 
spectrum. Alternatively, NTIA tends to focus on protecting the Federal 
Government's use of the spectrum from harmful interference, especially 
in areas critical to national security and public safety. Further, 
despite increased communication between FCC and NTIA, the agencies' 
different jurisdictional responsibilities appear to result in piecemeal 
efforts that lack the coordination to facilitate major spectrum reform. 
For example, FCC's and NTIA's recent policy evaluations and 
initiatives--the FCC Spectrum Policy Task Force and the Federal 
Government Spectrum Task Force, respectively--tend to focus on the 
issues applicable to the users under their respective jurisdictions. 
\27\
    Major spectrum reform must ultimately address multidimensional 
stakeholder conflicts. One source of conflict relates to balancing the 
needs of government and private-sector spectrum users. Government users 
have said that because they offer unique and critical services, a 
dollar value cannot be placed on the government's provision of 
spectrum-based services. At the same time, private-sector users have 
stated that their access to spectrum is also critical to the welfare of 
society, through its contribution to a healthy and robust economy. A 
second source of conflict relates to balancing the needs of incumbent 
and new users of spectrum. Since most useable spectrum has been 
allocated and assigned, accommodating new users of spectrum can involve 
the relocation of incumbent users. While new users of spectrum view 
relocations as essential, incumbent users often oppose relocations 
because the moves may impose significant costs and disrupt their 
operations. A third source of conflict relates to existing technology 
and emerging technology. Some new technologies, such as ultra-wideband, 
\28\ may use the spectrum more efficiently, thereby facilitating more 
intensive use of the spectrum. However, users of existing technology, 
both commercial and government, have expressed concern that these new 
technologies may create interference that compromises the quality of 
their services.
    The current spectrum management framework may pose a barrier to 
spectrum reform because neither FCC nor NTIA has ultimate authority to 
impose fundamental reform and these stakeholder conflicts cross the 
jurisdictions of both FCC and NTIA. As such, contentious and protracted 
negotiations arise over spectrum management issues. We previously made 
two recommendations to help further the reform process. First, we 
recommended that the Secretary of Commerce and FCC should establish and 
carry out formal, joint planning activities to develop a national 
spectrum plan to guide decision-making. \29\ Additionally, we also 
recommended that the relevant administrative agencies and congressional 
committees work together to develop and implement a plan for the 
establishment of an independent commission that would conduct a 
comprehensive examination of current spectrum management. \30\ To date, 
neither recommendation has been implemented.

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

ENDNOTES
    \1\ FCC manages spectrum use for non-Federal users, including 
commercial, private, and state and local government users.
    \2\ GAO, Telecommunications: Strong Support for Extending FCC's 
Auction Authority Exists, but Little Agreement on Other Options to 
Improve Efficient Use of Spectrum, GAO-06-236 (Washington, D.C.: Dec. 
20, 2005); GAO, Telecommunications: Comprehensive Review of U.S. 
Spectrum Management with Broad Stakeholder Involvement is Needed, GAO-
03-277 (Washington, D.C.: Jan. 31, 2003); and GAO, Telecommunications: 
Better Coordination and Enhanced Accountability Needed to Improve 
Spectrum Management, GAO-02-906 (Washington, D.C.: Sept. 30, 2002).
    \3\ Pub. L. No. 109-171, Sec. 3003, 120 Stat. 4 (2006).
    \4\ GAO-02-906 and GAO-03-277.
    \5\ Radio signals travel through space in the form of waves. These 
waves vary in length, and each wavelength is associated with a 
particular radio frequency. Radio frequencies are grouped into bands 
and are measured in units of Hertz. The term kilohertz refers to 
thousands of Hertz, megahertz (MHz) to millions of Hertz, and gigahertz 
to billions of Hertz.
    \6\ The Department of State also plays a role in spectrum 
management by coordinating and mediating the U.S. position and leading 
the Nation's delegation to international conferences on spectrum 
management.
    \7\ Interference occurs when two or more radio signals interact in 
a manner that disrupts the transmission and reception of messages.
    \8\ In 1981, Congress added Section 309(i) to the Communications 
Act to give FCC the authority to assign a broad range of licenses by 
lottery. The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 
260, tit. III, Sec. 3002, terminated FCC's authority to assign licenses 
by lotteries, except with respect to licenses for non-commercial 
broadcast stations and public broadcast stations. See, 47 U.S.C. 
Sec. 309(i)(5) and 47 U.S.C. Sec. 397(6).
    \9\ 47 U.S.C. Sec. 309(j). In subsequent years, the Congress has 
modified and extended FCC's auction authority, including exempting some 
licenses from competitive bidding, such as licenses for public safety 
radio services and noncommercial educational broadcast services.
    \10\ Traditional unlicensed devices are low-powered equipment that 
operate in a limited geographic range, such as cordless phones, baby 
monitors, garage door openers, and wireless access to the Internet.
    \11\ NTIA employs a similar process for Federal Government spectrum 
users.
    \12\ In some instances, statutory restrictions are an impediment to 
granting greater flexibility.
    \13\ For more information on these alternative spectrum management 
models, including the perceived advantages and disadvantages of each, 
see GAO-06-236.
    \14\ See GAO-06-236. We convened, in collaboration with the 
National Academies, two panels of experts to discuss spectrum 
allocation and assignment issues and options to improve spectrum 
management. The panelists convened at the National Academies on August 
9, 2005, and August 10, 2005. A total of 23 panelists participated on 
our two expert panels. For more information on the expert panels, see 
GAO-06-236.
    \15\ For example, some panelists did not support using auctions to 
assign spectrum licenses for public safety services.
    \16\ The public interest concerns arise as a result of FCC policies 
pertaining to (1) eligibility and use of the license and spectrum, (2) 
foreign ownership limitations, (3) designated entity and entrepreneur 
benefits, and (4) competition. See Promoting Efficient Use of Spectrum 
Through Elimination of Barriers to the Development of Secondary 
Markets, WT Docket No. 00-230, Second Report and Order, Order on 
Reconsideration, and Second Further Notice of Proposed Rulemaking, 19 
FCC Rcd. 17503 (2004).
    \17\ GAO-02-906.
    \18\ In its 2005 program assessment of NTIA, OMB noted that NTIA 
does not currently have sufficient mechanisms in place to ensure 
efficient and effective Federal spectrum use. OMB further notes that 
NTIA lacks the authority to implement market-based or other incentives 
to promote efficient and effective use of the Federal spectrum among 
Federal agencies. According to OMB, NTIA plans to study incentives to 
promote the more efficient and effective use of spectrum and seek 
authority to implement incentives, as appropriate.
    \19\ GAO-06-236.
    \20\ Pub. L. No. 109-171.
    \21\ Fifteen of twenty-two panelists suggested modifications to 
enhance the use of auctions.
    \22\ Underlay rights allow unlicensed users to operate in the same 
spectrum bands as licensees, as long as the unlicensed users do not 
cause undue interference for licensees. For example, ultra-wideband 
technology operates at very low power levels over a very wide range of 
spectrum, and thus might avoid interfering with licensed spectrum users 
in the same spectrum bands. Overlay rights allow unlicensed users to 
operate in licensed spectrum bands during times or in geographic areas 
where licensees are not using the spectrum.
    \23\ A bidding credit is a percentage discount applied to the high 
bid amount if the bidder meets designated entity criteria established 
in the auction rules. In February 2006, FCC issued a notice of proposed 
rulemaking to consider whether its general competitive bidding rules 
should be modified.
    \24\ In February 2006, the Technology CEO Council released a report 
entitled, Freeing Our Unused Spectrum: Toward a 21st Century Telecom 
Policy (Washington, D.C.: Feb. 2006). This report included 
recommendations for FCC and NTIA to examine how efficiently spectrum 
bands are being used and encourage more efficient use of bands that are 
not found to be used efficiently.
    \25\ With the current allocation process, FCC attempts to keep 
incompatible service separated to avoid interference. With licensees 
exerting greater control, this protection could be reduced.
    \26\ In some countries, a single government entity regulates 
spectrum for all users. For example, Industry Canada has exclusive 
spectrum management responsibility in Canada.
    \27\ At a recent NTIA-sponsored workshop addressing spectrum 
management, the topics discussed included issues relevant for both FCC 
and NTIA, and the participants included spectrum managers from several 
government agencies, as well as FCC officials, commercial users, and 
other experts.
    \28\ Ultra-wideband devices emit a low-power signal over large 
swaths of spectrum.
    \29\ GAO-02-906.
    \30\ GAO-03-277.
    \31\ GAO-02-906 and GAO-03-277.

    The Chairman. Thank you very much. Let me call for the 
attention of the Members. We have six other witnesses after 
this panel. So, it is my hope we will keep our questions brief.

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Mr. Chairman, may I suggest, could we skip 
the questions and statements at this time and go to the next 
panel because I am really interested in hearing what they have 
to say.
    The Chairman. I would prefer to do that if these witnesses 
would not mind waiting to answer their questions until after 
the others have spoken. Will you be able to stay? Is that an 
inconvenience? I know it is an inconvenience, but can you do 
it?
    Ms. Seidel. Yes.
    Mr. Kneuer. Yes.
    The Chairman. Without objection, then we will ask the next 
panel to come up and make their statements and then we will ask 
questions of all of these nine witnesses, after that time. The 
next panel is Thomas Walsh, General Manager of the Illinois 
Valley Cellular Company, and President of the Board of the 
Rural Cellular Association. Kevin Kahn, Director of the 
Communications Technology Lab of Intel Corporation. Robert 
Hubbard, Secretary Treasurer of the Association of Maximum 
Service Television and President and Chief Executive Officer of 
Hubbard Television Group. Thomas Sugrue, Vice President, 
Government Affairs at T-Mobile USA. Jeannine Kenney, Senior 
Policy Advisor for the Consumers Union. And Lawrence White, the 
Co-Chair of the Spectrum Policy Working Group. We will proceed 
in that order if that is agreeable, and we do hope that you 
also will cooperate with us by keeping your statements to under 
5 minutes. The first witness is Thomas Walsh, General Manager, 
Illinois Valley Cellular, President of the Board, Rural 
Cellular Association.

        STATEMENT OF THOMAS F. WALSH, GENERAL MANAGER, 
    ILLINOIS VALLEY CELLULAR; PRESIDENT OF THE BOARD, RURAL 
                      CELLULAR ASSOCIATION

    Mr. Walsh. Good morning. I am Tom Walsh. I am General 
Manager of Illinois Valley Cellular. Our company has 50,000 
subscribers in North Central Illinois. We have been in business 
for 16 years. I have my wife and my son here at the hearing 
this morning. I am kind of proud of that. I am also President 
of the Rural Cellular Association. The Rural Cellular 
Association represents the interests of nearly 100 small and 
rural carriers throughout the United States. Wireless companies 
providing wireless telecommunications services to approximately 
14.6 million people in more than 135 rural and small markets.
    Sincere thanks to the Chairman and Committee Members for 
the opportunity to present RCA's views on spectrum policy. RCA 
members know firsthand that expanding the options for rural 
carriers to purchase spectrum will increase the availability of 
competitive broadband services beyond the urban areas. 
Providing opportunities for small and rural carriers to compete 
for spectrum will also deliver increased economic development 
and improved 911 and E-911 emergency response services, 
especially in rural communities that lack those services today.
    As Congress considers spectrum reform, RCA asks that 
Members not lose sight of the core challenges faced by smaller 
carriers who have the responsibility to offer rural residents 
and businesses the same services and choices that are available 
to the public in urban areas. Those challenges include, the 
inability of small carriers to compete effectively for licenses 
auctioned by large geographic areas.
    Second, FCC policies that allow inefficient use of 
spectrum. We are disappointed to see ``wasted'' spectrum where 
licensees of large areas do not construct facilities to serve 
all of their market areas.
    Third, FCC's procedures that would hide the identity of 
bidders during spectrum auctions and in some auctions provide 
for ``closed'' bidding on certain licenses.
    RCA believes rural areas are best served by policies that 
increase smaller carrier access to spectrum. Small carriers are 
at a disadvantage during FCC spectrum auctions, whenever 
licenses combine both rural and urban areas. When rural 
counties are grouped in licensed areas with urban areas, as is 
the case with the Basic Trading Areas (BTAs), Economic Areas 
(EAs), and the largest geographic license areas known as 
Economic Area Groupings (EAGs). The auction prices can be 
expected to soar beyond the means of most small carriers. 
However by separating the rural counties from urban licensed 
areas through the use of small cellular market areas, such as 
Rural Service Areas (RSAs) and Metropolitan Service Areas 
(MSAs), companies of all sizes can participate in the auction. 
Each participant can focus attention on the licenses that best 
conform to their individual service plans. Use of the RSAs and 
MSAs as license areas allow all bidders to mix and match rural 
and urban areas, according to their individual business plans 
and financial capabilities.
    My second point today is that spectrum policy should 
encourage spectrum use by those who purchase the licenses. 
Frequently, large license areas lead to spectrum lying unused. 
The FCC addressed this problem in the context of cellular 
service and required all cellular companies 5 years after 
obtaining a license to file maps showing where the service was 
provided and where more importantly not provided within their 
licensed area. The FCC then allowed interested companies to 
file applications for the unserved areas of a minimum size 
announced by the FCC, and if there were multiple applicants, 
auction off the available areas to the highest bidder. Congress 
should require the FCC to use a similar unserved area licensing 
process for PCS and other radio services. This would allow 
companies willing to use this spectrum to obtain licenses and 
provide service.
    My third and final point is that spectrum policy should 
promote participation in auctions by smaller rural carriers 
because rural area build-outs lead to improved 911 and E-911 
emergency response services, and economic development in rural 
areas. Many rural communities are lacking 911 services today. 
To allow more emergency calls to be completed and to help first 
responders locate and assist persons in distress, Congress 
should take into consideration the special needs of rural 
carriers as they prepare for upcoming spectrum auctions.
    Small and rural carriers are also a significant contributor 
to economic development in rural areas. The availability of 
advanced wireless services in rural areas provides jobs, and 
encourages business expansion. There is no better way to add to 
the economic base of a rural market then to have an 
infrastructure in place that allows businesses to move to the 
rural market and have essentially the same wireless 
communications available that exist in urban areas.
    RCA is concerned about an FCC proposal that would result in 
``blind bidding'' during auctions. That change would create 
problems for small and rural carriers because they depend on 
roaming agreements with large carriers in order to serve 
customers who travel outside of rural markets. Small carriers 
can pay more for licenses--if they have confidence that roaming 
partners with compatible networks are bidding actively in urban 
areas that are nearby the rural markets of their interest.
    Finally, RCA believes spectrum policy should not include 
use of ``closed bidding'' for certain licenses. These set-
asides are problematic because there has been extensive use of 
shell companies by large wireless carriers to avoid attribution 
of large carriers gross revenue to the applicants. The FCC is 
working now to end that tactic and RCA encourages the FCC in 
that regard. But if licenses are no longer set aside for closed 
bidding there would be less incentive for large companies to 
find ways around the rules.
    In conclusion, technology and innovation has created an 
exciting new world in telecommunications. Few people imagine 
that the demand for advanced wireless services in rural areas 
of the country would be as compelling as it is today. A fresh 
review of how spectrum should be auctioned in terms of market 
size and auction procedures is much needed. It is RCA's hope 
that to ensure greater availability and the expansion of 
quality telecommunications services in rural areas, Congress 
will take our observations into consideration in any spectrum 
reform effort. Thank you for your time and attention to this 
important matter. I will be available for questions.
    [The prepared statement of Mr. Walsh follows:]

Prepared Statement of Thomas F. Walsh, General Manager, Illinois Valley 
      Cellular; President of the Board, Rural Cellular Association
I. Introduction
    I am Tom Walsh, General Manager of Illinois Valley Cellular. Our 
company has provided wireless service for over sixteen years to small 
rural towns in north central Illinois such as Ottawa and La Salle-Peru. 
I am also President of the Board of Rural Cellular Association (RCA), 
the trade association for approximately 100 of the Nation's smallest 
rural wireless providers. RCA is pleased to offer the Committee its 
views on spectrum policy.
    Rural Cellular Association represents the interests of nearly 100 
small and rural wireless licensees providing wireless 
telecommunications services to approximately 14.6 million people in 
more than 135 rural and small metropolitan markets. RCA members 
historically have led the industry in making the investments required 
to offer wireless services in the most rural areas of the country.
    RCA believes that high quality wireless service is the key to 
allowing customers in rural areas to gain full access to broadband and 
other advanced telecommunications services. To achieve that goal the 
Federal Communications Commission (FCC) must adopt auction plans that 
allow equitable participation in rural areas by the small businesses 
that serve rural Americans. Because RCA members live, work and play in 
the rural communities we serve, we know first hand that expanding 
options for rural carriers to purchase spectrum will increase rural 
access to advanced telecommunications services and accelerate the 
availability of competitive broadband services beyond metropolitan 
areas. Providing opportunities for small and rural carriers to compete 
for spectrum will also deliver increased economic development and 
improved 911 and E-911 emergency response services, especially in rural 
communities that lack those services today. Policies that encourage 
rural carriers' participation in spectrum auctions open the door to 
rural consumers having the health, safety, and economic development 
opportunities that are critical to bridge the technology gap between 
urban and rural America.
    RCA asks that Congress not lose sight of challenges faced by 
smaller entities that have a sincere desire to offer rural residents 
and businesses the same services and choices that are available to the 
public in metropolitan areas. Those challenges are:

        (1) Inability of small entities to compete effectively for 
        licenses auctioned for geographic areas larger than MSA/RSA;

        (2) FCC policies that allow inefficient use of spectrum. We are 
        disappointed to see ``wasted'' spectrum where licensees of 
        large areas do not construct facilities to serve all of their 
        market areas; and

        (3) FCC procedures that would hide the identity of bidders 
        during spectrum auctions and in some auctions provide for 
        ``closed'' bidding on certain licenses.

II. Smaller License Areas Would Open Opportunities to Small Businesses 
        and Expedite Competitive Wireless Broadband Services to Rural 
        Areas
    As to the first problem I identified, small carriers desiring to 
provide broadband and other wireless services in rural areas typically 
cannot afford to compete at auction for licenses that have service 
areas that combine rural and major metropolitan areas. For this reason, 
RCA believes the most effective means to foster the prompt availability 
of competitive wireless services to rural markets is to make available 
more licenses in any spectrum auction with service areas no larger than 
Cellular Market Areas (CMAs) which are the Rural Service Areas (RSAs) 
and Metropolitan Service Areas (MSAs) that were used by the FCC for 
licensing cellular systems. Unfortunately, when rural counties are 
grouped in license areas with metropolitan areas, as is the case with 
Basic Trading Areas (BTAs), Economic Areas (EAs) or the largest 
geographic license areas known as Economic Area Groupings (EAGs), the 
auction prices for licenses can be expected to soar beyond the means of 
most small entities, at least those that are not owned in part by large 
companies. Large-companies have a built-in advantage in the auction 
system because their purchasing clout can edge out smaller entities 
attempting to acquire spectrum. Furthermore, wireless service history 
shows that large entities that acquire licenses for large geographic 
areas do not make a priority of bringing the benefits of the latest 
wireless technologies to the rural portions of their license areas. In 
sharp contrast, RCA members historically have built and continue to 
build out their license areas even in the most rural of areas. In fact 
the small rural carrier is often the sole provider of wireless services 
in rural towns away from major highways. Partitioning, disaggregation 
and spectrum leasing do not provide the best solutions because 
specifications for service are typically dictated by the large company 
license holder. The effect of excessively large or inefficiently sized 
geographic license areas is a lost opportunity to allow spectrum to 
reach an entity that would make best use of it.
    However by separating the rural counties from metropolitan license 
areas, by the use of CMAs with RSA/MSA boundaries, entities of all 
sizes can participate in the auctions and each participant can focus 
attention on the licenses that best conform to their individual service 
plans. Use of RSAs and MSAs as license areas is the proper balance in 
market size and allows all bidders to mix and match rural and urban 
areas according to their individual business plans and financial 
capabilities. The availability of RSA licenses, which by definition 
encompass only counties that are outside of all MSAs, is especially 
important to small wireless carriers, and it does not disadvantage the 
large carriers because they can make an independent choice of whether 
to pursue licenses for rural markets in addition to metropolitan 
markets.

III. Improving Access To and Use of Spectrum in Rural Areas
    The second problem I wish to bring to your attention involves 
``wasted'' license rights as the result of unused spectrum in rural 
areas. The FCC's current policies allow inefficient use of spectrum. 
Rural consumers are best served by the creation of small license areas 
that encourage more efficient use of spectrum. Spectrum reform should 
not allow licensees to retain rights to spectrum in areas where 
facilities are not constructed after a reasonable period of time. The 
FCC recognized this problem years ago in the context of cellular 
service and required all licensees, five years after obtaining a 
license, to file maps that showed where service was provided and where 
markets were unserved. This allowed interested companies to file 
applications for unserved area of a minimum size announced by the FCC. 
If multiple applications are received the FCC can conduct an auction of 
the available area, and re-license the area to the highest bidder.
    RCA supports adoption of a ``substantial service'' alternative 
construction requirement for all wireless services that are licensed on 
a geographic area basis. Geographic area and population-based criteria 
would be available to show ``substantial service'' to an area.
    Rural markets are best served by spectrum policies that require 
carriers to ``use it or lose it,'' thereby providing an incentive for 
carriers to build out the rural areas for the present and potential 
customers and revenues they offer. Spectrum reform policy should not 
impose a draconian license forfeiture penalty where a market is not 
totally constructed, rather only the portion of the market not 
constructed should be subject to the unserved area re-licensing 
process.

IV. Spectrum Policies that Promote Construction in Rural Areas Lead to 
        Enhanced Public Safety and to Rural Area Economic Development
    Spectrum policies that promote participation in auctions by small 
and rural carriers will lead to improved 911 and E-911 emergency 
response services as facilities are constructed in the rural areas. 
Many rural communities lack E-911 services today. To allow more 
emergency calls to be completed and to help first responders locate and 
assist persons in distress, Congress should take into consideration the 
special needs of rural carriers as they prepare for upcoming spectrum 
auctions.
    Small and rural carriers are also a significant contributor to 
economic development in rural areas. They employ people in rural areas 
but perhaps more importantly, the availability of advanced wireless 
services in rural areas encourages business expansion in rural areas. 
There is no better way to add to the economic base of a rural market 
than to have infrastructure in place that allows businesses to move to 
the rural market and have essentially the same wireless communications 
available as exist in metropolitan areas.
    Encouraging small carrier participation in auctions is largely 
within the control of Congress and the FCC. In addition to small 
geographic license areas the auction procedures should be designed so 
as not to favor large entities over small entities. RCA is concerned 
about a proposal by the FCC to alter auction procedures for the 
upcoming auction of Advanced Wireless Services spectrum. That proposal 
would shield the identity of bidders from other bidders during the 
course of the auction. A ``blind bidding'' process would deter 
participation by RCA members who want to know, round by round in the 
bidding, what other entities are bidding for the same licenses, and for 
licenses in the region that surrounds a market of interest. This is a 
problem because small wireless carriers depend upon roaming agreements 
with larger carriers in order to allow customers to continue to have 
wireless service available when they travel beyond the rural carriers' 
markets. In a blind bidding scenario RCA members would not know if they 
should bid on licenses because they would lack confidence that their 
networks would be compatible with the networks of bidders for 
surrounding markets in the region.
    Lastly, RCA urges Congress to avoid policies that create ``set 
asides'' or closed auctions as a way to encourage small carrier 
participation in auctions. Because of the realities of the 
telecommunications market place, set asides discourage participation in 
auctions and lower auction revenues by disqualifying a meaningful 
number of rural carriers because their own gross revenues exceed a 
threshold stipulated by the FCC. The FCC rule stipulates that a 
spectrum purchaser must not exceed revenues of $125 million in each of 
the last two years. The FCC's attribution rules cause the gross 
revenues of owners of applicants to be counted, often disqualifying 
them from eligibility. To circumvent that rule there has been extensive 
use of ``shell companies'' by large wireless carriers to avoid 
attribution of large carriers' gross revenues to the applicant. The FCC 
is working now to end that tactic, and RCA encourages the FCC in that 
regard. But if licenses are no longer set aside for closed bidding 
there would also be less incentive for large companies to find ways 
around the rules. Bid credits remain a useful tool to promote small 
business participation in auctions, and RCA asks that any legislation 
in this area require the FCC to continue to make use of bid credits in 
future auctions.

V. Conclusion
    In conclusion, technology and innovation have created an exciting 
new world in telecommunications where no one could imagine that the 
demand for such services in rural areas of the country would be as 
compelling as it is today. A fresh review of how spectrum should be 
auctioned, in terms of market size and auction procedures, is much 
needed. To ensure greater availability and the expansion of quality 
telecommunications services in rural areas, Congress should:

        1) Ensure that spectrum made available by the FCC through 
        auctions is offered according to geographic license areas, 
        specifically Cellular Market Areas comprised of MSAs and RSAs, 
        which are small enough to encourage participation by small 
        businesses. MSA/RSA licensing plans will encourage expansion of 
        wireless facilities in rural areas which will accelerate rural 
        broadband deployment which, in turn, will promote public 
        safety, educational opportunities and economic development in 
        rural areas;

        2) Require the FCC, to extend the ``unserved area licensing'' 
        process to PCS and other radio services to allow entities 
        willing to use spectrum where current licensees have not 
        constructed facilities to apply for and obtain licenses for 
        unserved areas; and

        3) Promote spectrum auction procedures that encourage small and 
        rural carrier participation in auctions. The FCC's proposed use 
        of ``blind bidding'' in auctions should not be permitted to 
        occur, nor should licenses in future auctions be set aside for 
        small entities because that practice encourages circumvention 
        of rules by large companies.

    Chairman The next witness is Kevin Kahn, Director of the 
Communications Technology Lab of Intel Corporation.

         STATEMENT OF KEVIN C. KAHN, SENIOR FELLOW AND 
   DIRECTOR, COMMUNICATIONS TECHNOLOGY LAB, INTEL CORPORATION

    Mr. Kahn. Thank you, Mr. Chairman, Members of the 
Committee. I am a Senior Fellow with Intel Corporation. I am 
the Director of our Communications Technology Laboratory, which 
is a worldwide research and advanced development lab, 
obviously, involved in communications topics of all sorts. I 
have been at Intel nearly 30 years, and in that time, I have 
been heavily involved in the development in our communications 
policies and our technology positions relative to those. I am 
honored to be here today, invited to discuss some of these 
complex issues with you. Clearly, the increasing use of 
spectrum we are seeing today is creating an increasing pressure 
to use that spectrum well.
    Spectrum is an artificially scarce resource, heavily 
allocated, but often not really used all that efficiently or 
well, if you look at the deployment of real equipment. When the 
only users of spectrum really were radio/television and the 
government for the most part, perhaps this kind of inefficiency 
was tolerable. Certainly, the pressure to do better wasn't 
there. However, today with the explosion of cellular use, 
mobile e-mail, WiFi, broadband access, and innumerable new 
applications for consumers, this efficiency must be increased. 
And in that regard, Intel commends Chairman Stevens and 
Senators Allen, Sununu, Kerry, Boxer and Dorgan for sponsoring 
the ``American Broadband for Communities Act'' and the 
``Wireless Innovation Act of 2006,'' respectively. And we also 
applaud Senator Smith's support of the ``white spaces'' 
legislation.
    Now in my written testimony I point you to the Technology 
CEO Council recommendations, which set a broad agenda for 
spectrum reform, including such things as more flexible license 
spectrum, greater use of unlicensed spectrum and a general 
movement toward capitalizing on modern technologies. But in the 
rest of these comments, I really want to focus on the so-called 
TV ``white spaces'' issue. I would like to make three points.
    First, there really is a public benefit to be had by moving 
to broader controlled use of the TV bands. Second, there is 
spectrum available to do this throughout the United States to 
allow new uses of the resource. And third and most importantly, 
it is technologically feasible without impact to TV services to 
get much more efficient use of these bands by allowing the use 
of the ``white spaces.'' We have filed extensive, technical 
comments from Intel with the FCC in response to its proceeding 
in this matter and those are all available as well for 
reference.
    To the first point, there is actually a benefit to be had 
by doing this. I think you have already heard reference to the 
importance of rural broadband services and these are difficult 
to provision using wired solutions. On the other hand, wireless 
can open up broadband services to low-density populations and 
do it cost effectively. The TV spectrum represents excellent 
frequencies for this application due to its propagation 
characteristics. We estimate anywhere from 3 to 4 times fewer 
base stations, and that makes a huge difference in the costs 
associated with deploying such a service and therefore the 
attractiveness of actually getting that service out to the 
American populace.
    As far as low power uses of the bands are concerned, there 
are a lot of cutting edge consumer applications that can be 
made available with low power radios within the home. The 
signal reliability range within the house of those same 
frequencies is quite attractive for that. And finally, this is 
a class of reform that I think we will need to see much more of 
as we try to move toward a modern regime of spectrum allocation 
and management.
    Second, the spectrum really is available throughout the 
United States. We have done very conservative studies, even in 
congested areas, that show that there is significant ``white 
space'' available for low power applications. Even in places 
like New York City or Los Angeles, one finds 20 to 30 MHz in 
the worst situations. When you get to even somewhat less dense 
population areas, such as a place like Salt Lake City, you will 
find 90 MHz available. In the rural areas, of course, much, 
much more spectrum becomes available for things like broadband 
access.
    Finally, I would like to point out that really this is 
technologically feasible. High power broadband access 
applications really can be handled very well by siting 
restrictions. We have very good geo-location capabilities and 
it is certainly possible to identify what frequency bands are 
available in rural areas and then make them available for use 
for broadband access with no danger to any of the TV channels. 
Low power applications could certainly be handled through 
sensing of the spectrum. Contrary to some of the other comments 
filled in the FCC proceeding, sensing is in use today 
successfully in a number of places. This is not an unproven or 
untried technology. In fact, the experience in the 5 GHz band 
with the Department of Defense required that industry be able 
to sense something far more difficult to detect than a 
television station. Namely radar systems that were specifically 
designed not to be detected and yet agreements were reached on 
how to do that demonstrably between the Department of Defense, 
a very difficult customer, and the industry. So, I think there 
is certainly evidence that this is not technologically 
undoable.
    So, finally, I would like to summarize by pointing out that 
this combination of public value, the fact that the spectrum 
exists and is inefficiently utilized today and the fact that we 
now have the technology to take advantage of it, really come 
together and make it an important time to act on revising the 
way in which we handle the spectrum. We certainly, strongly 
encourage both the FCC and the Congress to move ahead on this 
important topic. Certainly, Intel stands ready to assist in 
answering any relevant questions that we can help with as we go 
forward.
    I thank you for your time this morning.
    [The prepared statement of Mr. Kahn follows:]

   Prepared Statement of Kevin C. Kahn, Senior Fellow and Director, 
        Communications Technology Laboratory, Intel Corporation

I. Introduction
    I am Kevin Kahn, Intel Senior Fellow and Director of Intel's 
Communications 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 29 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.
    It is an honor to appear before this Committee to testify on 
wireless issues and spectrum management reform, including the 
deployment of unlicensed wireless services.

II. Need for Spectrum Reform
    All wireless technologies require radio spectrum. And, as 
innovative technologies are developed by companies like Intel, their 
success in the marketplace ultimately depends upon appropriate and 
sufficient radio spectrum being made available by government 
regulations. Thus, as demand grows for an established standard, such as 
WiFi (IEEE 802.11), or as new standards based around new technology are 
readied for the marketplace, such as WiMAX (IEEE 802.16), regulations 
need to change to allow their use and broad acceptance. Standards 
provide international interoperability and the opportunity to achieve 
economies of scale and scope, but none of this is possible without the 
necessary spectrum.
    Unfortunately, traditional means of spectrum management are 
inefficient and have resulted in large portions of our radio spectrum 
being allocated to specific technologies and services. The result is 
that today there is not sufficient room for new usage.
A. Artificial Scarcity
    Indeed, spectrum is artificially scarce because under the current 
regulatory structure--which is primarily based on an outdated system of 
``command and control'' spectrum management--much of our radio spectrum 
is locked into old uses and old technologies. More importantly, this 
antiquated spectrum management regime locks out new uses and 
technologies. As a consequence, available spectrum for new wireless 
technologies is artificially scarce and very expensive--a problem, 
which in recent years, has only become more severe.
    The FCC, NTIA, and Congress are to be commended for their efforts 
at spectrum management reform to date including authorization of 
innovative technologies such as UWB, software defined radios, and 
cognitive radios; making more radio spectrum available for wireless 
technologies such as WiMAX, 3G, and WiFi at 2 GHz, 5 GHz, and 70/80/90 
GHz; and efforts to free up critical spectrum below 1GHz via the DTV 
legislation and the proposed TV ``white spaces'' rules and legislation.
    These efforts recognize that, as innovation continuously advances, 
so must our approach to radio spectrum. Indeed, our national policy 
needs to advance so as not to suppress market forces. As the Technology 
CEO Council (or TCC)--the information technology industry's public 
policy advocacy organization comprising CEOs from Applied Materials, 
Dell, EMC, Hewlett-Packard, IBM, Intel, Motorola, NCR, and Unisys--
states in its February 2006 paper ``Freeing Our Unused Spectrum: Toward 
a 21st Century Telecom Policy'':

        How we address and manage spectrum scarcity is one of the most 
        important public policy challenges our country faces as we move 
        deeper into the 21st century. Efficient spectrum policy can 
        drive technological innovation and productivity and, thus, our 
        entire economy. Indeed, if our Nation manages its spectrum 
        resources well, it will have a competitive advantage in the 
        global market that will benefit all our citizens . . .'' \1\

    \1\ Technology CEO Council, ``Freeing Our Unused Spectrum: Toward a 
21st Century Telecom Policy,'' Feb. 2006, at 2 (available online at 
http://www.techceocouncil.org/index.php?option=content&task=view&id=248 
(TCC Paper). The information referred to has also been retained in 
Committee files.
---------------------------------------------------------------------------
B. Spectrum Reforms
    For these reasons, Intel supports policies that maximize spectrum 
efficiency and reduce artificial spectrum scarcity. Widespread adoption 
of market-based spectrum policies will allow carriers and manufacturers 
to make market-driven deals to deploy WiMAX and other efficient new 
technologies.

1. TCC Recommendations
    To this end, Intel believes that the solution to the current lack 
of spectrum for wireless and other technologies lies in the adoption of 
certain fundamental reforms--many of which are set forth in the TCC 
paper as ``recommendations'' for maximizing our Nation's spectrum 
efficiency and wireless potential. Among the TCC recommendations are 
the following:

        (i) Undertake spectrum inventories to identify inefficient 
        spectrum use. And then transfer underutilized Federal 
        Government spectrum to commercial use or sharing such spectrum 
        with commercial users.

        (ii) Allow more flexibility within licensed use. (Licensed use 
        refers to technology, such as TV and cellular, for which users 
        must have an FCC license before using the spectrum to transmit 
        a signal.) Licensed use is preferable in congested areas to 
        assure quality of service and promote investment. Enabling 
        flexible licenses that permit assignment, lease, or transfer of 
        spectrum rights, as well as negotiation of interference rights, 
        leads to increased innovation and spectrum efficiency.

        (iii) Give the FCC explicit authority to use certain market-
        based auction mechanisms, and reform the FCC's auction 
        procedures. The FCC should be encouraged to use combinatorial 
        or package bidding to facilitate optimal combinations of 
        spectrum rights. The FCC also should consider whether market-
        based mechanisms, such as ``two-sided auctions'' and the use of 
        ``auction vouchers,'' \2\ could be adopted to encourage more 
        efficient spectrum use. These mechanisms encourage users to 
        transfer underutilized spectrum to those who can provide more 
        valuable services.
---------------------------------------------------------------------------
    \2\ In two-sided auctions, spectrum voluntarily offered by 
incumbents is auctioned together with any unassigned spectrum. Bidders 
can efficiently aggregate spectrum that is currently highly fragmented 
by making all-or-nothing bids on packages of assigned and unassigned 
licenses. In voucher auctions, incumbents are given auction vouchers in 
exchange for turning back their licenses. The value of vouchers is 
determined in an auction of the returned spectrum and unassigned 
spectrum held by the government.

        (iv) Allow more unlicensed use in rural areas and where 
        otherwise appropriate. (Unlicensed use refers to technology, 
        such as WiFi radios, for which manufacturers must have their 
        devices certified by the FCC before deploying, but do not 
        require users to have a license to use the spectrum.) As we 
        have seen with WiFi, permitting more unlicensed use spurs 
        technological innovation and enables viral growth of new 
---------------------------------------------------------------------------
        technologies.

    All of these reforms are critical to 21st century spectrum 
management and innovation.

2. Flexible Licensed Use
    Flexible licensed use means allowing existing licensees to use 
their spectrum in ways that utilize new technology without having to go 
back to the government to get permission for each new innovation. A 
standard requirement is that the new technology does not cause harmful 
interference to existing licensed users, either by causing co-channel 
interference (interfering with others on the same frequency) or 
adjacent channel interference (interfering with others on different 
frequencies).
    One example of allowing more flexible licensed use was in the FCC 
``wireless cable'' proceeding. This proceeding dealt with spectrum in 
the 2.5 GHz range, which is adjacent to WiFi. Licensees who were using 
their spectrum for one-way video broadcasting were permitted to use 
their spectrum for much higher-valued wireless broadband applications 
such as WiMAX. In congested urban areas, such licensed services may be 
the best way to proceed in order to encourage deployment, ensure 
optimal quality of service, and manage interference. WiMAX can be used 
to distribute signals to WiFi hotspots or it can be used as a longer-
reach fixed service. A desktop box with an antenna can become a digital 
subscriber line (DSL) alternative. WiMAX has enormous potential for 
benefiting consumers, but it cannot fulfill that potential without 
spectrum reforms.
    Intel has similarly encouraged the FCC to allocate the 3650-3700 
MHz band in a manner which would provide access to this spectrum for 
rural WISPs and promote efficient use of this spectrum in congested 
Metropolitan Service Areas (MSAs). Specifically, Intel has supported a 
compromise proposal whereby the FCC would prescribe non-exclusive 
licensed use in rural areas, and licensed use in the Top 50 MSAs--where 
exclusive use is necessary to promote investment and quality of service 
for long range services in congested areas.

3. Unlicensed Use
    Allowing more unlicensed use is readily achievable through the 
exploitation of new technologies that enable unlicensed users to 
operate in the same spectrum as licensed users of traditional radio 
technology--without causing harmful interference to those users. 
Importantly, in May 2004, the FCC initiated the so-called ``Vacant TV 
Channels'' proceeding, in which it proposed to allow cognitive radios 
to overlay channels 2-51 of the TV spectrum. Cognitive radios can 
discern spectrum use at their location and modify their frequency and 
power to operate only in spectrum that is ``vacant'' at any given time. 
\3\
---------------------------------------------------------------------------
    \3\ TCC Paper at 5. Because spectrum use varies by time and 
location, cognitive radios can use vacant spectrum only temporarily and 
do so without interference to others, maximizing the number of users 
and services accessing given frequencies.
---------------------------------------------------------------------------
    Intel filed Comments and Reply Comments in the FCC's ``Vacant TV 
Channels'' proceeding in November 2004 and January 2005, respectively. 
\4\ Intel's filings strongly supported the Commission's proposal to 
permit operation by new unlicensed wireless devices in the TV ``white 
spaces''--primarily in channels 21 through 51. We continue to work with 
the FCC to advance this proceeding.
---------------------------------------------------------------------------
    \4\ Comments of Intel Corporation, In the Matter of Unlicensed 
Operation in the TV Broadcast Bands; Additional Spectrum for Unlicensed 
Devices Below 900 MHz and in the 3 GHz Band, ET Docket Nos. 04-186, 02-
380, Nov. 30, 2004; Reply Comments of Intel Corporation, In the Matter 
of Unlicensed Operation in the TV Broadcast Bands; Additional Spectrum 
for Unlicensed Devices Below 900 MHz and in the 3 GHz Band, ET Docket 
Nos. 04-186, 02-380, Jan. 31, 2005.
---------------------------------------------------------------------------
    In the meantime, Members of this Committee are seeking to expedite 
this process. In this regard, Intel commends Chairman Stevens and 
Senators Allen, Sununu, Kerry, Boxer, and Dorgan for sponsoring the 
``American Broadband for Communities Act'' (ABC Act), \5\ and the 
``Wireless Innovation Act of 2006'' (WINN Act), \6\ respectively. Intel 
also applauds Senator Smith's support of legislation directing the FCC 
to allow unlicensed use of the TV ``white spaces.'' \7\ The ABC Act and 
the WINN Act recognize the vast untapped potential of the TV ``white 
spaces.'' Intel stands ready to work with the bills' sponsors and other 
Members of this Committee and the Congress to move forward on this 
important issue. Given the timeliness of these bills and their 
importance to our country, I will devote the remainder of my testimony 
to detailed consideration of the most important issues in the TV 
``white spaces'' debate.
---------------------------------------------------------------------------
    \5\ S. 2332, ``American Broadband for Communities Act,'' introduced 
on Feb. 17, 2006, by Chairman Ted Stevens (R-AK), 109th Congress, 2nd 
Session.
    \6\ S. 2327, ``Wireless Innovation Act of 2006,'' introduced on 
Feb. 17, 2006, by Sens. George Allen (R-VA), John E. Sununu (R-NH), 
John F. Kerry (D-MA), and Barbara Boxer (D-CA), 109th Congress, 2nd 
Session.
    \7\ Remarks of Senator Gordon H. Smith (R-OR), before the American 
Electronics Association, Cyber Series Luncheon, Washington, D.C., Feb. 
8, 2006.
---------------------------------------------------------------------------
III. TV ``White Spaces''
    Requiring the FCC to make the TV ``white spaces'' available for 
unlicensed use--as contemplated by the ABC Act and the WINN Act--would 
be a big step forward in maximizing our Nation's spectrum efficiency.

A. Significant ``White Space''
    At almost any location in the U.S., many channels in the TV bands 
are not being used by licensed services. For example, Intel's internal 
analysis estimates that there is a minimum of 24 MHz of ``white space'' 
in channels 21-51, throughout the New York City TV market--the most 
congested market in the country. \8\ In areas with fewer TV stations 
like Honolulu, Hawaii and Charleston, West Virginia, Intel estimates 
that there is a minimum of 114 and 126 MHz of ``white space'' in 
channels 21-51, respectively, throughout the TV market. And, in areas 
like Anchorage, Alaska and Billings, Montana, Intel estimates that 
there is a minimum of 156 and 174 MHz of ``white space'' in channels 
21-51, respectively, throughout the TV market. These ``white spaces'' 
represent a significant amount of spectrum that could be easily 
detected and utilized by cognitive radios for a variety of valuable new 
wireless applications--thereby providing substantial consumer benefits.
---------------------------------------------------------------------------
    \8\ Intel estimates that there is an average of 48 MHz of ``white 
space'' throughout the New York City TV market (DMA).
---------------------------------------------------------------------------
B. Substantial Consumer Benefits
    Indeed, the TV ``white spaces'' could be used to provide 
significant benefits to consumers.

1. Rural Broadband
    For example, this spectrum could offer enormous advantages for wide 
area wireless broadband services such as WiMAX in rural and other 
underserved areas. The highly favorable propagation characteristics of 
the TV spectrum--including the ability to pass through buildings, 
weather, and foliage--make transmission less dependent on line of sight 
and better for low-cost deployment in rural and bad weather areas. 
Compared to the 2.5 GHz frequencies--a likely alternative spectrum band 
for wireless broadband--the TV spectrum requires fewer antennas and 
uses less power for a given level of service quality to a given 
coverage area.
    Given its propagation characteristics, the TV ``white spaces'' 
could be particularly useful in rural areas. In contrast, we estimate 
that the 2.5 GHz frequencies would require approximately four times as 
many base stations to achieve equal geographic area coverage, for a 
given air interface and bandwidth. The upshot is that opening the TV 
``white spaces'' to unlicensed wireless broadband use could 
dramatically accelerate broadband deployment in this country. Indeed, 
the TV ``white spaces'' could be used to provide better broadband 
service or a first broadband service in many rural areas.

2. Cutting-Edge Consumer Applications
    The TV ``white spaces'' could also be used to provide new, cutting-
edge consumer applications that take advantage of this spectrum's 
improved signal reliability and range. Wireless local area networks 
using low power and battery operated devices could enable new 
capabilities that bring safety, convenience, and comfort to consumers 
in their homes and workplaces. For example, such devices could provide 
improved energy efficiency through intelligent home automation and 
power monitoring; home security with robust low power wireless video 
feeds; and other interesting new home entertainment applications. For 
example, companies such as Dell Inc. are considering some interesting 
applications for data and video distribution within the home.
3. Public Safety Uses
    Additionally, in emergencies, the TV ``white spaces'' could be used 
to provide auxiliary services to augment public safety communications 
on licensed networks. For example, rescue efforts could be enhanced by 
placing remote video cameras at a disaster site to relay images to a 
command center; or using portable ``helmet cams'' to provide real-time, 
point-of-view command/control information.

C. No Harmful Interference
    All of these innovative unlicensed applications are possible 
without causing harmful interference to authorized users. Indeed, Intel 
filed detailed technical analyses with its FCC Comments and Reply 
Comments demonstrating that unlicensed use of the TV ``white spaces'' 
is both achievable and practical. These analyses clearly refute the 
misleading and incorrect claims made by TV licensees that unlicensed 
use will interfere with their operations.
    Furthermore, as both the ABC Act and the WINN Act contemplate, 
before any new unlicensed devices could be deployed in the TV ``white 
spaces,'' they would have to go through the FCC's rigorous 
certification process--a process that has been used for years to 
authorize new devices in this country. Pursuant to the certification 
process, the device manufacturer will have to demonstrate that the 
device meets the technical requirements for unlicensed devices to 
operate in the TV ``white spaces.'' These technical requirements, 
including interference criteria, are set forth by the FCC's Office of 
Engineering and Technology. No new device could be deployed without 
first complying with the FCC's certification process.

1. TV Reception
    Permitting new unlicensed wireless devices to share the TV bands 
would not cause harmful interference to TV reception. To begin, the 
potential for harmful interference to TV reception by high power 
``fixed/access'' services such as WiMAX is not a concern. Not only are 
the locations of TV stations known, but also the unlicensed devices can 
utilize various mechanisms (e.g., frequency coordination, professional 
installation, and output power control) to preclude any harmful 
interference to TV receivers.
    Moreover, claims that new unlicensed ``personal/portable'' devices 
operating in the TV ``white spaces'' would cause harmful interference 
to authorized services from out-of-band emission is misleading. Because 
radiated emissions outside the channel of operation are unintended and 
unwanted emissions, these devices are not designed to maximize their 
emissions level. In fact, the actual radiated level emitted by an 
unlicensed device will almost always be far below the permitted 
maximum.
    In addition, only approximately 15 percent of U.S. homes rely 
solely upon an over-the-air TV signal. The majority of these over-the-
air viewers live in areas of strong signal strength (where the received 
signal would easily overcome radiated emissions from other household 
electronics). The remainder of over-the-air viewers--those located in 
areas of marginal signal strength--receive their signal using an 
individual- or MATV-based antenna system, which is far removed from the 
proposed unlicensed devices (and thus is less likely to be susceptible 
to harmful interference). Further, tens of millions of TV viewers and 
their neighbors already operate similar electronic devices, which would 
cause the same type of supposed harmful interference to TV receivers as 
the unlicensed devices in question--and, yet, such interference has not 
been an issue.
    For example, numerous devices found in the average American home, 
such as cordless telephones, WiFi cards, and Bluetooth solutions, are 
subject to the same levels for unwanted emissions in the TV bands. 
Operation of these devices has proven to be compatible with TV viewing 
in American homes for years. Moreover, devices operating in the TV 
bands, such as common door openers and remote controls, are permitted 
far higher emissions levels than those allowed under the FCC's proposed 
rules. Even with these increased emissions levels, the operation of 
door openers, remote controls, and similar devices does not cause 
harmful interference to TV reception.
    The radiated emissions limits set forth in the FCC's proposed rules 
for unlicensed operation in the TV ``white spaces'' already apply to a 
variety of digital devices, such as personal computers and electronic 
toys. Operation of these digital devices does not interfere with TV 
viewing. Furthermore, the limits for these digital devices, as would be 
found in some office-type environments, have emissions levels that are 
higher than the level for the proposed unlicensed devices. Even in this 
environment, both over-the-air and cable- and VCR-connected television 
receivers operate successfully.

2. Direct Pick Up
    Direct pick up (DPU) is the amount of signal a television tuner 
receives over-the-air, in the absence of an external antenna. The 
potential for DPU interference in cable-ready television receiving 
equipment from new unlicensed wireless devices is highly improbable 
today. In fact, the immunity level for such receiving equipment--i.e., 
the power level above which interference is perceptible to the viewer--
was developed years ago (when TV sets were generally poorly shielded) 
in order to minimize the effect of interference to cable television 
(CATV) viewing from over-the-air TV stations.
    Indeed, this immunity level was specified more than 20 years ago to 
accommodate the susceptibility of some older TV set/receiver designs 
that were prevalent when the rule was written. So-called old school 
``hot/cold chassis'' designs are inherently more susceptible to DPU 
interference, as the input connection is partially unshielded. The most 
vulnerable targets for DPU interference are the handful of remaining 
older TV sets connected to set-top boxes and tuned to channels 3 or 4. 
However, TV set-top boxes and newer TV receivers do not use the ``hot/
cold chassis'' design; rather, they have fully shielded tuners--which 
render them nearly invulnerable to DPU interference.
    Moreover, local TV stations--the reason for immunity levels--and 
the new devices in question are quite different in a very important 
way. Users cannot change the fixed location of licensed high power 
local TV stations. In contrast, operators of new ``personal/portable'' 
devices can and will reconfigure, relocate, or simply disable their 
equipment to avoid DPU interference in their CATV receiving equipment 
(similar to how consumers handle cell phone interference with TV and 
computer equipment today). Thus, the immunity level requirements are 
not necessary with respect to ``personal/portable'' devices--because 
any potential for interference is in the user's control--and thus 
easily avoided.
    Also, industry experience demonstrates the extent of the 
improbability of DPU interference today. Over the past nine years, as 
DTV stations have commenced operation, approximately 1,550 new high 
power broadcast TV stations have begun transmitting, essentially 
simultaneously. Yet, reports of DPU interference to CATV viewing 
equipment from even these new powerful transmitters have been 
negligible.

3. Cable and Satellite
    In addition, allowing new unlicensed wireless devices to share the 
TV broadcast spectrum would not cause harmful interference to cable or 
satellite TV service. Indeed, because the CATV signal is typically 
terminated at both ends, there is no interference to CATV operation 
using RG-6 cable for distribution throughout the home. (RG-6 cable is 
the most widely used cable for home installation of cable TV and 
satellite TV systems.) Interfering signal ingress only occurs when one 
end of the cable is not connected--an unrealistic scenario.
    And where a house has multiple CATV outlets in several rooms and 
some of the outlets are not used, the unused outlets are typically 
terminated with screw-in terminators. Even where unused outlets are not 
terminated in this manner and signal ingress occurs to the unused 
outlets, such ingress will not cause harmful interference to the 
outlets that are connected to TV receivers because of the high degree 
of isolation between outputs. Indeed, most multiple outlets are 
connected to a CATV feed via directional couplers. These couplers have 
a high degree of isolation between their ``tap'' and ``output'' 
connections. Furthermore, even where simple hybrid signal splitters are 
used to connect multiple outlets to a CATV feed, the splitters exhibit 
high isolation between outputs--and thus does not cause harmful 
interference to the connected CATV outlets.
    Finally, the operation of new unlicensed ``personal/portable'' 
devices in the TV bands would not cause harmful interference to DBS 
systems. The TV bands in question encompass frequencies below 698 MHz, 
whereas DBS satellite systems use frequencies in the range of 1 GHz to 
2.2 GHz on the downlink cable between the DBS Low Noise Block 
Converter/Feedhorn on the dish antenna and the DBS set-top box. Thus, 
the proposed unlicensed devices and DBS services use different bands, 
such that the operation of unlicensed devices in the TV ``white 
spaces'' would have no effect on--much less cause possible ingress to--
DBS systems.

D. Military and Defense Radar
    Notably, spectrum sharing similar to that proposed in the TV 
``white spaces'' bills, is already occurring in far more complex 
scenarios. For example, the 5 GHz band--which is used to transmit 
classified military and defense radar signals--now shares spectrum with 
unlicensed 802.11a (WiFi) radio technology. Such radios switch 
frequencies when the presence of radar is detected, thus continuing 
operation without causing interference to the classified signals. 
Recognizing the benefits of wireless broadband networks at 5 GHz, the 
FCC worked with NTIA, the Defense Department, and the private sector to 
allow these sophisticated unlicensed devices to share the 5 GHz band 
with highly sensitive military and government systems.
    This example powerfully demonstrates the public benefits gained 
when government and commercial spectrum users collaborate to adopt 
innovative technological approaches to spectrum sharing. Through this 
collaboration, the private sector was afforded a new unlicensed 
platform on which to innovate--without interfering with critical 
military needs. Significantly, the 5 GHz example of spectrum sharing is 
considerably more challenging than the TV ``white spaces'' scenario. 
Indeed, military signals in the 5 GHz band are intended to not be 
detected by other technologies, whereas TV stations are fixed and 
easily detectable by cognitive radios.

IV. Conclusion
    In sum, Intel, like consumers, wants broadband and other new 
technologies to become widespread, high quality, and affordable. Over 
the years, we have consistently supported policies that encouraged 
wired and wireless broadband investment and competition. We believe 
that is what will give consumers the broadband and technologies that 
they want. In that regard, we believe that modernization of the 
Nation's spectrum management system is essential to ensure that the 
Commission's policies evolve with the consumer-driven evolution of new 
wireless technologies, devices, and services.
    Allowing more flexible licensed use, as well as more unlicensed use 
(e.g., in the TV ``white spaces''), will enable spectrum users and 
companies like Intel to innovate and respond to market forces without 
having to go back to the government and get regulations changed to 
accommodate every new innovation. Spectrum reforms will enable cutting-
edge technologies, as well as higher-powered new uses of existing 
technologies. With a progressive approach to our spectrum policy, we 
can drive the innovation that keeps the U.S. economy dynamic and 
competitive.

    The Chairman. Thank you very much. Our next witness is 
Robert Hubbard, Secretary and Treasurer of the Association for 
Maximum Service Television and President and Chief Executive 
Officer of Hubbard Television. Mr. Hubbard?

        STATEMENT OF ROBERT W. HUBBARD, PRESIDENT/CEO, 
HUBBARD TELEVISION GROUP; VICE PRESIDENT, HUBBARD BROADCASTING, 
                  INC.; SECRETARY/TREASURER, 
        ASSOCIATION FOR MAXIMUM SERVICE TELEVISION, INC.

    Mr. Hubbard. Thank you. Thank you very much, Mr. Chairman. 
I come from a long line of broadcasters. My family, my 
grandfather started his first radio station in 1923. We have 
been providing public service to Americans ever since that 
time.
    We currently operate in large cities, such as Minneapolis. 
We also operate in very rural areas in Minnesota and New 
Mexico. As a matter of fact, in order to provide our television 
service to our markets, we operate over 100 low-power 
transmitters to provide that service to these very, very small 
geographic areas. We understand the rural area. We understand 
the importance of the rural area. We understand the importance 
of bringing rural broadband solutions to the rural area. We 
think there are ways to do that. It must be balanced with the 
importance in the television service. New ideas and new 
technologies are very important but we can't do them in a way 
that jeopardizes the fundamental television system that this 
country has relied upon for so long. This balance can only come 
with proper engineering, with proper testing, and actual real 
world, not theoretical, testing and engineering.
    There is a huge difference between providing rural 
broadband opportunities and unlimited access with unlicensed 
devices. On the one hand, rural broadband solutions, we believe 
are quite manageable, if done properly. Where as, unlimited 
access to the unlicensed devices within the television band is 
quite problematic. Quite frankly, we do not know what the 
solutions are for that environment.
    These interference concerns that we talk about are very 
real. It is not just the broadcasters. We are not alone. IEEE, 
the world's leading standard organization has expressed these 
same concerns. Many consumer electronics companies have 
expressed these concerns. All of the translators--people who 
operate translators all across the United States and low power 
television stations have expressed these concerns. Not to 
mention the additional interference, will be problematic to 
news gathering, and sporting events because of interference to 
wireless microphones. These concerns have been exhibited by all 
of the major news associations, manufacturers of wireless 
microphones, and other equipment, and sports leagues.
    It is important for us to understand what interference 
means. It is easy to say interference. What interference means 
in a digital television world is no television picture, no 
television service. It is a very, very harsh reality for a home 
that has that interference. There are at least 20 million homes 
in this country that rely solely on over-the-air television. 
Quite frankly, many of them are in rural areas, but they are 
all over. They are everywhere. There are 73 million homes that 
have television sets that are not connected to cable and 
satellite and rely on over-the-air television in some respect. 
None of the proponents for these unlicensed approaches has 
really given data. They give theoretical data. They give data 
in other bands and in other circumstances. MSTV is an 
engineering organization. It is the only group that has 
actually provided data in the bands that we are talking about. 
Let's be clear, what we are talking about is unlicensed 
devices, which are unlimited in nature and putting them in the 
television band and potentially interfering with people's 
television reception. Other unlicensed devices aren't allowed 
to operate in this band; that is why there has not been a 
problem with these types of devices in the past. This is a 
crossroad. This is a fundamental distinction that has never 
happened before.
    The responsibility for interference, the responsibility 
shouldn't be on the backs of the hundreds of millions of homes 
in this country, who have hundreds of millions of receiving 
sets that had been in use and continue to be in use today. It 
needs to be on the new entrants, to make sure that these 
systems don't disrupt. We need engineering and testing to 
ensure that interference will not disrupt the American 
television service. We can't legislate this. It is not just a 
matter of legislation. This takes invention. It takes 
creativity. You can't make it happen with a finger snap. This 
takes everybody working together; industry, government, 
standards, organizations and importantly, there is a process. 
IEEE, which is established, IEEE 802.22, which is the wireless 
standards body, is currently developing a rural broadband 
solution. As a matter of fact, IEEE has recommended testing of 
such a system, starting in December of this year. The broadcast 
industry is a major and active participant in this process and 
we have continued to be so.
    Done prematurely, we run the risk of disrupting American's 
television service, that has served us so well and can continue 
to serve us so well in the future. Done incorrectly, we run the 
risk of bringing no new service. There is no guarantee of new 
service here in rural areas, and while at the same time 
completely disrupting those homes that today rely on television 
for information, news and most importantly emergency 
information at times of great crisis.
    Thank you very much for your time.
    [The prepared statement of Mr. Hubbard follows:]

    Prepared Statement of Robert W. Hubbard, President/CEO, Hubbard 
     Television Group; Vice President, Hubbard Broadcasting, Inc.; 
 Secretary/Treasurer, Association for Maximum Service Television, Inc.
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear before you today to discuss policies affecting 
the public's spectrum resource and the important services delivered 
over that spectrum. My name is Robert Hubbard, and I am the President 
of the Hubbard Television Group, Vice President of Hubbard Broadcasting 
and serve as a member of the Board of Directors of the Association for 
Maximum Service Television, Inc. (MSTV).
    The issues surrounding spectrum management are important for this 
Nation. Spectrum is a vital national resource, and must be managed 
wisely. Today there is considerable debate among economists and legal 
scholars regarding the best approach to spectrum management. Proponents 
of an unlicensed approach assert that it will lower the cost to new 
entrants while preventing interference to licensed services. Leading 
economists and legal scholars, however, have also voiced strong 
opposition to an unlicensed model. They believe that such an approach 
eliminates market discipline for entry, leading to overuse and 
increased interference among users. Whatever the merits or problems 
associated with an unlicensed approach, unique issues arise when the 
government attempts to employ two different regulatory regimes (i.e., 
licensed and unlicensed) in the same band. Recent proposals would do 
just that, for the first time attempting to interleave an unlicensed 
model with licensed broadcast and other services. From an engineering 
and scientific perspective, the government should approach these 
unprecedented proposals with extreme caution.
    MSTV has over five decades of practical, real world experience in 
spectrum management. Since 1956, we have worked to maintain and enhance 
the technical integrity of the American public's free, over-the-air 
television service as that service grew from less than 100 stations to 
over 1,600 full-power broadcast stations. We also provided the FCC with 
the engineering expertise that made it possible to ``squeeze in'' 
during the transition channels for DTV service within the current 408 
MHz allocation for television broadcasting. MSTV has also assisted 
policymakers in introducing other licensed services, including public 
safety communications and sophisticated Part 74 equipment essential to 
provide live news and sports coverage. And most recently, it helped 
design the process by which television broadcasters will complete the 
transition to digital transition (DTV), using the efficiency of digital 
technology to enable migration from the current band (channels 2 
through 69) to the final condensed ``in-core'' band (channels 2 through 
51). As a result, the television broadcast service will occupy only 294 
MHz of spectrum as of 2009, in comparison to the more than 700 MHz of 
spectrum already available to unlicensed devices at or below the 5 GHz 
band.
    The peaceful coexistence of so many licensed services in the same 
spectrum band has not happened by accident; it has required careful 
planning that takes into account the unique architecture of broadcast 
television service and the interference characteristics of the 
different services. Based on its knowledge of the difficulties in 
coordinating licensed services in the same band, MSTV is deeply 
concerned by proposals to allow an unlimited number of unlicensed 
devices into allegedly ``vacant'' channels within the spectrum reserved 
for the public's free, over-the-air television service. Studies and 
field tests conducted by well-respected scientists and engineers show 
that the introduction of unlicensed devices into the television 
broadcast spectrum threatens to create significant interference to the 
public's television service. As a result, the unlicensed devices 
proposal would unfairly burden the over 21 million households that rely 
exclusively on free, over-the-air television services--a group which 
disproportionately includes minority, lower income, and elderly 
persons. In fact, these proposals threaten to create interference to 
approximately 73 million existing television sets that rely on an 
antenna to receive over-the-air television service. We are especially 
concerned about the interference to new digital television receivers 
and the government-subsidized digital-to-analog converter box program. 
Finally, by interfering with licensed production equipment in the 
broadcast bands, it would undermine coverage of emergency news, sports, 
political, and other events of importance to local communities. 
Licensed public safety services using broadcast spectrum in many major 
markets would also suffer.
    When asked about these concerns, the relatively small but vocal 
group of unlicensed device advocates tells policymakers: ``trust us.'' 
MSTV respectfully submits that the public's spectrum resource should be 
managed based on facts and engineering science, not on unsubstantiated 
promises. This Committee should take note of the world's leading 
industry standards body, IEEE 802.22, which is currently determining 
whether, and if so, how, new wireless services can safely be authorized 
to operate in the broadcast spectrum. Proposals that would force the 
FCC to introduce unlicensed devices into the broadcast spectrum in as 
little as six months would short change the scientific discovery 
process, short circuit the IEEE's important work and would wrongly 
prejudge complicated engineering questions. Once millions of unlicensed 
devices are placed into the marketplace and allowed to populate the 
spectrum, they cannot be removed. MSTV accordingly believes it would be 
unwise to place unlicensed devices into the broadcast spectrum before 
it is even known whether those devices can safely coexist with the 
important licensed services which are delivered to the public over that 
spectrum.

I. Congress Should Protect Consumers by Preserving the Technical 
        Integrity of the Free, Over-the-Air Television Service.
    All too often, public policy debates regarding spectrum management 
deal with abstract concepts like ``interference'' and ``spectrum 
efficiency.'' The impact of these proposals, however, is very real. At 
stake are the television sets that exist in every living room, bedroom 
and kitchen across America. Most television receivers have not been 
engineered to protect against interference from unknown, unlicensed 
devices operating on adjacent channels in the television band; rather, 
they were designed to accommodate licensed services that operate in 
conformity with the FCC's channel allocation plan. For the American 
consumer, interference from unlicensed devices is not an abstract 
concept. In real terms it means that the DTV set one family just 
purchased will not work when their neighbor turns on an unlicensed 
wireless device. It means that a new government-subsidized converter 
box will not work well when it is connected to another family's analog 
set.
    Parties urging for the introduction of unlicensed devices into the 
television broadcast spectrum have argued that Congress should not be 
concerned with the significant interference potential of such devices 
because Americans can turn to pay television services for programming. 
These erroneous claims overlook the continued importance of over-the-
air television viewing to the American consumer.
    Approximately 21 million households \1\ with an aggregate 45 
million sets rely solely on free, over-the-air television. \2\ Those 
viewers rely exclusively on over-the-air television for local news, 
sports, weather, and entertainment. In times of emergency, their lives 
may be saved when local television stations disseminate critical 
information from government officials to members of a community, 
including to viewers receiving that information via portable television 
sets commonly used during emergencies. \3\ For example, when it became 
evident that Hurricane Katrina was headed towards the Gulf Coast, local 
television stations began wall-to-wall hurricane coverage, alerting the 
local community about the impending dangers and urging residents, 
including those in New Orleans, to evacuate. \4\ Once the hurricane 
made its devastating landfall, local broadcasters remained a key link 
between government officials--including the governors of Louisiana, 
Mississippi, and Alabama--and the public by working cooperatively and 
creatively to maintain an on-air presence and thereby keep both local 
residents and the country informed of the severe crisis that followed 
the hurricane. \5\
    When access to a free, over-the-air signal is curtailed by over-
the-air interference in favor of a pay service, some viewers experience 
that loss greater than others. For example, in some markets the number 
of homes not connected to cable or satellite services may reach as high 
as 40 percent. Variations may also occur along cultural lines. 
Univision has reported that nationwide, 33 percent of Hispanic 
households receive their programming solely over-the-air. \6\ Over-the-
air viewers should not be deprived access to these critical local 
services merely because they do not, or cannot, subscribe to a pay 
television service.
    Cable and satellite subscribers are also affected by loss of free, 
over-the-air television service. As the General Accounting Office (GAO) 
has reported, over ten million households that subscribe to cable have 
at least one television set that is not connected to cable. \7\ Added 
to the sets in homes solely relying on over-the-air service, there are 
an estimated 73 million television sets not connected to a pay 
television service in the U.S. \8\
    Protecting the spectral integrity of the broadcast service is 
particularly important as the country enters a critical stage in the 
transition to digital television. Congress, the Executive Branch, and 
the FCC have all made clear that bringing the digital transition to a 
successful conclusion is of utmost priority and that it should not be 
obstructed by lower-priority goals. Years of hard work by broadcasters, 
government officials, consumer electronics manufacturers, and others 
have seen considerable progress, with nearly all 1,600 television 
stations in the Nation's 208 television markets now broadcasting a 
digital signal. \9\ With the transmission side of the equation--
broadcast facilities--virtually complete, the critical factor is to 
create incentives for American consumers to turn off their analog 
television receivers and switch to receiving signals in a digital 
format by the February 17, 2009 ``hard date'' on which analog 
broadcasts are to cease. But if unlicensed devices degrade consumers' 
ability to receive DTV signals, adoption of digital sets will slow, 
undermining the DTV transition.
    Concerns about the digital transition also extend to the 
development of an inexpensive digital-to-analog converter box that will 
ensure continued local broadcast service for consumers' with analog 
sets. (As was widely reported last year, MSTV and NAB have entered into 
an agreement with LG Electronics and Thomson Inc. to develop a high-
quality but low-cost prototype of such a box.) In recognition of such a 
box's importance to concluding the digital transition, Congress has 
allocated $1.5 billion to subsidize consumers' purchase of converter 
boxes. Like any receiving device, these boxes must use antennas to 
receive local television signals, and therefore will be susceptible to 
interference, as well the analog sets to which the boxes are connected. 
And to meet Congressional expectations that these boxes remain low 
cost, there is little room to include additional filters or tuner 
selectivity. Even if additional funds were available, absent knowledge 
of the types of unlicensed services that will be operating in the band, 
it is difficult, if not impossible to include design changes to the box 
to further immunize the box from future interference.
    In light of the importance of maintaining the public's access to 
free, over-the-air television services both during and after the 
digital transition, Congress should not use the broadcast spectrum as a 
testbed for risky experiments in new spectrum management methods. Any 
proposal to introduce new untested and unlicensed wireless technologies 
into the broadcast spectrum must contain meaningful mechanisms to avoid 
interference. As discussed below, no such mechanism exists today.

II. Unlicensed Devices Would Interfere with Consumer Reception of Over-
        the-Air Broadcasts and Other Licensed Services in the Band.

A. Existing Technology Would Not Prevent Unlicensed Device Operation on 
        Occupied TV Channels.
    A key, but faulty, assumption of the proposal to allow unlicensed 
devices to proliferate through the broadcast spectrum is that 
technology exists by which an unlicensed device can reliably detect 
when a television channel is ``vacant.'' In fact, there is no 
demonstrated technology that can reliably prevent an unlicensed device 
from transmitting on a television channel already in use. Thus, in many 
circumstances, unlicensed devices would operate on channels that are 
already occupied by local television or other licensed services, 
including wireless microphones that are used in the production of 
emergency news coverage, sporting events, and political conventions.
    Most proponents of the unlicensed devices proposal rely on 
``spectrum sensing'' methods as the only potentially reliable method 
for protecting the public's television service from unlicensed device 
interference. A device using this exploratory technology would 
``sense'' the presence of a television signal and would then, 
allegedly, select a channel not in use. Yet these ``spectrum sensing'' 
technologies are wholly unproven in the broadcast context, especially 
in light of the uniquely open and diverse architecture of television 
sets.
    As Motorola cautioned in public statements to the FCC concerning 
the unlicensed devices proposal, ``It would be premature to rely on 
spectrum sensing until these mechanisms are shown to be reliable via 
comprehensive study and real-world testing.'' \10\ Policymakers should 
not base real-world policy decisions on unproven promises of technology 
to come.
    For example, efforts to develop spectrum sensing technology in the 
5 GHz unlicensed band took several years of development and testing, 
even though in that band the task of ``sensing'' licensed users is far 
less complex than it would be in the television broadcast band. There, 
unlicensed devices are to be allowed to operate alongside licensed 
military radar through use of dynamic frequency selection (DFS). 
Development of DFS should have been relatively simple, given that a 
single user, the Federal Government, controlled both the transmission 
and receiving equipment for the licensed service. Indeed, prior to the 
FCC's decision to adopt the new rules allowing unlicensed device 
operation in the 5 GHz band, the National Telecommunications and 
Information Administration (NTIA) had submitted detailed procedures by 
which these unlicensed devices would be tested to determine if they 
could reliably detect military radar. \11\ Yet only last month, after 
three years of analysis and field testing, did the NTIA, Department of 
Defense, and the FCC reach agreement on criteria allowing sale of 
unlicensed devices operating alongside the military radar.
    The significant efforts undertaken to permit the use of DFS in the 
5 GHz band would pale in comparison to the task that would be needed to 
create reliable spectrum sensing solutions in the television broadcast 
spectrum. For example, unlike military radar in the 5 GHz band, there 
are literally thousands of variants among the receiving equipment 
(i.e., TV sets and Part 74 devices) at issue in the broadcast spectrum; 
this is a reflection of the unique open architecture of television 
receivers. Without reliable and consistent information about the 
receiving equipment, there can be no way of knowing whether an 
unlicensed device can detect a channel where its operation will not 
interfere with nearby viewers' television sets or Part 74 devices. 
Furthermore, in the broadcast spectrum there are full-power broadcasts, 
low power broadcasts, and licensed broadcast auxiliary stations (which 
are essential to the delivery of on-the-spot news coverage during 
weather disasters, public safety emergencies, political conventions, 
and sporting events). A spectrum sensing method would have to reliably 
sense all of these services.
    Perhaps most importantly, as even Intel has recognized, in its 
opposition to the use of spectrum sensing spectrum for higher power 
unlicensed operations in the 3650 to 3700 MHz band, sensing ``works 
well for short range, low power applications like WiFi where control 
resides in one entity or operator-to-operator voluntary cooperation is 
feasible.'' \12\ The broadcast spectrum, however, exists below 1 GHz, 
where propagation characteristics allow transmissions--and 
interference--to travel over very long distances, passing through 
thousands of independent locations. Indeed, proponents of the 
unlicensed devices proposal have made clear that they would use the 
broadcast spectrum to deploy very long-range applications. \13\

B. Field Tests Show That Even an Unlicensed Device Operating on a 
        Genuinely ``Vacant'' TV Channel Would Interfere With Viewers' 
        Access to Local Television 
        Services.
    Even if technology were to develop that would allow unlicensed 
devices to properly detect when a given television channel is 
``vacant,'' significant problems would remain. In consultation with one 
of the most respected broadcast laboratories in North America, 
Communications Research Centre Canada (CRC), MSTV has developed and 
conducted a reproducible laboratory study to measure the effects on a 
television receiver of an unlicensed device operating on a genuinely 
``vacant'' TV channel. \14\ This study shows that harmful emissions 
from unlicensed devices--even when the devices operate on ``vacant'' 
channels would seriously harm the public's access to free, over-the-air 
television services and would prevent the use of licensed wireless 
production equipment critical to the coverage of local news, sports, 
and other events.
    Indeed, unlicensed devices operating in the broadcast spectrum at 
the FCC's allowed power levels for out-of-band emissions (i.e., energy 
that an unlicensed device radiates outside of its operating channel) 
could prevent a viewer from watching over-the-air television even when 
the device is as far as 78 feet from a digital TV set, or 450 feet from 
an analog set, despite the presence of multiple walls between the 
device and the TV set (as would occur in multi-unit dwellings). 
Comments filed with the FCC by parties such as Motorola and the 
Consumer Electronics Association have seconded these concerns about 
out-of-band emissions from unlicensed devices. \15\ It is noteworthy 
that IEEE 802.22 agrees with these concerns regarding out-of-band 
interference.
    To ensure the reliability and credibility of the study, CRC and 
MSTV have extensively documented the methodology used and results 
obtained, and have submitted that documentation to the FCC. \16\ MSTV 
subsequently produced a video, entitled ``Your Neighbor's Static,'' 
which recreated the CRC/MSTV study in a real-world environment just 
outside Washington, D.C. Using an actual townhouse and actual DTV and 
analog receivers, this video showed the harmful effect of an unlicensed 
device operating on a ``vacant'' television channel on reception of 
over-the-air broadcasts. \17\
    The CRC/MSTV field study remains the only real-world test of the 
effects of unlicensed devices out-of-band emissions on licensed 
television services. The unsubstantiated promises of unlicensed device 
advocates cannot substitute for hard, scientific data, and this data is 
clear: the placement of unlicensed devices into the public's broadcast 
spectrum would significantly harm the public's local television 
service.

III. Once Interference Occurs, There is No Enforcement Mechanism To 
        Stop it.
    Compounding the serious flaws described above, once unlicensed 
devices are in the field, broadcasters and the FCC would have no 
reliable means of protecting the public's television service from 
harmful interference. Although as a legal matter the FCC's Part 15 
rules would privilege the licensed broadcast uses over the unlicensed 
transmissions in an interference dispute, as a practical matter this 
precedence would be of little value.
    Rarely will broadcasters, the FCC, or the public even be aware of 
harmful interference from unlicensed devices, because most cases of 
interference from unlicensed devices will go unreported. If unable to 
receive a station's signal, viewers may simply assume that the 
interference is caused by a problem with the broadcaster's transmission 
or their sets. They are more likely to change the channel, or return a 
new DTV set to the store, than they are to call the broadcaster. It may 
thus take years before anything approaching the full impact of 
interfering unlicensed devices on the public's access to free, over-
the-air television would come to light.
    Even when interference is reported and linked to unlicensed 
devices, the FCC would not typically be able to find and shut down the 
interfering devices. \18\ Just as spectrum sensing technology cannot 
reliably prevent interference, it should not be relied upon to police 
it. \19\ Attempts to use traditional means to remedy harmful 
interference from unlicensed devices (i.e., finding the offending 
transmitter and ordering it to cease operation) would sap both FCC and 
broadcaster resources, especially as the number of devices out in the 
field proliferates. As Sprint has told the FCC, ``once interfering 
unlicensed devices are in the market, it will . . . potentially be 
virtually impossible for the [FCC] to recall these devices.'' \20\

IV. The Aggregation of Unlicensed Devices in the Broadcast Spectrum 
        Could Ultimately Leave the Spectrum Unusable for All Parties.
    Even if out-of-band emissions could be controlled and the 
unlicensed devices could avoid transmitting on occupied channels, a 
fundamental problem would remain: with an unlimited number of 
unlicensed devices allowed to crowd the broadcast spectrum, the quality 
of broadcast and other licensed communications over that spectrum will 
necessarily decline. Although the addition of one or two unlicensed 
devices in a given region may not have an appreciable effect, the 
addition of hundreds of thousands or millions certainly will. This 
trend would be irreversible and continually escalating. Maintaining a 
low noise floor is critical if Congress is to uphold its longstanding 
commitment to a robust, universal, and free over-the-air television 
service.
    As William J. Baumol, a professor of economics at New York 
University, has explained in an influential 2005 paper, the ``policy of 
unlimited entry'' that is the hallmark of an unlicensed device regime 
``is likely to have the same detrimental effects upon spectrum usage 
that it has on usage of shared resources elsewhere.'' \21\ Over time, a 
``tragedy of the commons'' results in which the resource (e.g., 
spectrum) is shared among so many users as to make it of little value 
for anyone. As Dr. Baumol notes, ``interference is inevitable under a 
spectrum regime in which the market is not constrained by any 
restrictions that limit entry: in deciding whether or not to enter, 
each entrant takes into account only the consequences of this decision 
upon himself, and disregards the effects upon others.'' \22\ The result 
is ``overcrowding and overuse.'' \23\ Experience in the unlicensed 2.4 
GHz band is instructive. There, cordless phones have ``reap[ed] 
devastating effects on 802.11b WLANs'' because the technologies used 
are not compatible for minimization of interference. \24\
    Even if future technology is able to accommodate some number of 
additional users within a given swatch of spectrum, demand will surely 
keep pace and the quality of communications in the spectrum will 
degrade. \25\ As the economist Thomas Hazlett has noted, the history of 
unlicensed device entry is a ``chase up the dial: the 900 MHz ISM band 
became congested, leading the FCC to open up the 2.4 GHz unlicensed 
band, which became crowded in major markets, leading the FCC to open up 
300 MHz for the U-NII 5 GHz band.'' \26\ And once the decision is made 
to turn a band over to an infinite quantity of unlicensed devices, the 
spectrum cannot be recaptured for future productive use. The television 
broadcast spectrum should not be allowed to go the way of other 
spectrum that has suffered a tragedy of the commons.

V. Spectrum Is Not Readily Available in Congested Urban and Many Other 
        Markets.
    Driving the unlicensed devices proposal is another mistaken 
assumption, reflected in a paper issued by the New America Foundation 
(NAF) and Free Press last year: that large swaths of television 
broadcast spectrum are ``vacant'' and thus available for use by 
unlicensed devices. In fact, studies demonstrate that there is little 
or no white space available in congested urban and even many less 
populated markets. \27\ The benefits cited by promoters of the 
unlicensed devices proposal--``free[ing] up un-used capacity for 
innovative new wireless applications''--would thus fail to materialize 
in many areas throughout the country. \28\
    What has caused unlicensed device advocates like NAF/Free Press to 
so overestimate the amount of ``white space'' available? Most notably, 
they ignore the minimal interference guidelines for determining a 
``vacant'' channel, as proposed by the FCC in its unlicensed devices 
proposal in 2004 and recommended by IEEE. Once the FCC's more 
appropriate interference methodology is applied, most of the ``white 
space'' diminishes significantly, especially in urban and suburban 
areas. For example, as MSTV noted in filings before the FCC, there are 
very few white spaces available from Boston to Washington, D.C. during 
the digital transition. Even after the DTV transition, spectrum may be 
tight, because the television band will be reduced by nearly one-third. 
For example, in Dallas-Ft. Worth, where NAF/Free Press claims 120 MHz 
of television spectrum to be ``vacant,'' only 6 MHz is actually 
available.
    Even in rural markets where some white space may be available, 
there is potential for interference with the existing television 
broadcast service. Because of their distance from transmitting towers, 
many rural viewers receive very weak signals. To correct this weak 
signal condition, rural viewers often use amplified antennas. As a 
result, their receiving equipment is more susceptible to interference 
that typical antennas. This is one reason why the National Translator 
Association has expressed concern about allowing unlicensed devices in 
rural areas.
    The unlicensed devices proposal also threatens to conflict with 
another priority for rural viewers: the digital transition for low-
power and TV translator stations, which is unlikely to be complete when 
full-power analog broadcasts cease in 2009. Currently, 2,100 licensed 
LPTV and 4,700 licensed television translator stations are eligible to 
``flash cut'' to digital operations, and in May the FCC will open a 
filing window by which these stations can seek a companion digital 
channel. Before taking any action that may disrupt that complex 
transition, Congress should take notice that the rural areas into which 
Intel and other parties suggest unlicensed devices would be deployed 
depend heavily upon low power television services. As FCC Commissioner 
Adelstein has stated: ``[t]housands of translators and low power 
stations across our country fill a vital need as the primary source of 
over-the-air television for people in Rural America. As I've seen 
firsthand, often these stations are the only station in an area 
providing local news, weather, public affairs and emergency 
programming.'' \29\ Those same viewers would be deprived of digital low 
power television services if unlicensed devices are prematurely 
introduced into the broadcast spectrum before the digital low power 
transition is complete.
    Moreover, the broadcast industry is currently faced with a crisis 
over the availability of spectrum to provide live remote coverage of 
news and sporting events. As MSTV has noted on previous occasions, 
broadcasters depend heavily on wireless microphones and cameras to 
provide live coverage of major events. \30\ Under carefully controlled 
and coordinated conditions, these wireless devices currently use the 
``vacant channels'' in the UHF band to operate. However, these channels 
are used heavily, making it difficult in major markets to find 
sufficient spectrum for the proper operation of wireless microphones. 
As a result, broadcasters are already experiencing significant 
obstacles to covering events of local and national importance. The 
unlicensed devices proposal would put wireless microphones in conflict 
with unlicensed devices for scarce spectrum. Thus, operation of 
unlicensed devices in the broadcast band would seriously undermine 
local stations' ability to use existing wireless production devices and 
provide remote coverage of important events, including local 
emergencies such as weather disasters.
    On behalf of MSTV, I again wish to thank the Committee for the 
opportunity to discuss important matters of spectrum reform and their 
relationship to the public's free, over-the-air television service. As 
demonstrated by the progress in the DTV transition, which will free up 
108 MHz of spectrum for new wireless and critical public safety 
communications, local broadcasters are committed to efficient 
utilization of the public's spectrum resource. Spectrum efficiency, 
however, requires careful attention to the interference potential of 
services sharing the same spectrum band. To simply open the floodgates 
to unlicensed devices without resolution of the significant technical 
concerns described above would harm the public's interest in 
interference-free communications and the continued access to free, 
over-the-air television services. MSTV accordingly urges that any 
significant changes in use of the broadcast spectrum be made only after 
the FCC and respected organizations like IEEE 802.22 have designed and 
tested appropriate interference standards.

    The Appendix attachments, to this prepared statement, have been 
retained in Committee files.

ENDNOTES
    \1\ Estimated Cost of Supporting Set-Top Boxes to Help Advance the 
DTV Transition: Testimony Before the Subcommittee on Telecommunications 
and the Internet, Committee on Energy and Commerce, U.S. House of 
Representatives, Statement of Mark L. Goldstein, Director, Physical 
Infrastructure Issues, GAO, 7-8 (Feb. 17, 2005) (GAO Study). See also 
Comments of NAB and MSTV, MB Docket No. 04-210, passim, Attachment A 
(NAB/MSTV OTA Comments).
    \2\ NAB/MSTV OTA Comments at 2.
    \3\ Because they are typically battery powered, these sets are 
crucial when natural or manmade disasters leave viewers without access 
to power. As one report recently noted, ``[I]n states in the hurricane 
belt . . . small, battery powered TVs have become must-have items to 
have during power outages.'' Satellite Business News 2, July 11, 2005.
    \4\ A video documenting these efforts of local television 
broadcasters in the Gulf Region may be viewed online at http://
www.mstv.org/honoring.html (``Gulf Region Video'').
    \5\ For example, after the New Orleans levees broke, WWL-TV 
maintained an on-air presence by relocating news operations to a 
broadcast facility at Louisiana State University, and later to 
noncommercial station WLPB in Baton Rouge. Similarly, after floodwaters 
overtook New Orleans station WDSU's facilities, nineteen of the 
station's employees relocated to Hearst-Argyle sister station WAPT in 
Jackson, Mississippi. WDSU's signal was then sent from Jackson to a 
backup TV transmitter in New Orleans, as WDSU's primary transmitter was 
under water. See, e.g., Craig Johnson, Hurricane Katrina Tests 
Broadcasters: Gulf Coast Area Stations Improvise in Order to Stay on 
the Air, TV Technology, Sept. 21, 2005, at http://www.tvtechnology/com/
features/news/n_hurricane_katrina.shtml (last visited Jan. 23, 2006).
    \6\ Comments of Univision Communications, Inc., in MB docket No. 
04-210 at 8, August 11, 2004.
    \7\ GAO Study at 8.
    \8\ NAB/MSTV OTA Comments at 5.
    \9\ Mass Media Notes, Communications Daily, Feb. 26, 2004 (quoting 
an NAB spokesperson as reporting 1,155 local stations on air in 
digital). That number has presumably risen in the nine months that have 
passed since NAB's report.
    \10\ Comments of Motorola, ET Docket Nos. 04-186 and 02-380, at 8 
(filed Nov. 30, 2004.)
    \11\ See Comments of NTIA, ET Docket No. 03-122, at App. B (filed 
Oct. 1, 2003).
    \12\ Petition for Reconsideration of Intel Corp., ET Docket No. 04-
151 (filed June 10, 2005).
    \13\ See, e.g., Comments of Microsoft Corp., ET Docket Nos. 02-380 
and 04-186, at 6 (filed Nov. 30, 2004) (alleging that ``some 
[unlicensed] WISP signals could travel over 31 kilometers'' using the 
television broadcast spectrum).
    \14\ See Appendix A.
    \15\ See Comments of Motorola, ET Docket Nos. 04-186 and 02-380, at 
12 (filed Nov. 30, 2004); Comments of CEA, ET Docket Nos. 04-186 and 
02-380, at 9 (filed Nov. 30, 2004).
    \16\ See Comments of MSTV and NAB, ET Docket Nos. 02-380 and 04-
186, Ex. A (filed Nov. 30, 2004).
    \17\ See Appendix B for a technical description of the 
demonstration.
    \18\ See, e.g., High-Tech Companies Defend FCC's Part 15 Regulatory 
Scheme, FCC Report, June 14, 2002 (citing experience of amateur radio 
systems, which share spectrum with WiFi devices, that the obligation of 
unlicensed devices to cease operation if they cause harmful 
interference to licensed operations ``is an allusion.'').
    \19\ SPTF Report, at 58 (``[O]nce unlicensed devices begin to 
operate . . . it may be difficult legally or politically to shut down 
their operations even if they begin to cause interference or otherwise 
limit the licensed user's flexibility.''); Review of Part 15 and Other 
Parts of the Commission's Rules, 17 FCC Rcd 14063, 14067 (2002) 
(describing interference caused by unlicensed radar detectors to VSATs 
in the 11.7-12.2 GHz band, and noting that the radar detectors could 
not easily be identified or, even if identified, controlled).
    \20\ Sprint Reply Comments, ET Docket No. 02-380, at 2 (filed May 
22, 2003).
    \21\ William J. Baumol, Toward an Evolutionary Regime for Spectrum 
Governance: Licensing or Unrestricted Entry?, AEI-Brookings Joint 
Center for Regulatory Studies, 10 (April 2005).
    \22\ Id. at 11.
    \23\ Id.
    \24\ Interference from Cordless Phones, WiFi Planet, April 15, 
2003, available at http://www.wi-fiplanet.com/tutorials/article.php/
2191241 (last visited Nov. 21, 2004).
    \25\ Baumol at 11.
    \26\ Id., quoting Thomas W. Hazlett, The Wireless Craze, the 
Unlimited Bandwidth Myth, the Spectrum Auction Faux Pas, and the 
Punchline to Ronald Coase's ``Big Joke'': An Essay on Airwave 
Allocation Policy, 14 Harvard J.L. & Tech. 335, 429 (2001).
    \27\ The attached Appendix C includes a study by the respected 
engineering firm of Meintel, Sgrignoli & Wallace concerning the scarce 
amount of ``white space'' available in many markets.
    \28\ See Comments of Wireless Unleashed, ET Docket No. 04-186, at 1 
(filed Nov. 30, 2004).
    \29\ Amendment of Parts 73 and 74 of the Commission's Rules to 
Establish Rules for Digital Low Power Television, Television 
Translator, and Television Booster Stations and to Amend the Rules for 
Digital Class A Television Stations, 19 FCC Rcd 19331 (2004), Separate 
Statement of Commissioner Jonathan S. Adelstein, Approving in Part and 
Concurring in Part.
    \30\ See, e.g., Letter from David L. Donovan, President, MSTV, to 
Marlene H. Dortch, Secretary, FCC, ET Docket No. 02-380 (filed June 23, 
2003) (attaching transcript of video demonstrating concerns with the 
availability of spectrum for wireless microphones).

    The Chairman. Thank you, Mr. Hubbard. Our next witness is 
Thomas Sugrue, who is President of Government Affairs of T-
Mobile USA. Mr. Sugrue?

   STATEMENT OF THOMAS J. SUGRUE, VICE PRESIDENT, GOVERNMENT 
                  AFFAIRS, T-MOBILE USA, INC.

    Mr. Sugrue. Good morning again. First, I would like to 
extend my sympathy and condolences to Senator Inouye on the 
loss of his wife. Our thoughts and prayers are with him as 
well. I want to thank the Committee for the opportunity to 
appear here this morning and talk about issues affecting 
spectrum and other things affecting the wireless industry, 
which are keen interests to T-Mobile.
    I want to focus my remarks just on two issues. First, it is 
essential that more spectrum be introduced into the marketplace 
at the earliest possible date for existing and new providers 
that deploy advanced innovative wireless services that 
consumers demand. We respectfully request the Committee to do 
everything within its power to ensure that the AWS auction 
stays on track for June 29 of this year.
    Second, Congress's policy of regulating wireless services 
with a light touch and at the Federal level has been a 
tremendous success. We ask the Committee as it discharges both 
its legislative and oversight responsibilities to build on this 
success and continue to emphasize that this is the right 
approach for the regulation of the wireless business.
    First, on the need for more spectrum, like Mr. Kneuer, I 
would like to congratulate the Chairman and this whole 
Committee for its leadership in the passage of the Commercial 
Spectrum Enhancement Act in December of 2004. This Act, by 
creating a trust fund for auction proceeds to pay for the 
relocation of government users in the AWS band, set the stage 
for an auction of AWS licenses this summer. And similarly, 
through this Committee's leadership just recently, Congress set 
a deadline for the transition to digital television 
accelerating the auction of spectrum in the 700 MHz band for 
new broadband services.
    Mr. Chairman, I will say in my 25 years in this business, I 
don't think I have ever seen two such major pieces of 
legislation passed in two consecutive sessions of Congress that 
will have such a profound impact on the wireless business. So, 
that is an extraordinary accomplishment and congratulations to 
all of you.
    Combined, these two actions will result in 150 MHz of new 
spectrum being auctioned for advanced services. It will be put 
into use during the next 3 years. This spectrum is critically 
important for competition and innovation. Just for example, T-
Mobile is the fourth largest nationwide wireless carrier, but 
as such we have less spectrum in most markets then most of our 
major competitors. In part, as the result of recent mergers and 
consolidations, the three largest carriers hold on average 
between 42 and almost 60 MHz of spectrum in the top 50 markets. 
T-Mobile holds on average about 25 MHz in these areas. We need 
access to more spectrum soon, as do other mid-size and smaller 
carriers to roll out next generation services. For this reason 
it is critically important that the AWS auction proceed on 
time.
    We applaud Chairman Martin and the FCC for announcing an 
auction start date of June 2006. However, the Commission is 
also considering proposals to alter the auction structure, 
eliminate transparency and bidding, and amend the rules for 
participation by small business entities. We look to the 
Committee to encourage the FCC to resolve these issues without 
delay. We have views on each of these issues, but we think it 
is critically important, no matter how they come out, that they 
be resolved promptly so that the auction can proceed on time.
    Second, in addition to ensuring the swift release of 
spectrum, Congress should continue to recognize that a light 
touch Federal regulatory model is best suited for the 
competitive wireless industry. In 1993, Congress had a unique 
vision to create a competitive and deregulatory environment for 
wireless communications. It pre-empted state regulation of 
rates and entry for wireless carriers, and it directed the FCC 
to exercise its authority only where clearly needed. Results 
have been dramatic in terms of growth and the value this 
industry and these services are bringing to American consumers 
today.
    As Congress recognized wireless services are provided 
nationally without regard to state boundaries. Not withstanding 
this, some state commissions and legislatures are seeking to 
dictate what a wireless bill should look like, how to explain 
charges, and the precise language carriers should use in 
marketing services.
    Divergent state requirements can overload the customer, 
increase costs of providing service, and in some cases, permit 
the state with the most burdensome regime to effectively set 
policy for the entire country. It also could prevent companies 
like T-Mobile from distinguishing themselves in the marketplace 
through its own high quality service and products.
    Now, I am not saying the wireless industry is perfect, far 
from it. I think it is true that all new industries experience 
some growing pains, particularly one growing as fast as 
wireless. But I am saying it is a dynamic competitive industry 
and that there is no evidence of systemic market failure that 
would support extensive government intervention.
    So, for these reasons we encourage Congress as it considers 
reform of the Communications Act and exercises oversight of the 
FCC to affirm that a Federal regulatory framework should apply 
to wireless services.
    Thank you again for inviting me here today. I will be happy 
to answer any questions.
    [The prepared statement of Mr. Sugrue follows:]

  Prepared Statement of Thomas J. Sugrue, Vice President, Government 
                      Affairs, T-Mobile USA, Inc.

    Good morning, Mr. Chairman, Co-Chairman Inouye, and Members of the 
Committee. My name is Tom Sugrue and I am the Vice President of 
Government Affairs for T-Mobile USA, Inc. Thank you for the opportunity 
to appear before the Committee to discuss spectrum and other wireless 
issues critical to T-Mobile and the wireless industry as a whole. T-
Mobile is an independent national provider of wireless voice, messaging 
and data services. In addition, T-Mobile operates the Nation's largest 
commercial WiFi wireless broadband network with service in more than 
6,700 public locations across the country under the name T-Mobile 
HotSpot.
    While T-Mobile is the smallest of the four nationwide wireless 
carriers in the United States, its growth during the past several years 
has been remarkable. When I joined the company in 2003, it had just 
passed the 10-million subscriber mark. We now have more than 22 million 
subscribers, an increase of 120 percent in just three years. This makes 
T-Mobile the country's fastest growing national carrier in terms of 
rate of growth. We believe this growth is attributable in large part to 
T-Mobile's focus on excellent customer service and its efforts to 
improve coverage, including the addition of 3,500 new cell sites in 
2005 alone. These pro-consumer measures are paying off. For two years 
running, T-Mobile has finished first in overall customer satisfaction 
among all wireless carriers in the J.D. Power and Associates rankings.
    I would like to focus this morning on two main points.
    First, it is essential that more spectrum be introduced into the 
marketplace at the earliest possible date in order for existing and new 
providers to deploy the advanced and increasingly innovative wireless 
services that consumers demand. We respectfully request that the 
Committee do everything within its power to ensure that the advanced 
wireless services (AWS) auction stays on track for June 29, 2006.
    Second, Congress' policy of regulating wireless services with a 
light touch at the Federal level has been a tremendous success. The 
extraordinary growth and dynamism in wireless services in the last 10 
years are due in no small part to decisions Congress made to a adopt a 
pro-competitive, deregulatory model for the industry. However, there 
have been recent attempts by state legislatures and regulatory 
commissions to become entangled in the details of the customer-carrier 
relationship, including specifying the size of fonts used on bills and 
advertisements, establishing the length and nature of contracts, and 
prohibiting a variety of charges. These types of regulations all limit 
customer choice, add to confusion--not clarity--and raise the cost of 
providing services, ultimately harming the consumers the states are 
trying to protect.

More Spectrum Is Necessary
    I think I can speak on behalf of the entire wireless industry in 
saying that we sincerely appreciate the Committee's efforts to ensure 
that more spectrum is swiftly put into circulation. In particular, I 
want to applaud the Chairman, Senator Inouye and the Committee for 
taking the lead in successfully pushing for passage of the Commercial 
Spectrum Enhancement Act in December 2004. That Act established a trust 
fund to relocate government users in certain bands and has allowed the 
auction for AWS licenses to take place this summer. Similarly, through 
this Committee's leadership, Congress just last month set a date 
certain for the transition to digital television broadcasting, thereby 
accelerating the auction of 700 MHz spectrum for new broadband 
communications services.
    These two pieces of legislation will result in 150 megahertz of 
spectrum being auctioned and licensed for wireless broadband, and put 
into service during the next three years. These infusions of spectrum 
are especially important for the overall competitiveness of the 
industry. For example, as the fourth largest nationwide wireless 
carrier in the United States, T-Mobile has significantly less spectrum 
in most markets than the three largest national carriers. Indeed, in 
part as a result of recent mergers and acquisitions, the three largest 
carriers hold an average of between 42 and almost 60 megahertz in the 
top 50 markets, while T-Mobile holds only about 25 megahertz on average 
in those areas. To continue to be an aggressive competitor, as well as 
to satisfy consumer demand for an increasing range of affordable, next 
generation wireless services, T-Mobile needs access to additional 
spectrum in the very near future. Many other mid-size and smaller 
carriers are in the same position.
    For this reason, it is essential that the AWS auction proceed on 
schedule. The licenses on the auction block are the most desirable and 
readily usable frequencies that have been made available for wireless 
services in 10 years. They encompass 90 megahertz of spectrum and 
provide a footprint across the entire country. The AWS auction is 
likely to be one of the most successful ever held, in terms of the 
number and variety of participants, as well as dollars generated for 
the public benefit. The substantial spectrum advantage enjoyed by the 
three largest wireless carriers, and the increasing demand for mobile 
wireless offerings, underscore the need to put valuable AWS spectrum 
into the marketplace as soon as possible to promote continued 
competition and product choice for advanced services.
    The FCC has announced an auction start date of June 29, 2004. 
Chairman Martin and the other Commissioners have indicated their intent 
to keep this date, and we applaud them for that. At the same time, the 
Commission is considering proposals to alter the auction structure, 
eliminate transparency in bidding, and amend rules for participation by 
small business entities. We look to the Committee to support and to 
encourage the Commission to resolve these issues promptly so that they 
do not have the unfortunate consequence of delaying the June 29 start 
date. The FCC is working hard to keep the auction on track, but some 
pending proposals are controversial and we are concerned that they not 
be allowed to sidetrack the most important auction fueling competition 
in more than a decade.
    Too many entrants depend on its successful outcome, including the 
Department of Defense and government agencies awaiting relocation, and 
companies like T-Mobile and the public safety community that are 
waiting to rollout new, third-generation wireless services to benefit 
consumers and competition.
    In addition to ensuring the swift release of spectrum to market, 
Congress should continue to recognize the innovative and competitive 
services that the wireless industry has been able to offer since 1993. 
Congress had a unique vision to create a deregulatory environment for 
wireless communications when it passed the Omnibus Budget 
Reconciliation Act of 1993. In doing so, it also created a vibrant and 
competitive communications marketplace that empowered customers, not 
the government, to pick ``winners and losers.'' Just look at the 
results. Since 1993, the number of wireless subscribers has shot up 
from 13 million subscribers to more than 200 million today. The average 
minutes of use per subscriber has increased more than 500 percent, 
while prices per minute have dropped more than 80 percent. Wireless 
customers sent 32.5 billion SMS messages in the first half of 2005. And 
every day, customers rely on their wireless devices to place 224,000 E-
911 calls to police and emergency workers. More than 95 percent of 
Americans live in counties with a choice of at least three or more 
wireless carriers. All of this is a result of Congress' vision in the 
1993 Act. But now, certain legislative and regulatory actions threaten 
to limit the innovation and growth that have become hallmarks of the 
wireless industry. I would like to focus on one particular barrier--the 
increasing propensity of states to try to force wireless providers to 
modify their business procedures.

State Regulation of Wireless Services Is Harmful to Consumers and 
        Competition
    One of the primary means by which wireless providers compete to 
secure and retain subscribers is through the provision of excellent 
customer service. T-Mobile considers an informative pre-purchase 
experience, customer-friendly bills, and responsive customer service to 
be critical parts of its overall offerings and is proud to be a market 
leader in this regard. Another notable way in which T-Mobile has 
differentiated itself is by introducing the interactive ``Personal 
Coverage Check'' feature to our website, which enables customers to 
check the quality of network coverage where they live, work and travel 
before they purchase service. These branding efforts are the direct 
result of a competitive market that Congress encouraged by adopting a 
light-touch approach to the wireless industry.
    In light of Congress' decision to rely on market-based competition 
whenever possible to ensure the interests of wireless consumers are 
served, there is no justification for new, extensive regulatory 
intervention at this point in the industry's development. While all 
industries encounter some growing pains--especially one that is growing 
as fast as wireless--we believe there is simply no evidence of any 
systemic wireless market failure. In this environment, new and 
intrusive regulation would inevitably create confusion in the 
marketplace, narrow competition among carriers, and drive up costs to 
consumers. The likely result would be less consumer satisfaction.
    This is particularly the case when micromanagement is occurring on 
a state-by-state level. As Congress recognized when it enacted Section 
332 of the Communications Act, wireless service is provided on a 
nationwide basis without regard to state boundaries. Notwithstanding 
the national nature of the wireless industry, some state commissions 
believe that they should each have the opportunity to dictate what a 
wireless bill should look like, how charges should be explained, and 
the precise language carriers must use when marketing their services. 
While the states contend that this intrusive oversight is necessary to 
protect consumers, it is not clear how 10, 20, or 50 different rules on 
a contract's font size or disclosure language could possibly benefit 
anyone. To the contrary, divergent state requirements will result 
either in information overload to the consumer or permit the state with 
the most burdensome regime to effectively set policy for the entire 
country. It also would prevent companies like T-Mobile from 
distinguishing themselves in the marketplace through high-quality 
customer service and differentiated products.
    For these reasons, we believe state-by-state regulation of wireless 
is not in the public interest, regardless of whether such regulation is 
aimed at rates and entry or the other terms and conditions of wireless 
offerings. We encourage Congress as it considers reforms to the 
Communications Act and exercises its oversight authority over the FCC 
to affirm that, in light of the highly competitive and nationwide 
nature of the wireless industry, a Federal regulatory framework should 
apply to wireless services.

Conclusion
    For the reasons stated above, T-Mobile respectfully urges the 
Committee and Congress to ensure that the FCC hold to its June 29, 
2006, auction date so that valuable spectrum reaches the marketplace 
for the continued deployment of advanced wireless services. In 
addition, in order to ensure that the wireless industry continues to be 
a competitive success story, we urge Congress to confirm that wireless 
carriers are to be regulated with a light touch and solely at the 
national level.
    Thank you again for inviting me here today. I am happy to answer 
any questions.

    The Chairman. Thank you very much. Our next witness is 
Jeannine Kenney, Senior Policy Analyst for the Consumers Union. 
Ms. Kenney?

          STATEMENT OF JEANNINE KENNEY, SENIOR POLICY 
          ANALYST, CONSUMERS UNION; ON BEHALF OF THE 
CONSUMERS UNION, CONSUMER FEDERATION OF AMERICA, AND FREE PRESS

    Ms. Kenney. Thank you, Mr. Chairman. The number of issues 
you have before you today is really daunting. I want to touch 
on just a few of them, and we have addressed a number of them 
more extensively in our written statement.
    Like Mr. Sugrue, we are very concerned about the 
concentration of spectrum, particularly among the dominant 
players. We hear a lot, and you hear a lot, about the 
competition in the wireless and cellular phone market and why 
we don't need regulation of that market. The number of 
competitors, however, belies the spectrum concentration issues, 
and it fails to tell the story of the battle for the bundle, 
that the dominant cellular providers are also the dominant 
wireline providers competing for the high value customer. We 
have significant concerns that the low value consumer, the low 
margin consumer, who needs a single service and can only afford 
that service, will be left behind. The recent announcement by 
AT&T certainly exacerbates these concerns. So spectrum reform 
in this environment becomes extremely important.
    Having agreed with Mr. Sugrue, let me disagree with him 
about his concerns about over-regulation of the cellular 
market. We get tons of concerns--I hear a lot of concerns by 
consumers about their carriers. FCC gets tens of thousands and 
the states get hundreds of thousands of complaints. Cellular 
carriers rank below cable and HMOs in terms of consumer 
satisfaction. There has been widespread abuse in line items in 
cellular bills and certainly abuse on early termination fees, 
which are numerous. We would urge you to reject efforts to 
preempt the states in this area and allow the states to protect 
consumers in the way they have for years. Having raised some 
concerns about preemption, we don't necessarily think 
preemption is always inappropriate. To that end, we do support 
Senator Boxer and Senator Specter's bill on Wireless 411 
Privacy. Because we have concerns about pre-emption, for the 
same reason we are not able, at this point, to support the 
Phone Records Privacy Bill the Committee will consider later 
this week, but do look forward to working with you on that.
    In addition to our concerns about concentration in the 
wireless market, we are very concerned about concentration in 
the broadband market. You've heard a lot about that in your 
hearings this year. We have been looking for a wireless 
broadband competitor to compete with the dominant cable and DSL 
providers, and we haven't found one yet. That is why spectrum 
reform is so critical and I think the most important thing this 
Committee can do to enhance competition in broadband and bring 
it to those communities that don't have access to it. To that 
end, we strongly support the ``white spaces'' legislation, 
introduced by you, Mr. Chairman, and by Senator Allen. We think 
that legislation will open up significant space for low-cost 
affordable broadband to consumers who don't have access to it, 
create new opportunities for entrepreneurs to enter the 
marketplace and increase our broadband competitiveness in the 
world, where we have badly fallen behind. We would urge that, 
in tandem with the legislation on the ``white spaces,'' the 
Committee move Senator McCain and Lautenberg's legislation on 
community broadband. Wireless technologies provide many new low 
cost opportunities for communities to serve their residents. We 
are very concerned that attempts to pre-empt localities from 
offering community wireless services will impede the promise of 
the ``white space'' legislation.
    Finally, in terms of spectrum reform generally, obviously 
making available the reclaimed spectrum after the digital 
transition creates a lot of new opportunities for consumers. We 
really look to the option of spectrum in the 700 band as an 
opportunity to increase wireless broadband competition by 
bringing in a new third competitor to the dominant wireline 
providers. However, we think Congress will need to act to make 
sure that happens. We would be very concerned if spectrum went 
to the dominant wireline providers, Cingular and Verizon, and 
would like to see them precluded from bidding on the auctions. 
We want to see that new market entrants and smaller players 
have opportunities to bid for that spectrum as well. Some 
reform to the designated entities program is necessary to 
ensure that the large, regioned wireless carriers can't partner 
with the small companies who are eligible for those bidding 
credits. That will help ensure that we have some new players in 
the marketplace.
    Finally, we are concerned about the size of the spectrum 
blocks auctioned. We support Senator Snowe's legislation to 
ensure that smaller blocks are made available for bidding, so 
that rural areas are not left behind in wireless service and 
broadband service.
    Thank you very much. It has been a pleasure to be here. I 
look forward to your questions.
    [The prepared statement of Ms. Kenney follows:]

Prepared Statement of Jeannine Kenney, Senior Policy Analyst, Consumers 
    Union; on behalf of the Consumers Union, Consumer Federation of 
                        America, and Free Press
Summary
    Consumers Union, \1\ Consumer Federation of America, \2\ and Free 
Press \3\ appreciate the opportunity to testify on wireless 
communications issues and spectrum reform. In light of the recently 
announced acquisition of BellSouth by AT&T, critical questions of 
market competition and consumer protection are more important than 
ever.
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    \1\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the State of New York to provide 
consumers with information, education and counsel about goods, 
services, health and personal finance, and to initiate and cooperate 
with individual and group efforts to maintain and enhance the quality 
of life for consumers. Consumers Union's income is solely derived from 
the sale of Consumer Reports, its other publications and from 
noncommercial contributions, grants and fees. In addition to reports on 
Consumers Union's own product testing, Consumer Reports with more than 
5 million paid circulation, regularly, carries articles on health, 
product safety, marketplace economics and legislative, judicial and 
regulatory actions which affect consumer welfare. Consumers Union's 
publications carry no advertising and receive no commercial support.
    \2\ The Consumer Federation of America is the Nation's largest 
consumer advocacy group, composed of over 280 state and local 
affiliates representing consumer, senior, citizen, low-income, labor, 
farm, public power an cooperative organizations, with more than 50 
million individual members.
    \3\ Free Press is a national nonpartisan organization with over 
200,000 members working to increase informed public participation in 
crucial media policy debates.
---------------------------------------------------------------------------
    If the merger is approved, AT&T will have sole control over 
Cingular Wireless, the largest cellular carrier in the Nation that 
leads all others not just in market dominance, but also in customer 
dissatisfaction and complaints. AT&T will become far and away the 
largest provider of phone service and DSL, dominating the market for 
bundled services in local, long distance and wireless services within 
its 22-state market stretching coast to coast. As the new company rolls 
out its multi-channel video service, its market power will dwarf even 
the largest cable companies. An integrated voice, video, broadband and 
wireless provider with such sweeping market control will have little 
incentive to discipline prices or tolerate competition. And competitors 
unable to offer the full bundle of services within AT&T's region will 
have even less incentive and ability to compete for the lower-volume, 
lower margin customers unable or unwilling to buy the bundle.
    The centrality of Cingular to this merger demands full 
Congressional scrutiny of increasing signs that wireless consolidation 
is solidifying regional dominance, and leading toward, at best, a 
duopoly that will undermine robust competition and inflate prices, 
leaving low and moderate income consumers and underserved communities 
facing enormous barriers to participation in our digital economy. As 
concentration in wireless phone service has increased, competition in 
broadband is, and will remain, moribund without Congressional action. 
Last year's announcement that the newly merged Sprint/Nextel will 
partner with large cable providers have deflated hopes that the company 
would emerge as a broadband competitor to DSL and cable modem. And with 
the Federal Communications Commission's decision to allow cable and 
telephone companies to exclude broadband competitors from their wires, 
most consumers are left with, at best, just those two broadband 
providers. As a result, wireless broadband provided by new market 
players unaffiliated with dominant phone and cable companies now offers 
the only meaningful hope for competition in the broadband marketplace.
    In this environment, spectrum policy becomes increasingly important 
in ensuring that new competitors to dominant broadband and wireless 
phone providers emerge and that broadband becomes available to those 
who don't have access to it or can't afford it. Advances in technology 
provide the Committee with new opportunities to make currently unused 
spectrum within the broadcast band newly available to wireless 
broadband competitors for unlicensed use.
    In virtually every market in the Nation, between 20 percent and 80 
percent of allocated television channels are unlicensed and unused. 
They are ripe for transition to broadband technologies and will be 
essential in expanding the availability and affordability of broadband. 
Today, the inadequate volume and quality of existing unlicensed 
spectrum is a significant barrier to expansion of wireless broadband 
services. With more and better quality unlicensed spectrum, new 
opportunities emerge for vigorous competition in wireless broadband; 
for communities to offer affordable broadband service where it has 
never before been available; and to spur the emergence of wireless 
broadband as a true competitor to dominant wireline broadband 
providers. But to ensure that unlicensed spectrum will maximize 
broadband access for underserved rural and urban consumers, Congress 
must clarify and protect the rights of localities to offer broadband 
service.
    Additionally, the reclamation and auction of spectrum in the 700MHz 
band provides Congress with a new opportunity to enhance competition in 
wireless phone and broadband. How and to whom spectrum in that band is 
auctioned will determine whether new competition in broadband and 
wireless phone service emerges or whether the market position of 
already dominant wireless providers is solidified. To ensure that 
wireless broadband emerges as a competitor to cable modem and DSL, it 
will be critical that at least some spectrum licenses go to providers 
unaffiliated with wireline broadband providers, preferably new market 
entrants and smaller market players.
    Finally, as concentration in wireless has increased and consumer 
complaints have grown, the wireless industry has attempted to erode 
states' authority to protect consumers from carriers' deceptive and 
misleading billing practices; unreasonable, unfair, and anticompetitive 
contract terms; and inadequate privacy safeguards for customer calling 
records. States have been the first line of defense for 
telecommunications consumers, particularly in complaint-ridden cellular 
services. They've identified and taken action against carrier practices 
that harm wireless consumers. The Federal Communications Commission is 
ill-positioned to resolve the hundreds of thousands of 
telecommunications complaints that states receive each year. Congress 
must either enact strong, enforceable Federal consumer protection and 
privacy laws or protect the ability of the states to safeguard 
consumers.
    As the Committee considers the wireless and spectrum policy issues 
before it, we offer the following recommendations:

   Provide careful oversight of the proposed AT&T acquisition 
        of BellSouth, particularly with respect to competition in 
        wireless phone service, and urge the Department of Justice and 
        Federal Communications Commission to reject the merger unless 
        wireless assets are divested to ensure head-to-head competition 
        between Cingular Wireless and the wireline company. Urge DOJ 
        and FCC to impose permanent network neutrality conditions to 
        prevent AT&T from discriminating against users and competitors 
        on Internet services.

   Require that, at a minimum, a portion of the spectrum within 
        the 700 MHz band is reserved for new market entrants and 
        designated entities, and that dominant market players Cingular 
        and Verizon are precluded from bidding on licenses in markets 
        where they own significant amounts of spectrum.

   Report and seek final enactment of legislation comparable to 
        S. 2332, the American Broadband for Communities Act sponsored 
        by Senator Stevens, and S. 2327, the Wireless Innovation Act, 
        sponsored by Senator Allen and cosponsored by other Committee 
        Members. We strongly support both bills. Each would make new 
        unlicensed spectrum available in the unoccupied channels of the 
        broadcast band while protecting existing broadcasters operating 
        within that band from interference. Action in this area is 
        among the most meaningful the Congress may take to foster 
        development of, competition in, and affordable access to 
        wireless broadband services.

   Report and seek final enactment of S. 1294, the Community 
        Broadband Act introduced by Senators McCain and Lautenberg, to 
        ensure that communities and the entrepreneurs with whom they 
        partner can take advantage of low-cost, affordable technologies 
        to offer new, innovative and affordable wireless broadband 
        services to local residents.

   Report and seek final enactment of S. 1350, the Wireless 411 
        Privacy Act, which we strongly support, to ensure that any 
        wireless phone directory that may be created does not trench 
        upon consumers' right to keep their cell phone numbers private 
        or result in higher costs to consumers from unwanted incoming 
        calls.

   Report and seek final enactment of legislation prohibiting 
        fraudulent practices used to obtain consumers' detailed and 
        private cell, landline or VoIP phone records; imposing tough 
        penalties on those who engage in fraudulent practices; 
        requiring tough new Federal standards for telephone companies' 
        internal safeguards for consumer phone records; and requiring 
        such providers to seek affirmative consent before private 
        calling records are shared. Regretfully, Consumers Union cannot 
        support the Protecting Consumer Phone Records Act because it 
        preempts the states' ability to require compliance with tough 
        consumer phone records privacy requirements, while providing no 
        guarantee that Federal phone record privacy protections will be 
        strengthened. We look forward to working with the Committee to 
        strengthen the legislation.

   Clarify and confirm the role of the states in regulating 
        terms and conditions for wireless phone services as provided 
        under Section 332 of the Communications Act of 1934, and reject 
        wireless carriers' attempts to undermine the strong consumer 
        protections against anticompetitive, predatory and unfair 
        practices by wireless carriers.

   Urge FCC to reject the pending wireless industry petition to 
        preempt state regulation of early termination fees and to 
        reconsider its 2005 Order preempting states from regulating 
        line-item billing abuses.

Declining Competition in Wireless Services
Declining Competition in Wireless Telephone Services
    If AT&T's acquisition of BellSouth is approved, and we urge that it 
not be, AT&T will be the dominant provider of both wireless and 
wireline services in its enlarged 22 state region with complete control 
over Cingular, giving it unprecedented ability to foreclose competition 
not just in bundled services, but also in single components of that 
bundle.
    Today, competition in telecommunications markets is focused largely 
on selling bundles of video, voice (wireline and wireless) and Internet 
services to the high-end, high margin customer who can afford it. 
Sprint/Nextel's announcement last year that it will enter into a joint 
venture with several cable operators underscores this point. To compete 
with Cingular and Verizon Wireless in the AT&T and Verizon territories, 
Sprint/Nextel needs the additional service components of cable--video 
and cable modem. And cable needs a wireless service. The joint venture 
reflects market realities that wireless competitors lacking other 
bundle components faced significant market disadvantages even before 
the announced AT&T/BellSouth merger.
    In the face of AT&T's bundled offerings and enhanced market power, 
it will be increasingly difficult for single or dual service 
telecommunications providers to compete on smaller bundles or 
individual products, including wireless, giving AT&T the power to 
undermine single-service competitors or relegate them to niche markets. 
Moreover, the few companies offering bundled services within their own 
territories will have little incentive to invest in and aggressively 
market cellular and long distance to low-volume, low-margin customers 
within AT&T's market. As a result, over time, it is realistic to expect 
inflated prices for low-volume, single-service cellular plans.
    In fact, since the most recent wave of wireless mergers, the 
dominant carriers have substantially increased the baseline price for 
low-volume cell-phone usage plans, forcing consumers to pay 
substantially more before they could receive many of the new features 
the companies are offering. For example, Cingular's entry-level plan 
has shot up from about $30 to almost $40 per month in the last two 
years. Verizon is also charging about $40 a month for a similar entry-
level plan--up about 15 percent over the last two years. Clearly, as 
these carriers become more dominant in their wireline core territories, 
they've been able to raise prices for low-volume cell phone users, 
reversing the trend of cellular service becoming more competitive with 
unlimited-usage, basic local telephone service, which usually costs 
about $20 per month.
    As cable enters the voice market with Internet telephony, at best 
two competitors emerge: the dominant cable provider and the dominant 
Bell. While the consolidation of AT&T with BellSouth strengthens AT&T's 
ability to compete with cable, consumers well know that competition 
between two competitors is not enough. Moreover, any aggressive 
competition that emerges among the two providers will likely be 
confined to the bundle, leaving the lower income consumer paying 
inflated prices providers charge for unbundled service components.
    The end result is likely to be that the consumer at the bottom end 
of the market will be faced with few choices and the prospect of 
inflated rates. Wireless is not yet a true substitute for wireline 
phone service, leaving predictions that consumers unhappy with their 
wireline carrier can simply dump their landline in favor of wireless. 
Even the lowest cost cellular services exceed prices for local wireline 
service, with the exception of still-niche prepaid wireless plans that 
account for only a fraction of the market. Therefore, for wireless to 
function as a competitor to wireline, rates for the lowest cost, 
unbundled wireless plans must fall much more. With the merger 
consolidating AT&T's position and the best case scenario of duopoly 
competition, that becomes far less likely to occur.
    Whether VoIP can become a meaningful competitor in local service 
and have some price policing effect on wireless depends entirely on 
whether Congress adopts meaningful and enforceable network neutrality 
legislation. BellSouth, AT&T, and Verizon have unblushingly stated 
their intention to impose access fees on VoIP providers and other 
content and service providers. In addition to their unfettered ability 
to block or impede data transmission for VoIP calls, their control over 
broadband networks and ability to charge access fees gives network 
owners like AT&T the ability to impose costs on VoIP that ensure it 
cannot compete with local or long distance.
    At best, consumers within AT&T's territory will have two choices 
for bundled packages of services: AT&T and the dominant cable monopoly. 
A choice between two dominant providers intent in competing only on 
bundles rather than single service offerings is simply not enough to 
protect the so-called ``low-value'' consumer who needs or can afford 
just one or two services. And whether cable will even serve as an 
effective competitor in bundled services depends upon how aggressively 
it enters the telephone market, and upon the terms of its agreement 
with Sprint Nextel to offer wireless services in its package of 
offerings.

Declining Competition in Broadband
    Today, the United States ranks 16th in the world for broadband 
penetration per capita. Even as other technology markets are exploding 
in growth and innovation, the cost and speed of broadband has remained 
relatively constant for years. While American consumers are asked to 
settle for the FCC's broadband standard of 200 kbps, companies in 
Japan, South Korea, and most of Western Europe are selling connections 
100 times faster for similar prices. The digital divide in global 
broadband competitiveness is a slow-motion disaster for our long term 
economic prospects.
    This Nation's shortcomings in broadband deployment is explained, in 
large part, by the lack of competition in the broadband market, the 
absence of a national broadband policy, and the disincentives for the 
duopoly of network giants to invest in higher capacity service. Cable 
and DSL providers control almost 98 percent of the residential and 
small-business broadband market. And about a quarter of the U.S. has 
access to either cable modem or DSL, but not both. Meanwhile, the FCC's 
own data shows that satellite and wireless broadband continue to lose 
market share, demonstrating that intermodal competition is virtually 
nonexistent in broadband.
    Though the total number of connections has increased, the 
percentage of U.S. households with no access to broadband has remained 
constant at 19 percent. Broadband penetration rates in urban areas are 
substantially higher than for rural areas where some 30 percent of 
consumers have only one source of broadband: satellite, which is slow 
and expensive. The urban/rural digital divide is not closing--it is 
widening. According to a recent Pew study, urban penetration rates are 
39 percent compared to 24 percent for rural areas. In 2004, the gap was 
29 percent to 16 percent. In 2002, it was 18 percent to 6 percent.
    Reports of a broadband price war are misguided. Analysis of ``low-
priced'' introductory offers by companies like SBC and Comcast, in an 
August 2005 joint report by Free Press, Consumers Union, and Consumer 
Federation of America, reveal that these are little more than gimmicks 
designed to capture market share. At the end of the introductory 
period, usually pursuant to a long-term contract, rates rise 
significantly. Moreover, the so-called ``price war'' boils down to 
offering half the speed at half the price from comparable offers two 
years ago.
    Consumers need, at a minimum, a third competitive option--wireless 
broadband that is less expensive and which doesn't depend on DSL or 
cable modems. It offers the best and perhaps now the only way to close 
the digital divide and enhance competition, particularly in light of 
FCC's decision to reclassify cable and DSL as information services, 
foreclosing competition from other providers through leased access. 
Further, we need to promote market conditions that enhance the 
development of WiMax and other new wireless technologies as low-cost 
infrastructure alternatives for last-mile service delivery. 21st 
Century broadband policy must anticipate a future when digital networks 
are hybrids of wireless and wireline facilities with robust intermodal 
competition.
    To date, meaningful competition in broadband from wireless carriers 
has not emerged, and promises that mergers among wireless carriers 
might bring it have fallen flat. Among the benefits that FCC cited in 
its 2005 Order approving the Sprint Nextel merger was entry of another 
competitor to DSL and cable modem in the fixed broadband market. Yet 
just months after the merger was approved, Sprint Nextel announced a 
joint venture with four cable partners--Comcast, Cox Communications, 
Time Warner Cable and Advance/Newhouse Communications--to offer a 
bundle of voice, video, high-speed data and wireless telephone 
services. Sprint Nextel's Chief Operating Officer said the company 
would not compete directly against its cable company partners and hoped 
to further expand its partnership to other large cable operators 
Cablevision and Charter Communications. The venture merely solidifies 
the cable modem/DSL broadband duopoly. This development also 
demonstrates the difficulty of generating head-to-head competition in a 
marketplace where leading providers seek not to compete on individual 
services but instead on the bundle. It is wishful thinking to believe 
that a wireless carrier owned by a wireline company will offer consumer 
broadband service to compete with DSL and cable. Therefore consumers 
seeking affordable, unbundled broadband services must look to other 
means for affordable, ubiquitous broadband.

The Competitive Potential of Wireless Broadband Using Unlicensed 
        Spectrum
    Wireless broadband using unlicensed spectrum offers a new 
opportunity to provide affordable broadband to rural and other 
underserved areas. But, equally important, wireless broadband can offer 
an affordable competitive alternative to areas that have access only to 
a single high-priced, monopoly provider. Wireless broadband providers 
currently operate in a vigorously competitive marketplace--unlike their 
wireline cousins. But wireless services currently rely on a limited 
band of unlicensed, or open-market, spectrum in the 2.4 and 5.0 GHz 
bands, long dubbed the ``junk bands.''
    Broadband is offered today by thousands of Wireless Internet 
Service Providers (WISPs) using unlicensed spectrum. Wireless broadband 
is already an economic generator for thousands of small and midsized 
businesses that provide ``hot spots'' in places where people gather, 
like coffee shops, conference centers and airports. But companies, 
communities and non-profits are also using wireless broadband to 
connect parks, neighborhoods, and even entire cities and towns. To 
date, over 300 communities ranging in size from tiny rural villages to 
major metropolitan areas have put wireless broadband to good use--
offering affordable broadband to local households, often for the first 
time. With off-the-shelf affordable technology, communities, working in 
partnership with entrepreneurs, are creating high-speed wireless 
networks at a fraction of the cost of wired facilities. WiFi has been 
deployed in densely populated urban areas and sparsely populated rural 
areas.
    But the growth potential of this industry is limited because under 
current licensing schemes, unlicensed wireless broadband is limited to 
the high-frequency junk bands. This, though well-suited to carry a high 
volume of data, does not easily permit signals to penetrate through 
obstacles, such as trees or walls. Moreover, the bands are also 
extremely crowded; unlicensed wireless broadband transmitters share 
this spectrum with other consumer electronic devices.
    In order for wireless broadband to become an option for more 
Americans, providers need access to unlicensed low-frequency spectrum 
below 1 GHz--less crowded spectrum with propagation characteristics 
that allow signals to travel though buildings, trees and other 
obstacles. Lower frequency spectrum will allow wireless broadband 
networks to reduce the number of transmitters necessary to cover a 
square mile. The cost savings will be passed on in the form of lower 
consumer prices. Not only will this open the market for new services 
and new entrants, it will open the public airwaves for further 
innovation. If the history of high-frequency WiFi is any indicator, the 
emergence of low-frequency wireless broadband will become an explosive 
economic engine.

Unlicensed Spectrum in the TV White Spaces--The Means to Affordable 
        Broadband & Renewed Competitive Opportunities
    Among the most important priorities for broadband policy is finding 
low-frequency spectrum to make available for unlicensed use. To enhance 
broadband access to those who lack it and increase broadband 
competition where it is currently limited, the Committee should approve 
legislation to open unoccupied broadcast channels--or white spaces--for 
unlicensed, non-interfering uses. Consumers Union therefore strongly 
endorses S. 2332, the American Broadband for Communities Act sponsored 
by Chairman Stevens, and S. 2327, the Wireless Innovation Act, 
sponsored by Senator Allen and cosponsored by other Committee Members. 
Moving these bills forward is among the most meaningful action Congress 
could take to foster development of, competition in, and affordable 
access to wireless broadband services.
    Both bills make available unused broadcast spectrum below 698 MHz 
for use by unlicensed devices, and call on the FCC to complete a 
proceeding it began more than two years ago. FCC's proceeding would 
establish technical and device rules to facilitate use of white spaces 
by unlicensed devices, while providing for strict protections against 
interference with television signals. Despite a flood of support from 
industry groups, engineers and the public interest community, this FCC 
proceeding has stalled. It is time for Congress to step in by enacting 
white spaces legislation.
    Vacant TV channels are perfectly suited for wireless broadband and 
other unlicensed wireless Internet services. Signals can travel far and 
pass through dense objects and topographical barriers. And greater 
access to vacant TV channels would facilitate a market for low-cost, 
high capacity and mobile wireless broadband networks. Using these white 
spaces, the wireless broadband industry could deliver Internet access 
to every American household at high speeds and low prices--for as 
little as $10 a month by some estimates. At a time when more than 60 
percent of the country does not subscribe to broadband either because 
it is unavailable or unaffordable, this would represent an enormous 
social benefit and a catalyzing economic engine, particularly in rural 
areas.
    According to a November 2005 analysis by Free Press and the New 
America Foundation, ``Measuring the TV `White Space' Available for 
Unlicensed Wireless Broadband,'' virtually every market in the country 
has unoccupied broadcast channels allocated for television broadcasting 
but not actually in use. The study found that rural areas, which suffer 
most from lack of broadband access, have the greatest amount of 
available white space. Yet even in urban areas, substantial white 
spaces are also available. The following summarizes the percentage of 
the digital broadcast spectrum the study found would remain unused even 
after the digital transition, in select markets:

        Juneau area--74 percent
        Honolulu area--62 percent
        Phoenix area--44 percent
        Charleston area--72 percent
        Helena area--62 percent
        Boston area--38 percent
        Jackson area--60 percent
        Fargo area--82 percent
        The Dallas-Ft. Worth area--40 percent
        San Francisco area--37 percent
        Portland area--66 percent
        Tallahassee area--62 percent
        Portland area--58 percent
        Seattle area--52 percent
        Las Vegas--52 percent
        Trenton area--30 percent
        Richmond area--64 percent
        Omaha area--52 percent
        Manchester area--46 percent
        Little Rock area--60 percent
        Columbia area--70 percent
        Baton Rouge area--44 percent

    We applaud Chairman Stevens and Senator Allen for their leadership 
in working to make more and better spectrum available for wireless 
broadband and other innovations yet to come. We look forward to working 
with Members of the Committee toward enactment of this important 
legislation.

Protecting the Rights of Communities to Offer Wireless Broadband 
        Systems
    State laws preventing or deterring communities from providing 
wireless and other broadband services is additional roadblock to 
broadband roll out--a deterrent that dominant carriers have sought to 
erect even as they deny service to many small towns, villages and rural 
areas. More than a dozen states have laws on the books that prohibit or 
restrict the ability of a local government to offer broadband to its 
citizens, either as a public provider or (as in the majority of cases) 
as a partner with a private sector provider. In the last 18 months, 
fourteen states have attempted to enact or expand such restrictive 
statutes. In states without such laws, community broadband has been a 
critical force in the telecommunications market, bringing service to 
rural and low-income consumers, attracting business, and narrowing the 
digital divide.
    Congress must ensure that communities cannot be preempted from 
launching their own community broadband networks. We therefore strongly 
endorse S. 1294, the Community Broadband Act, introduced by Senators 
McCain and Lautenberg, to ensure that communities and the entrepreneurs 
with whom they partner can take advantage of low-cost, affordable 
technologies to offer new, innovative and affordable wireless broadband 
services to local residents.

Spectrum Auction Policy--Making Room for New Entrants and Smaller 
        Players
    Congress also has the unique and important opportunity to ensure 
that reclaimed spectrum in the 700 MHz band will be used to facilitate 
robust competition in both the broadband and wireless telephone market. 
It should be no surprise that as wireless phone carriers have merged, 
ownership of spectrum has been concentrated in the hands of a few 
dominant market players. Even after the Department of Justice required 
AT&T Wireless to divest some of its spectrum assets as a condition of 
its merger with Cingular, Cingular still retains ownership of up to 70 
of 189 MHz available in some markets. In many others, it controls one-
third of the available spectrum.
    Congress should put a stop to consolidation of spectrum ownership 
by ensuring that at least a portion of the reclaimed spectrum will be 
allocated for smaller existing players and new market entrants who may 
offer new competitive opportunities across a range of wireless 
services. In addition, major players Cingular and Verizon, in which 
spectrum ownership is already highly concentrated, should be precluded 
from bidding on spectrum in key markets. If large, already dominant 
telecommunications providers are the only entities that can 
successfully bid on spectrum licenses in the valuable 700 MHz band, the 
risk of foreclosing enhanced competition in both wireless phone and 
broadband service is great. Large market players already offering wired 
broadband services are unlikely to use new spectrum to offer affordable 
wireless Internet services that compete with their wired offerings. 
They're more likely to use new spectrum to expand existing wireless 
service offerings to high-value consumers rather than provide new, 
affordable services to average consumers. The battle for the bundle, 
and only the bundle, will continue.
    In addition, Consumers Union has recommended in recent comments to 
FCC, that small, minority and women-owned businesses have meaningful 
access to spectrum licenses during its upcoming 2006 wireless auctions. 
To do so, the Commission must enhance the effectiveness of its 
``designated entity'' (DE) program by preventing ``large, in-region 
wireless carriers,'' from partnering with DEs in order to access 
additional spectrum. A designated entity is a small business that is 
eligible for an auction bidding credit in order to allow it to compete 
in a spectrum auction. We also urged the Commission to conduct 
additional study regarding ways to further improve access to spectrum 
licenses for small businesses, particularly minority and women-owned 
businesses, in order to decrease barriers to market entry and pass 
along the benefits of competition and access to consumers.
Consumer Protection in Wireless Services

State Preemption: Unfair Contract Terms & Deceptive Billing Practices
    In light of growing concentration in wireless telephone markets, we 
are increasingly concerned about efforts to preempt state regulatory 
authority over terms and conditions of cellular service. Under Section 
332 of the Communications Act of 1934, states retain regulatory 
authority over cellular carriers, preempted only from regulating market 
entry and rates, with regulation of terms and conditions expressively 
reserved for them. Under this authority, states have aggressively 
sought to regulate and take other action against deceptive, misleading 
and anti-consumer practices of the cellular industry.
    Through court challenges, petitions to the Federal Communications 
Commission and appeals to Congress, carriers have sought, in some 
cases, successfully, to erode this vital and distinct role for state 
regulation of wireless carriers. Last year, the FCC preempted state 
regulation of line-item bill abuses--a decision currently under appeal 
in the 11th Circuit. And a cellular industry petition pending at the 
FCC seeks preemption of state efforts, including generally applicable 
laws, to curb coercive, anti-competitive early termination fees. If 
successful, these preemption efforts will badly erode the consumer 
gains made by states regulating deceptive and misleading carrier 
tactics.
    Low consumer satisfaction with their carriers, growing numbers of 
consumer complaints about cellular bills and service, and the 
substantial, artificial barriers that prevent consumers from switching 
carriers, belie the cellular industry's argument that competition in 
wireless renders regulation unnecessary. Last year, the Federal 
Communications Commission received more than 25,000 complaints about 
wireless service. While down slightly from 2004, the number remains 
disturbingly high. The complaints FCC receives are just a fraction of 
the hundreds of thousands handled by the states. And even those 
underreport consumer dissatisfaction. A 2003 study by AARP found that 
nearly half of all cell phone users (46 percent) reported not knowing 
whom to contact in case their cell phone provider could not resolve a 
billing or service problem to their satisfaction. Only four percent 
cited the Federal Communication Commission (FCC) as a potential 
contact, and 18 percent said they would not contact anyone but their 
provider.
    Consumers Reports' recent and largest-ever annual survey of 50,000 
cell phone users across 18 major metropolitan markets found that 
consumers rank cell phone carriers below HMOs and digital cable service 
in terms of overall satisfaction. Only 47 percent of our respondents 
said they were either completely or very satisfied with their service--
a low showing for any service. And notably, consumers ranked the 
Nation's largest carrier, Cingular, either lowest or second lowest 
among all carriers in every market surveyed. It received consistently 
low marks in handling customer questions and complaints. That finding 
tracks FCC's own complaint data. In 2004, the complaint rate for AT&T & 
Cingular Wireless was nearly four times the rate for Verizon Wireless. 
Meanwhile, some smaller regional carriers Alltel and U.S. Cellular had 
some of the lowest complaint rates.
    Billing complaints, including questionable line items, top the 
types of complaints received by regulators. Consumers pay inflated 
prices when line-items not included in the advertised cost of the 
package are added to their bill. A 2004 NASUCA petition asked FCC to 
prohibit the nearly ubiquitous carrier practice of including line-items 
purportedly to recover ``regulatory'' fees or charges where none have 
been authorized or imposed by government. In denying NASUCA's petition 
last year, the Commission simultaneously classified regulation of line-
items as rate regulation, fully preempting the states from protecting 
their consumers.
    Early termination fees (ETF)--penalties for switching carriers mid-
contract--range from $150 to $240 per phone and are almost never pro-
rated by the elapsed contract period. Contract terms often extend 
beyond the one or two years from the original agreement, because the 
contract length is usually extended when consumers upgrade their plan 
or buy a new phone. Early termination penalties erect enormous 
financial disincentives for consumers to switch carriers, even if they 
are unhappy with the current carrier's service, quality or price or 
could get a better deal elsewhere. A 2005 survey by the U.S. Public 
Information Research Group found that 36 percent of respondents said 
early termination fees had prevented them from switching carriers and 
that nearly half of all cell phone customers would switch if early 
termination fees were eliminated. Consumer Reports' 2005 survey found 
comparable results: half of consumers who wanted to switch said they 
wouldn't because of their long-term contracts. Elimination of non-
prorated early termination fees would promote greater competition, 
improve quality and enhance customer service.
    Federal preemption of state authority over cellular carriers would 
leave consumers without redress and protection. FCC is ill equipped to 
handle the thousands of consumer complaints it receives, let alone 
resolve them. Congress should urge the FCC to reconsider its 2005 
decision preempting state authority over line-item billing abuses by 
cell phone providers and urge its rejection of the wireless industry 
petition to prohibit state regulation of early termination fees.

Protecting Private Calling Records
    In recent months, widespread media attention about the ease with 
which one's private and detailed calling records may be obtained and 
how widely carriers may share those records with other businesses has 
only intensified consumer demand for privacy protections.
    We applaud the leadership of Chairman Stevens, Co-Chair Inouye, 
Senator Allen and Members of this Committee who have worked to address 
consumer concerns about carrier breaches of private phone records. And 
while we respect the Committee's effort to craft a solution to the 
problem of phone records privacy breaches, we cannot support S. 2389, 
the Protecting Consumer Phone Records Act, as introduced, due to our 
strong concerns about its preemption provisions. While we support 
provisions prohibiting pretexting and authorizing new penalties against 
bad actors, the bill's broad preemption provision clearly represents a 
step backward in consumer privacy protections. The bill fails to 
mandate new Federal regulations requiring carriers to safeguard 
consumer proprietary network information or give consumers the right to 
opt-in before CPNI is shared, while simultaneously preempting states 
from taking either action.
    Many states already have enhanced privacy protections for consumer 
phone records. For example, California requires opt-in consent prior to 
sharing of CPNI. Arizona is about to implement new regulations, several 
years in the making, that will require carriers to confirm their 
subscribers' intent to allow their CPNI to be shared with others. Other 
states are working to improve phone record privacy protections. 
Illinois Governor Blagojevich recently announced his intention to 
propose legislation to require carriers to implement tougher privacy 
safeguards. S. 2389 would preempt all of these efforts and others 
currently contemplated without putting in their place meaningful 
Federal privacy protections.
    We look forward to working with the Committee to strengthen the 
bill and suggest the following additional provisions:
    First, in addition to enhanced penalties and explicit prohibitions 
on pretexting, Congress should require that the Federal Communications 
Commission prescribe regulations requiring carriers and VoIP providers 
to maintain stringent internal technical, physical and administrative 
safeguards to help ensure that phone companies diligently protect the 
security of their customers' phone records. Consumers have entrusted 
their most private calling information to their carriers who have a 
duty to closely guard them. That the safeguards phone companies 
currently have in place are inadequate to protect consumers' privacy is 
demonstrated by the explosion in the unscrupulous businesses that offer 
to sell phone records.
    Second, Congress should require that all carriers receive 
affirmative consent prior to sharing their customers' proprietary 
network information (CPNI) with joint venture partners, contractors or 
others. Carriers have a first obligation to their customers, not their 
business partners. CPNI includes, among other things, customers' most 
private calling activities including who they called, when they called 
them and how long they talked. Prior to a decision by the United States 
Court of Appeals for the Tenth Circuit, the Federal Communications 
Commission required that consumers provide affirmative ``opt-in'' 
consent before their CPNI could be shared. FCC Chairman Kevin Martin 
noted in his testimony to the House Energy and Commerce Committee 
earlier this year that the shift from opt-in to opt-out consent has 
resulted in much broader dissemination of consumer phone records and 
may have contributed to the proliferation of online businesses offering 
to sell consumer phone records.
    We look forward to working with the Committee to strengthen the 
privacy protections in S. 2389 by including these key provisions or 
eliminating the Federal preemption of state phone records privacy laws.

Wireless 411--Protecting the Privacy of Cell Phone Numbers
    The privacy of consumer's cell phone numbers and calling records 
has rightfully gained significant attention in recent years. The 
cellular industry's interest in creating a wireless phone directory 
provoked widespread consumer concern when it was first contemplated 
several years ago. And although plans for such a directory may have 
temporarily stalled, consumer concern about the privacy of phone 
numbers has not.
    We therefore support S. 1350, The Wireless 411 Privacy Act, 
introduced by Senators Specter and Boxer. The legislation would give 
consumers greater control over whether and with whom their cell phone 
number is shared. That approach stands in stark contrast to the near 
absence of control consumers have over the sharing of far more detailed 
CPNI.
    Consumers view cell phones as more private than landline phones. 
When their cell phone rings, they expect that the person on the other 
end to be someone to whom they personally gave their phone number. 
Because most cell phone customers pay for their incoming calls, 
consumer control over their number should be viewed through the lens of 
both privacy and out-of-pocket costs.
    The legislation will help ensure that the more than 180 million 
cell phone customers in the U.S. have control over how and when--or 
even if--their cell phone numbers are included in any directory of cell 
phone numbers. It is imperative that Congress codify privacy 
protections for cell phone consumers so that all consumers, in 
particular those who wish to remain unlisted, will be protected. It is 
not adequate to merely rely on industry promises to protect privacy, 
since such voluntary protections could easily disappear in the future. 
Moreover, carriers have a strong financial incentive to ensure that as 
many subscribers as possible are listed in the directory; it has been 
estimated that a directory would cost as much as $2 billion per year 
through directory assistance charges and additional usage minutes by 
2008.
    Importantly, the bill ensures that carriers receive affirmative 
opt-in consent before any subscriber is listed in a wireless 411 
directory. Experience tells us that opt-out consent is entirely 
inadequate in protecting consumers. When the wireless directory was 
contemplated, several carriers began securing opt-out ``permission'' by 
inserting language in wireless phone contracts allowing the carrier to 
include the cell phone number in a directory and, in some cases, charge 
fees to consumers if they choose to have their name removed.
    The ``Wireless 411 Privacy Act'' is a common-sense solution that 
allows the wireless industry to develop a new business while still 
respecting the privacy wireless consumers have expected for more than 
20 years. It provides consumers a means to control their cell phone 
bills by remaining unlisted, thereby limiting exposure to uninvited 
calls.

Conclusion
    We appreciate the opportunity to present our views on the many 
critical questions of wireless market competition and consumer 
protection and look forward to working with Congress to ensure that all 
consumers have access to the benefits of the digital age.

    The Chairman. Thank you very much. Our last witness is 
Lawrence White, Co-Chair of the Spectrum Policy Working Group. 
This was the Digital Age Communications Act Project. We thank 
you for the booklet you have given us. We are pleased to have 
your comments.

   STATEMENT OF LAWRENCE J. WHITE, CO-CHAIR, SPECTRUM POLICY 
                WORKING GROUP, THE DIGITAL AGE 
     COMMUNICATIONS ACT (DACA) PROJECT, PROGRESS & FREEDOM 
   FOUNDATION (PFF); PROFESSOR OF ECONOMICS, STERN SCHOOL OF 
                 BUSINESS, NEW YORK UNIVERSITY

    Mr. White. Thank you, Mr. Chairman. My name is Lawrence J. 
White. I am a Professor of Economics at the NYU Stern School of 
Business. As you just indicated, I am Co-Chair, along with Dr. 
Thomas M. Leonard, of a Working Group that has been convened by 
the Progress & Freedom Foundation to propose a new spectrum 
policy for the United States. This Working Group is part of the 
PFF's multi-faceted effort to provide a ``Digital Age 
Communications Act,'' which has now come to be called DACA, 
that would guide the reform of U.S. telecommunications policy. 
Our Working Group, just last week, unveiled its ``Release 1.0'' 
of its New Spectrum Policy Report, which I would like to submit 
for the record of this hearing. I request that the ``Release 
1.0'' be entered in the record. *
---------------------------------------------------------------------------
    * The information referred to has been retained in Committee files.
---------------------------------------------------------------------------
    In my written testimony, I try to summarize the basic 
thrust of that report. In my oral comments, I will have to 
summarize my summary. Basically, the report urges policymakers 
to fundamentally rethink spectrum management policy. As I 
indicated on the first page of my written testimony, the 
current system of command-and-control regulation and licensing 
of the electromagnetic spectrum has yielded and will continue 
to yield large and growing inefficiencies in spectrum use. A 
propertization of the spectrum, a system that would rely 
primarily on a framework of fully developed property rights and 
markets in spectrum, would yield great benefits for the U.S. 
economy.
    Now, as you have heard from a number of speakers, the basic 
problem in spectrum is interference: one party's transmissions 
interfering with another. There are three basic ways of dealing 
with interference: First is the traditional FCC, command-and-
control and licensing approach, with very detailed 
specification of geographic areas, frequency bands, service 
parameters, and specific uses and then the selection of 
specific parties through what used to be called ``beauty 
contests'' to serve those geographic areas in those frequency 
bands with those service parameters and those particular uses. 
This approach is now widely recognized as inefficient and 
discouraging innovation and discouraging competition. Indeed, 
you heard a little bit from JayEtta Hecker earlier today about 
those problems.
    A second approach, which also has been discussed today, is 
the ``Commons or Unlicensed'' approach, and it has had some 
successes. When you look closely at it, it really comes down to 
another version of command-and-control regulation, where some 
entity has to be specifying power limits and has to be 
specifying protocols, so as to deal with interference.
    There is a third approach, however, and that is one of 
propertization--of the creation of explicit property rights in 
spectrum and the reliance on markets to allocate spectrum to 
its most efficient uses. This idea was first proposed by Nobel 
Prize winner Ronald Coase in 1959. This is the approach that 
the report endorses.
    In essence, the propertization system would create a system 
of property rights. Think in terms of a geographic area with 
boundaries and a spectrum frequency band with boundaries, and 
the owner of this spectrum ``plot'' would have the ability to 
transmit within that geographic area, within that frequency 
band, so long as that party did not exceed power limits at the 
geographic border and at the frequency band border. Also, 
because of the special physics of the spectrum there would need 
to be inband limits. Within those parameters, the party could 
do anything that he or she wanted with the spectrum, so long as 
he or she did not in essence trespass on his or her neighbors 
and so long as the antitrust laws are also observed in terms of 
agglomerations of spectrum. In essence, think real estate. This 
is the way spectrum plots could develop.
    The real issue is how do we get from here to there: from 
the current command-and-control system to a propertized and 
market system. The report lays out five options for getting 
from here to there. We endorse three of those options. We also 
have some strong suggestions as to how to encourage greater 
efficiency in governmental holdings of spectrum, along the 
lines of some that were suggested by Mr. Kneuer earlier today.
    In summary, the report urges policymakers to think 
creatively and in essence to think in terms of propertization 
and markets as the direction for spectrum policy reform.
    I would be very happy to answer questions. Thank you very 
much, Mr. Chairman.
    [The prepared statement of Mr. White follows:]

  Prepared Statement of Lawrence J. White, Co-Chair, Spectrum Policy 
   Working Group, The Digital Age Communications Act (DACA) Project, 
  Progress & Freedom Foundation (PFF); Professor of Economics, Stern 
                School of Business, New York University

    I am pleased and honored to have this opportunity to appear before 
this Committee on the important topic of today's hearing: ``Spectrum 
Management Reform''. Spectrum management reform is an area that, if 
policy moves in a sensible direction, could yield great benefits for 
the U.S. economy.
    I am currently the co-chair (along with Dr. Thomas M. Lenard) of a 
Working Group convened by the Progress & Freedom Foundation (PFF) to 
propose a ``New Spectrum Policy'' for the U.S., as part of PFF's multi-
faceted effort to provide a ``Digital Age Communications Act'' (DACA) 
that would guide the reform of U.S. telecommunications policy. Our 
Working Group recently unveiled ``Release 1.0'' of its Report, which I 
would like to submit for the record of this hearing.
    As the ``Release 1.0'' characterization indicates, the New Spectrum 
Policy Report is still a work in progress and will likely go through 
some refinements in the coming months, as well as being accompanied by 
specific legislative language. Though no member of our Group--composed 
of one or more economists, lawyers, and electrical engineers--may agree 
with every single word in the current Release, we all agree on the 
major thrust of the Report: that the current system of ``command-and-
control'' regulation of the electromagnetic spectrum has yielded and 
will continue to yield large and growing inefficiencies in spectrum 
use, and that a ``propertization'' of the spectrum--a system that would 
rely primarily on a framework of fully developed property rights and 
markets in spectrum--would yield great benefits for the U.S. economy.
    In the rest of this written testimony I will summarize the 
``Release 1.0'' of our Report. (Since ``Release 1.0'' is being 
submitted for the record together with this written testimony, the 
interested reader of this testimony who wants more detail, support, and 
citations can find them in that Report.)

I. The Problem
    The widely recognized problem with uninhibited radio transmissions 
is ``interference'': one party's transmissions interfering with those 
of another party in the same (or a neighboring) geographic area and/or 
spectrum band. Another way of describing this problem is that it is one 
of negative externalities or spillover effects.

II. Potential Ways of Managing the Problem
    There are three potential ways of managing the use of the spectrum, 
so as to deal with interference: (a) the traditional command-and-
control regulation and licensing approach; (b) a commons/unlicensed 
approach; and (c) a propertization and markets approach. The first is 
the approach that has been prevalent in the U.S. since 1927--first 
under the auspices of the Federal Radio Commission and then, from 1934 
onward, under the auspices of Federal Communications Commission (FCC). 
The second has recently been advocated by a group of technologists and 
legal scholars. The third is the approach favored by the Report, taking 
as its origin a seminal 1959 article by Nobel Prize winner Ronald 
Coase.

III. Traditional Command-and-Control Regulation and Licensing
    Since 1927, Federal law has declared the spectrum to be a national 
resource, to be managed by the Federal Government for the benefit of 
the American people. In practice, this has meant a regime of detailed 
command-and-control regulation and licensing by (since 1934) the FCC: 
The FCC has traditionally allocated specific spectrum bands and 
geographic areas to specific uses, mandated specific service 
parameters, and selected specific users (through ``beauty contests'') 
to hold the licenses for these bands, geographic areas, uses, and 
service parameters.
    This approach broke down in the 1980s, when the FCC was swamped by 
applicants for the licenses for the newly opening (and clearly seen to 
be highly profitable) cellular services. The Congress came to the FCC's 
rescue by authorizing lotteries among the large numbers of otherwise 
qualified applicants. After the lotteries were revealed to yield rapid 
``flips'' and large windfall gains, the Congress authorized auctions in 
1993, which have been held for cellular and similar services since 
1995.
    Despite the widely acknowledged success of these spectrum auctions, 
and the FCC's recent efforts to grant greater flexibility to auctioned 
spectrum and to encourage a secondary market in spectrum, the 
overwhelming bulk of spectrum in the U.S. remains subject to the FCC's 
command-and-control regulation and licensing.
    The costs to the U.S. economy of this rigid management approach 
have been documented and are now widely appreciated. Spectrum is 
utilized inefficiently. New products come to market later and at higher 
costs. Competition and innovation is impeded. For example, the rollout 
of cellular service in the U.S. was delayed for over a decade, while 
the FCC tried to figure out how to integrate this new service into its 
existing allocation scheme. Even today, after over a decade of auctions 
that have authorized larger swaths of spectrum for cellular service, 
it's clear that even greater allocations would be worthwhile and could 
lead to lower prices and improved services.

IV. The Commons/Unlicensed Approach
    The success of the FCC's experiments in allocating some spectrum 
bands to ``unlicensed'' low-power uses--e.g., garage-door openers, 
WiFi, and Bluetooth--and the advent of newer technologies, such as 
cognitive radio and mesh networks, has led some technologists and legal 
scholars to advocate the expansion of such unlicensed bands. At the 
limit, with sufficiently good technologies, limits on power emissions 
of transmission devices, and adherence to courtesy protocols (the 
advocates argue), the spectrum could become a vast ``commons,'' where 
formal management of the spectrum--either in the FCC tradition or using 
the property rights approach discussed below--would not be needed (and 
indeed, would introduce transactions costs and would impede full 
development of the spectrum). In essence, there would be an abundance 
of usable spectrum, so formal allocations would not be necessary.
    The Report is highly skeptical of such claims. The demand for 
spectrum use is likely to be so price elastic that effective boundless 
abundance (i.e., effective supply would exceed demand, even at a zero 
price) is unlikely to appear. Further, the power limits and courtesy 
protocols necessary for a commons are just an alternative form of 
government command-and-control regulation. And the haziness of property 
rights and enforcement rights in a commons world would likely 
discourage the large-scale investments that would be needed in some 
areas for efficient spectrum utilization. The Report expresses the fear 
also that the continued governmental regulatory presence would mean 
that political considerations would trump efficiency in regulatory 
decisions. And, finally, the Report explains that propertization and 
markets can handle the kinds of uses--e.g., garage-door openers and 
WiFi--that are currently extolled as successful unlicensed uses. For 
example, an equipment manufacturer could buy the rights to use a 
specific spectrum frequency band (say, for garage-door openers) and 
then sell equipment designed to operate on that frequency to consumers.
    In any event, the Report advocates ``grandfathering'' existing 
unlicensed spectrum bands for continued use along current lines. If in 
the future, governments want to create and set aside additional 
``spectrum commons,'' they should be required to buy the spectrum in 
the open market (as would everyone else in a propertization and markets 
framework), and careful benefit-cost analyses should be expected for 
any such purchases and uses.

V. Propertization and Markets
    The third way to manage the spectrum so as to deal with 
interference--the direction that the Report endorses--is the approach 
of creating property rights in spectrum. The property rights would 
consist of a right to transmit within a specified geographic area and a 
specified spectrum frequency band, with limits on the power of the 
transmissions at the geographic and frequency band borders, and limits 
on in-band power as well. Another way of thinking about the property 
rights is that they constitute the right to exclude--exclude others' 
transmissions within the property owner's geographic and spectrum band 
territory.
    Within these limits, the spectrum owner could employ the spectrum 
for any use/service, so long as she didn't ``trespass'' with 
excessively powerful signals on the property of her neighbors. A 
spectrum property holder could add to her holdings, sell some of them 
off, divide, lease--and even just not use her spectrum if she so chose.
    Indeed, a convenient metaphor for these property rights in spectrum 
is that of real estate: The property owner of a bundle of spectrum 
rights could think of those rights as roughly equivalent to those 
enjoyed by the owner of a piece of real estate. The rights and 
activities enjoyed by the spectrum owner could equally well describe 
those enjoyed by a real estate owner. The Report envisions spectrum 
markets for transactions developing, just as real estate markets have 
developed for commercial and residential real estate. Also, of course, 
the antitrust laws would apply to any agglomerations of spectrum, so as 
to prevent such agglomerations from creating positions of market power.
    Any initial specification of these spectrum property rights--the 
geographic boundaries, the spectrum band boundaries, the power limits--
ought to be capable of being renegotiated by owners among themselves in 
subsequent transactions, as market conditions and technologies of 
transmission and reception change. But because such negotiations are 
costly, the initial allocations should be structured--initially by the 
FCC--with an eye toward minimizing such subsequent transactions. The 
FCC's Evan Kwerel and John Williams have suggested that the parameters 
that apply currently to auctioned personal communications services 
(PCS) spectrum would be a useful starting place for much, if not most 
spectrum in a propertized framework. Also, the Report notes that 
cognitive radio, whose development is seen by commons advocates as a 
boon to the commons approach, may well help reduce transactions costs 
in a propertization approach, since the need to amass adjacent spectrum 
bands for a particular service would be reduced.

VI. How to Get From Here (Command-and-Control Regulation and 
        Licensing) to There (Propertization and Markets)
    If the U.S. were starting with a clean slate--i.e., if there were 
no current users of spectrum with implicit rights to the spectrum that 
they use--there could be an initial laying out of spectrum property 
``plots'' and then an all-inclusive auction to get those plots into the 
hands of those who could use them most effectively. With well-defined 
property rights applied to these spectrum plots, secondary markets in 
spectrum would quickly develop.
    However, the U.S. starts instead with the existing ``legacy'' 
system of ``encumbered'' spectrum, based on the FCC's command-and-
control regulatory and licensing system described above. Some spectrum 
holders have recently purchased their spectrum in the auctions of the 
past dozen years. Others received their spectrum gratis through a 
beauty contest. Yet others purchased their spectrum indirectly by 
buying a company (e.g., a radio or TV broadcaster) that had spectrum 
rights. Virtually all are likely to have made substantial investments 
in equipment and other complementary inputs to the use of their 
spectrum. In addition, there are some spectrum bands that are currently 
unassigned or that are lightly used and encumbered. And various 
governmental bodies have a claim to approximately a third of the 
available spectrum.
    Consequently a major challenge to implementing a propertized 
spectrum framework is designing the transition from the current legacy 
system to a propertized system. The Report identifies five distinct 
options for a transition to a propertized system for spectrum. Under 
any of the options, a ``National Spectrum Registry'' should be 
established (much like land registries), so as to facilitate spectrum 
transactions and negotiations. The Registry could be maintained by the 
FCC, by the National Telecommunications and Information Administration 
(NTIA), or by a private entity.
    The five potential options discussed in the Report are as follows:
        1) Auction spectrum with the rights to clear incumbents 
        immediately without compensation. In essence, current spectrum 
        users would retain no residual rights and could be removed by 
        the purchasers at will.

        2) Auction spectrum with rights to clear incumbents with 
        compensation. Clearing would entail paying either relocation 
        costs or, if the value of the incumbent's operations is less 
        than relocation costs, paying the incumbent to cease 
        operations. If the clearing costs are readily known or quickly 
        adjudicated, this option will usually yield efficient outcomes.

        3) Auction spectrum without rights to clear incumbents from the 
        auction spectrum. Buyers of the spectrum would be required to 
        negotiate with incumbents to change the configuration of the 
        latter's rights. This option is similar to one recently 
        proposed by the British telecommunications regulator, Ofcom, as 
        well as to a proposal by Senator Larry Pressler in 1996.

        4) A ``Big Bang'' auction with unassigned and encumbered 
        spectrum. Incumbents would be encouraged to bring their 
        spectrum voluntarily to auction. Incumbents could either be 
        permitted to repurchase their existing rights at no net cost to 
        themselves, or they could be given transferable vouchers to 
        compensate them for mandatory clearing.

        5) Give incumbents full property rights to the spectrum that 
        they already use. Current spectrum users would thereby gain 
        immediate flexibility in terms of adjusting inputs and altering 
        uses, so long as they did not thereby generate interference 
        with an adjacent spectrum owner's property rights.

    The Report rejects options 1 and 5 as, at best, likely to lead to 
great delays in implementation. The Report does, however, endorse 
options 2-4 as all reasonable choices and, if properly implemented, 
could provide an efficient and timely transition to a propertized and 
market-oriented spectrum regime.

VII. Government-held Spectrum
    Government at all levels (Federal, state, and local) now hold about 
a third of all available spectrum. Even in a propertized framework, so 
long as spectrum is a ``free'' resource to a government agency, there 
is no clear incentive for the agency to do other than to hoard its 
spectrum against the possibility that it may be useful sometime in the 
future. The Report does recommend, however, a number of measures that 
can encourage greater efficiency in the use of publicly held spectrum:

        1) Include government-held spectrum in the National Registry.

        2) Require that NTIA prepare and submit annual reports to 
        Congress on spectrum usage by government.

        3) Establish reward structures that encourage government 
        employees to economize on their agencies' uses and holdings of 
        spectrum.

        4) Government entities at all levels should be expected to 
        purchase any additional spectrum rights that they want to use.

        5) Try innovative ways to promote efficient use of government 
        spectrum, such as contracts let by government public safety 
        agencies that would allow contractors to provide public safety 
        spectrum services in return for rights to use that spectrum 
        when not needed for public safety.

        6) Generally encourage purchase of communications services in 
        place of grants of spectrum.

VIII. The Legal Standard for Enforcement of Spectrum Property Rights
    Spectrum property owners need to be able to have legal recourse in 
the event that someone breaches their property right--in essence, if 
someone trespasses on their spectrum property. It is also critical that 
the property rights be as clearly defined and unambiguous--and that the 
adjudication process be as simple--as possible.
    The Report endorses the concept of using the law of trespass as the 
appropriate legal framework. Detection of trespass could be based on 
measurements at the (geographic or spectrum band) boundary or could be 
based on measurements at the transmitter combined with a radiation 
propagation model that indicates the consequent emission levels at the 
boundaries. The latter approach currently works well for the quasi-
property-rights regime that applies to the PCS bands. Also, some 
allowance may be necessary for the stochastic properties of 
transmission power strengths that are due to environmental conditions.
    Enforcement could be through the Federal court system or through 
adjudicatory proceedings in a reformed FCC (as described in the DACA 
Institutional Reform Working Group's report).

IX. International Obligations
    The Report recognizes that the U.S. has international obligations 
with respect to spectrum usage and interference and advocates that all 
spectrum rights that are created in a propertized framework should be 
consistent with those obligations.

X. The Role of the FCC
    The FCC would have at least one and possibly two additional 
important roles in the propertized framework advocated in the Report. 
First, the FCC would be responsible for the initial implementation of 
the property rights regime--the auctions, the initial specifications of 
geographic and spectrum band boundaries, the specification of power 
limits at the boundaries, etc. Second, the FCC could be the agency that 
maintains the National Spectrum Registry. Third, the FCC could be the 
initial forum for the adjudication of spectrum property disputes.

XI. Conclusion
    A relatively new approach to spectrum management--based on property 
rights and markets--holds great promise for improving the efficiency 
with which the spectrum is utilized in the U.S. economy and for 
encouraging innovation and competition. The Report describes and 
explains this new approach and identifies three sensible options for a 
transition from the current command-and-control regulatory and 
licensing regime to a propertization and markets framework for 
spectrum. A rapid commitment to one of these options would surely be in 
the best interests of our country.

    The Chairman. Thank you very much.
    If I could urge you to sort of move together and bring back 
our three witnesses. We are going to have to share six mics 
here with nine people. I appreciate your courtesy, the first 
three witnesses staying with us. We are going to each have a 5-
minute round to start with. I am going to wait until last this 
time and see. Senator Lautenberg you may start off please.
    Senator Lautenberg. Thanks very much, Mr. Chairman. Your 
management of this wide spectrum, so far it has been pretty 
good.
    The Chairman. Its properitization of the witness 
statements.
    Senator Lautenberg. I think some of it has to do with your 
position, Mr. Chairman.
    [Laughter.]
    Ms. Seidel, you are there? Yes. It appears that with the 
large wireless companies we have seen something recently--the 
gaming of the DE program, a program that was designed to help 
small minority and woman-owned businesses. Can the FCC have 
this problem fixed by the next auction that is scheduled for 
June?
    Ms. Seidel. The record on the NPRM has already closed. The 
Commission has announced its intention to resolve the issues in 
advance of the advanced wireless services auction.
    Senator Lautenberg. Let me ask you, do you think, can we 
get it done by then? There seems to be considerable doubt among 
the witnesses about whether or not this can be done as planned.
    Ms. Seidel. That is the Commission's intention at this 
point in time.
    Senator Lautenberg. Mr. White, yours was, I would say, an 
interesting, semi-scathing review of the system as we know it. 
It is constructively received, I can tell you. You had a 
substantial amount of testimony to give in a very short period 
of time. If you had to highlight one principal avenue for 
correcting it, what would you say using the property analogy to 
just let different suppliers offer different services within 
the same spectrum? I am not sure I understand that.
    Mr. White. Senator, thank you. My principal avenue is 
``think real estate.'' If there is nothing else I could say, 
think real estate. You have a geographic area. You have a 
spectrum band, and it is yours. You can do with it what you 
like, so long as you do not exceed power limits at the boundary 
so that you don't trespass on your neighbors. Again the real 
estate analogy, so you should not be trespassing on your 
neighbors but within your area, within your spectrum brand you 
can do what you like. You can add. You can divide. You can 
lease. You can flexibly allocate your spectrum to the highest 
and best use without the FCC or anybody else telling you what 
to do, so long as you don't trespass. And of course we've got 
to have antitrust--I am a former Chief Economist of the 
Antitrust Division in the U.S. Department of Justice. I am very 
sensitive to issues of market power with respect to 
agglomeration possibilities. I believe the Antitrust Laws ought 
to be applicable here, just as they are elsewhere in the U.S. 
economy. It is about encouraging flexibility, and that is what 
markets are all about.
    Senator Lautenberg. If you use the real estate analogy, one 
can build lots of very small apartments or very few very large 
apartments. In this case, can the variety of services be given 
outside the spectrum on a competitive basis, so that there 
would be further inducement for serious competition? How do you 
do it, for instance, cellular phone service?
    Mr. White. Senator, if you think there is a buck to be made 
in cellular, you would be able to go out, buy yourself a swath 
of spectrum, and start offering cellular services. You wouldn't 
have to go to Washington.
    Senator Lautenberg. I can't do it on your property in the 
real estate business.
    Mr. White. Ah. But you can buy access to a certain wave 
band over as big an area as you want. In fact, the new----
    Senator Lautenberg. Buy it from the licensing?
    Mr. White. Buy it from the existing license holders who may 
be using it for something else and you say, ``Hey, do I have a 
deal for you.'' (You can tell I am from New York City.) Do I 
have a deal for you. Let me have access to your spectrum, etc., 
and you can start offering cellular service. We rely on markets 
for much of our everyday life. We rely on markets in the way we 
deal with real estate. We rely on the law of trespass to keep 
neighbors out. We would rely on the law of trespass to keep 
others out of your spectrum, but it could be a very wide, 
nationwide swath of spectrum.
    Senator Lautenberg. Mr. Chairman, as a courtesy to 
colleagues, there is so much to ask here and so many people to 
ask it from, but I will yield my turn now.
    The Chairman. Thank you. Senator Pryor, you would be next 
on the early bird list.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Mr. Chairman. Let's see. I would 
like to start with the FCC if I could and I am sorry, is it Ms. 
Seidel?
    Ms. Seidel. Yes.
    Senator Pryor. I would like to just ask about the E-911 
Phase II that the FCC is working on. As I understand it, you 
set a date in which the various carriers had to meet a 95 
percent goal. A number of those carriers have asked for 
waivers. They are close to the goal but some of them are not at 
the goal yet. My question for you just practically is when will 
the FCC rule on the waivers?
    Ms. Seidel. The FCC does have a number of waiver requests 
pending from Tier I, Tier II, and Tier III carriers. Tier III 
carriers are the smaller and often rural carriers. It is a 
priority for the bureau. E-911 deployment continues to be a 
priority for the Commission and we are working quickly to be 
able to provide the Commission with the information they need 
to decide these waivers.
    Senator Pryor. OK. So are we thinking that will happen in 
the next few days? Few weeks? Do you have a timeframe?
    Ms. Seidel. It would be difficult for me to say.
    Senator Pryor. Now let me ask this, Ms. Seidel, and that is 
about the wireless build-out rules and I know that there is--
basically, when you look at the wireless build-out rules, I 
know they defer from service to service a little bit, but 
generally they have a focus on population coverage rather than 
geographic coverage. Has the FCC considered revisiting its 
build-out rules to focus on geographic coverage to ensure more 
build-out in rural areas?
    Ms. Seidel. Certainly, the Commission does have 
construction requirements and build-out requirements for the 
various services and they do depend upon the nature of the 
service and the geographic area of the license. Historically, 
the build-out requirements have been based on population, but 
as the market has evolved there have been some who have had 
advocated build-out requirements based on geographic coverage, 
or a use-or-lose approach. These are issues that were teed up 
in a rulemaking proceeding by the Commission. We have received 
a wide array of comments and those are being considered.
    Senator Pryor. One thing I might suggest is the FCC could 
consider such an approach where you consider more geographical 
ramifications to that as a part of this analog spectrum being 
returned. And that maybe there might be some rural build-out 
that is auctioned off. But if I can ask the NTIA a question and 
I am sorry, is it Mr. Kneuer?
    Mr. Kneuer. Yes.
    Senator Pryor. Mr. Kneuer, as you well know last year as a 
part of the DTV transition, Congress basically told the NTIA to 
execute a program that would provide necessary assistance to 
certain TV households that will require additional equipment in 
order to receive over-the-air digital. I am just curious about 
when the NTIA rules will be established for that and if you 
need any more guidance from Congress on that.
    Mr. Kneuer. Well, the short answer is as quickly as 
possible. The DTV Transition Act puts us on a very tight 
timeframe, not just to get rules in place but to get forms of 
financial assistance for set-top boxes out to the American 
public and in sufficient time in advance of the transition. 
That is rapidly coming upon us. So we are working diligently on 
rules now or at least proposed rules that we will put to the 
marketplace to answer those sorts of questions, defining who 
are the eligible households, what are the characteristics of 
the set-top boxes and so forth.
    Senator Pryor. Are there any preliminary rules that are 
available now, so we can get a progress report on that?
    Mr. Kneuer. The draft rules should be out soon. We do not 
have any preliminary rules out. The legislation was signed just 
a matter of months ago, so we have been working on it 
diligently since. I expect those rules to come out shortly, but 
we don't have a preview of the proposed rules.
    Senator Pryor. Mr. Kneuer, I am also concerned about user 
fees with governmental spectrum and I am curious about 
whether--if you take a user fee approach? If a Federal agency 
like the Department of Defense or non-Federal agencies like 
local law enforcement--local public safety might have to pay 
user fees.
    Mr. Kneuer. As a part of the President's Spectrum 
Initiative, we have a task force working on a variety of 
incentives for a more sufficient spectrum use for Federal 
agencies. Included in that proposal is the possibility of 
imposing fees that would recognize the value of the spectrum. 
Currently, the agencies pay fees to NTIA based on the 
applications that they process. That is basically just a 
recovery of the administrative costs, the funding of the 
agency. We are examining the possibility to extend fees in that 
regard. With regards to state and local governments, they fall 
under the purview of the FCC. The President's budget includes 
fee authority for the FCC for non-auction services. I don't 
believe that the consideration for that proposal will be 
extended to state and local entities--that is for other non-
auctioned systems and non-auctioned licenses.
    Senator Pryor. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Allen.

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

    Senator Allen. Yes, thank you, Mr. Chairman. The Wireless 
Innovation Act that I introduced on a bipartisan basis with 
Senators Kerry, Sununu, Boxer and Dorgan. I know the Chairman 
introduced a measure as well on this, is very important, in 
that we want to unleash the power of advancements in technology 
and innovation to develop wireless broadband to areas that 
presently don't receive it, particularly in rural areas, where 
as my friend from Montana says there is a lot of dirt between 
light bulbs. It will be more affordable and as this part of the 
spectrum that is unused goes forward after the switch from 
analog to digital, we ought to utilize it as best we could. For 
example, in Richmond it is estimated that 64 percent of the 
spectrum allocated to broadcast television use in Richmond will 
be vacant and unused after February 2009. Let me ask this 
question and I will address it to Mr. Kahn and Ms. Kenney. We 
had this plethora of witnesses. We introduced this because we 
do believe it is the most robust and efficient use of this 
particular unused spectrum. We believe it will lead to rapid 
innovation and result in many benefits to consumers. I do want 
to talk about interference, but could you elaborate, Mr. Kahn 
and Ms. Kenney, on what you would see as the benefits? The 
benefits from this to American consumers, if this legislation 
became law.
    Mr. Kahn. OK, I guess I will try it first. Certainly, we 
see two major places where there are benefits. First--and we 
tend to categorize them as the sort of so-called higher power 
uses of that spectrum and the lower power uses of that 
spectrum--the higher power uses of the spectrum really are the 
broadband services, the broadband access ability. I think a 
number of people have observed the paucity of broadband 
availability or uptake by U.S. consumers versus some other 
parts of the world. Part of the problem, of course, is the cost 
of making broadband available in a relatively low-density 
environment. Even when you get out into the more distant 
suburbs of the metropolitan area, low-density starts to be an 
issue--it is the amount of cost of running a wired 
infrastructure. Wireless is very attractive for that. You have 
a very natural sort of way to expand your capacity as you get 
more people taking it, which tends to argue that you get a 
somewhat incremental investment path. Your coverage areas are 
relatively large, given the right spectrum. So, the ability to 
actually get a good broadband service out there, particularly 
in the lower-density parts of the country, would be greatly 
enhanced by using this very good quality spectrum. Not all 
spectrum is created equal. This happens to be some very good 
quality spectrum.
    The other place is the low power uses. You only have to 
look as far as all of the electronic devices people are 
carrying and putting in their homes today to see that there has 
been an explosion in innovation around new capabilities for 
people to utilize radio-based devices. All those devices also 
benefit; they are much lower power. The trade offs are 
different when you get into things like the sensing issues we 
talked a little bit about. But again, an enormous potential for 
new applications for the average consumer, again very cost 
effective price points because we know how to build this stuff 
very cheaply.
    Senator Allen. Ms. Kenney.
    Ms. Kenney. Thank you. Well, I think Mr. Kahn summarized 
the technological benefits of unlicensed devices in the 
broadcast band. One thing I would like to point out is that the 
nature of unlicensed allows providers, whether they be 
communities or entrepreneurs trying to make a profit, to use 
low-cost, off the shelf technology. Because of the propagation 
characteristics of the spectrum within the broadcast band, you 
need fewer transmitters. So, you have got lower cost equipment 
available to you, and with this spectrum available, providers 
will need less of it. So, that allows a provider to offer a 
very low cost service to consumers. Right now broadband is 
available at $30, $40, $50 per month. Some have estimated with 
unlicensed devices in the broadcast band, we could see 
broadband service available for as little as $10 per month, 
which would be significant for those consumers who have access 
to broadband but simply can't afford it.
    Senator Allen. Good. I have 5 seconds. On our interference 
matters, Mr. Kahn, Ms. Kenney, if you would, do you believe the 
requirements that we have put in our legislation, the 
Chairman's bill is fairly similar, do you believe those 
requirements are sufficient to alleviate any interference 
concerns?
    Mr. Kahn. Absolutely. First of all, any equipment that goes 
into the service is going to be certified by the FCC. They have 
a pretty stringent certification process. They will work the 
technical issues around the details of this.
    Second of all, the interference, as I said in my comments, 
for the high power people, you know where you are putting these 
transmitters. You know that there isn't a television station 
within reasonable distance of that. That is an easy one. For 
the low power devices, we have very credible ability to do 
sensing. Just to give you some analogy there that may be 
helpful for the non-engineers (I know most of you aren't): You 
know sensing is not about being able to hear the TV station, it 
is about being able to hear the fact that it is there. This is 
the difference between looking across the room and knowing that 
some people must be talking because you kind of hear some 
noise, versus being able to understand what they are saying. It 
is much easier to know there is noise, and that is all you have 
to know to get out of the band. It is much harder to know that 
you can decode it. So, our ability to sense the presence of TV 
channels, this is not a technically overwhelmingly difficult 
challenge. It is very feasible stuff with the FCC, technical 
diligence, absolutely. We have no interest in seeing television 
stations harmed. It is not in our interest or anyone else's.
    Ms. Kenney. If we had any concerns that interference with 
television reception for over-the-air-reliant households would 
be a problem with unlicensed broadband in this spectrum area, 
we couldn't support this proposal. But we have listened to the 
experts, we have looked at the evidence and with the 
protections in your bill and Senator Stevens' bill, we feel 
confident interference will not be a problem.
    Senator Allen. Thank you all. Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Burns?

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

    Senator Burns. Mr. White, I want to activate you again. 
Under your system now, you are calling for, I would imagine a 
quasi privatization of spectrum. Am I hearing you wrong?
    Mr. White. I really want to stay away from the word 
privatization.
    Senator Burns. I know. I should have too.
    Mr. White. There is plenty of room for government use and 
holding of spectrum. We can have greater efficiency in its use, 
but there is lots of room for government use.
    Senator Burns. Now, once we secure a piece of spectrum now, 
don't we have property rights over that spectrum?
    Mr. White. Well, if you are channel 4, yes, you have some 
rights, but you can't just sell it to anybody. You need the 
FCC's approval to be able to sell it to somebody. You can't 
change your use. You can't decide that, ``Maybe using it for 
cell phones, for AWS, might be a better use of that spectrum.'' 
You can't do that right now. So, yes, there is a set of rights. 
They are defined by the FCC, but they are not the way we would 
think--again thinking real estate is really useful. They are 
like real estate.
    Senator Burns. Do you think that spectrum is a national 
resource?
    Mr. White. So is all 3 million square miles of land in the 
United States, and yet we rely primarily on private ownership. 
Again, there is room for government ownership, for national 
parks, for local parks, of course. We rely primarily on private 
ownership to think about how land ought to be allocated, 
whether you ought to be growing wheat on it or corn or using it 
for housing or using it for automobile assembly plants. Those 
are private decisions. You do have to worry about some 
harmonization. You don't want a glue factory going up right 
next to a residential neighborhood. So there are some neighbor 
issues, but primarily law of trespass, law of nuisance, can 
help deal with those problems. One of the ironies is that the 
advocates of spectrum commons see agile radio, cognitive radio, 
as one of the great advances that will make a spectrum commons 
more feasible. But it will also make propertization more 
feasible because if you wanted to aggregate spectrum to offer 
cellular services, you don't have to worry about a holdout 
problem--perhaps that Senator Lautenberg is holding this choice 
piece of spectrum and without it, you can't offer the service 
with cognitive radio. Your receivers and your transmitters will 
be able to skip around. There are other suitable pieces of 
spectrum that will work for you. You get competition out there.
    Senator Burns. Thank you very much. I have another 
appointment. I thank you for your explanation of that.
    Mr. White. Thank you.
    The Chairman. Thank you. Let me start back with you, Mr. 
Kneuer. I seem to hear you say that you are looking at the 
concept of allowing agencies that have spectrum, that are not 
using it, to lease or to--I guess lease would be the idea--do 
you think you have that authority now?
    Mr. Kneuer. Well, I think the concept of allowing agencies 
to lease their excess spectrum, to the extent they have any, is 
something that is captured within a lot of the different issues 
that we are looking at.
    The Chairman. That is not my question here. Do you think 
you have got the authority to do that without an act of 
Congress?
    Mr. Kneuer. That may require legislation.
    The Chairman. I hoped you would say that.
    Mr. Kneuer. It is not a proposal that we currently have 
formulated.
    The Chairman. I would hate to see the NTIA start competing 
with FCC in terms of spectrum sales or leases. I think there 
should be one national system. I would not like to see that 
start. I would be pleased to work with you on whether or not it 
should take place, however. I think there is no question about 
it. The agencies that have spectrum that do not fully utilize 
it should consider how to use it right. I would think that it 
would be a job for the FCC to add it to their spectrum sales. I 
would like to see the FCC start thinking about the concept of 
how to get some temporary use of spectrum that government 
agencies have and they don't have the capability of using it. I 
think it ought to be made available for use until the agencies 
can fully utilize it. Mr. Kahn, how long will it take you to 
develop, not you but anyone, but I assume you would be involved 
in it, to develop these personal, mobile, unlicensed wireless 
devices? I assume that you are confident you can prevent 
interference. By the way, this is a stupid question but what is 
it going to do to my garage door or someone else's heart 
monitor?
    Mr. Kahn. It should not do anything to any of those. Not a 
stupid question.
    The Chairman. Your devices would take into account these 
problems?
    Mr. Kahn. Yes. The industry has shown it can move pretty 
quickly on these kinds of things. If you look at the history of 
any of the other unlicensed devices, you know, you are 
typically talking about a couple of years of standardization 
and development time. You will see early movers that get 
product into the market very quickly, within 12 months. Often, 
they call it pre-standard, while the industry is still working 
out agreements on what the standards really should look like. 
You will see those things evolve to be standardized.
    The Chairman. Those devices would be distance sensitive?
    Mr. Kahn. I am sorry?
    The Chairman. They would be distance sensitive? I mean what 
if someone from the rural area comes into town and wants to use 
their device?
    Mr. Kahn. Oh, well. The proposal here, at least the one 
that I think is the most reasonable, is that the devices 
themselves are responsible for sensing the spectrum. So, you 
could take one of those devices and wherever you take it, the 
first thing it does is it scans the available channels to find 
one that is not in use. I mean if you take a device, you use it 
in Anchorage and there are a lot of vacant channels up there. 
So it picks one that is open. You go to Salt Lake; it will go 
to a different channel. The first thing it is going to do is 
find an open channel. The whole design and certification 
process is designed to guarantee that those devices settle on 
channels that are not otherwise in use. In that sense, they are 
aware of the environment that they are operating in. I don't 
know if I answered your question.
    The Chairman. Yes, it does. I didn't realize the impact of 
that, searching for the channel. Ms. Hecker, do you think we 
should have a comprehensive survey of spectrum use nationwide 
and would that assist us in terms of the reform? If we do that, 
what role would the private spectrum users play in that survey?
    Ms. Hecker. Well, as I mentioned, we have two 
recommendations. One was for FCC and NTIA to get together to 
have a comprehensive government plan that would include an 
inventory. The other recommendation, actually, was for a 
commission that would be much more broadly based dealing with 
all of the users, the range of public users, private users, as 
well as the government agencies at different levels of 
government. The idea of that kind of commission would be to 
recognize what we have today is really almost a numbingly 
complex issue and set of issues and that what really is needed, 
given the absence of clear consensus and the range of views, is 
to have that kind of comprehensive independent commission 
really look at the use and opportunities for improvement in the 
use of spectrum. The status quo in our view is not sustainable. 
Substantial reform is needed but there isn't really yet a clear 
consensus and that kind of commission would have the 
opportunity to represent the Congress and the range of public 
and private users on a new agenda.
    The Chairman. What timeframe would that commission have to 
report in? What are you looking at? What would you suggest?
    Ms. Hecker. We never had a specific recommendation. Big 
commissions in the past often have 18 months to 2 years. A lot 
of it would depend on the depth of the agenda, that the 
Congress, if they formed such a commission, provided to the 
group, how it would be staffed, and what kind of outcomes. 
Would it not only identify what kinds of reforms we needed but 
I think as the DACA report, would it have the transition plans 
of exactly how to get there? And also would it address what 
kind of institutional reforms might be needed as we believe 
ought to be considered in the current structure of spectrum 
management bifurcated between FCC and NTIA?
    The Chairman. Mr. Walsh, could you tell us if national 
spectrum licenses are issued to a company, should it be 
required to use the spectrum in rural areas or lose it?
    Mr. Walsh. Yes, Chairman. The RCA's position on that is 
that we feel that spectrum lying fallow should be used. So our 
position is that if spectrum is unused that it should be able 
to be turned back into the FCC and be able to have an auction 
and have those parties that are interested in that particular 
piece, take advantage of that.
    The Chairman. Ms. Seidel, do you currently keep track of 
whether or not spectrum is used?
    Ms. Seidel. The Commission does have build-out requirements 
and construction requirements, which enable us to keep track to 
some extent. In addition, there have been spectrum audits in 
the past. Most recently, I think it was in the paging arena 
where the Commission did seek information about what licenses 
were being used and the extent to which they were.
    The Chairman. Do you make that information available to the 
public?
    Ms. Seidel. I think I will have to get back to you on that 
question to make sure I give you a complete answer.
    The Chairman. Would you favor this commission that Ms. 
Hecker speaks of?
    Ms. Seidel. I really couldn't provide you with the 
Commission's view on that.
    The Chairman. Mr. Sugrue, do you think spectrum reforms 
would help lower the price of wireless broadband and help 
ensure that that service could reach rural high cost areas?
    Mr. Sugrue. Oh certainly. While I addressed my remarks to 
getting the auction--that's scheduled in 4 months to take 
place--I want to align myself with a lot of the progressive 
thoughts on spectrum reform across the table here. Anything 
that lowers the opportunity costs of obtaining spectrum and 
makes it available to be used more efficiently would do that. 
For rural areas, I would also say the 700 MHz auction, which is 
scheduled now to take place in January 2008, the propagation 
characteristics of that spectrum are very, very good for rural 
areas. Much better, for example than the AWS or the PCS 
frequencies. As a carrier that doesn't have any of that lower 
band spectrum we look forward to the availability of that as an 
opportunity to move in an efficient fashion in some areas of 
the country that we are not now.
    The Chairman. Thank you. Mr. Hubbard. Can you estimate how 
much it would add to the cost of DTV set top boxes if they 
could warn of the nearby-unlicensed wireless devices? Do you 
understand what I am saying? Can we add to those boxes this 
warning capability so that they would know unlicensed wireless 
devices and would not be interfered with?
    Mr. Hubbard. I don't know the answer to that. I am not in 
the business of making television sets, but I do know that many 
CE manufacturers, and actually I would request that this letter 
is submitted into the record, * from consumer electronics 
manufacturers who are expressing this grave concern over 
interference issues. The second question is what do you do with 
existing sets? What do you do with existing equipment that is 
out there? There are millions of sets that are already in 
existence, so even if you could make a new rule that protected 
something moving forward, you still have the legacy issue which 
would need to be considered.
---------------------------------------------------------------------------
    * The information referred to is printed in the Appendix.
---------------------------------------------------------------------------
    The Chairman. Do the rest of you agree that the older sets 
could be affected by these devices we are talking about? Mr., 
Kahn, what do you think?
    Mr. Kahn. No, I think our position is pretty clear that we 
don't want to be transmitting even with low power radios on 
occupied television channels. The goal here is not for the TVs 
to put up with interference generated by these devices. The 
goal here is that the devices are on a different channel. So, 
we honestly don't see that as the issue. As I said before, we 
have interest in television as well. I mean we are seeing 
increasing pressure from our customers who want to put TV 
receivers on all their laptops and PCs. So, the idea of getting 
good over-the-air television is important to Intel. We have no 
desire to see that corrupted in any way. Our position is that 
it is extremely feasible to operate on channels that are not 
utilized in a given marketplace. When you do that, you are not 
interfering with the reception on any television, old or new. 
So the issue here is can you identify the channels that are not 
in use. Anywhere you go you are going to find channels not in 
use, more in the rural areas, fewer in the high density metro 
areas, but nevertheless even in the high-density metro areas 
there are lots of channels not in use. Then utilize those 
channels with very low power devices.
    The Chairman. Thank you. Ms. Kenney. To the Consumers 
Union, what is the most important item in this spectrum reform 
concept we are dealing with?
    Ms. Kenney. The most important thing that this Committee 
could do would be to pass legislation comparable to that, which 
you have introduced, on the TV ``white spaces'' and Mr. Allen's 
bill. They are very similar, and have similar goals.
    The Chairman. Do you foresee any possibility that people 
could use that ``white space'' to the extent where they build 
up considerable income? They are still not paying anything at 
all for that use. That is your suggestion, isn't it? That there 
would be no charge in that ``white space?'' Right?
    Ms. Kenney. Yes.
    The Chairman. My bill contemplates that, but what if 
someone does develop just a significant income from that 
``white space'' spectrum? Should they pay something for its 
use?
    Ms. Kenney. Well, the beauty of unlicensed spectrum is that 
a lot of people can compete within that same space. We 
certainly don't have problems with people making money by 
offering valuable consumer services.
    The Chairman. But you are assuming it is only going to be 
used in one area, aren't you?
    Ms. Kenney. You could have multiple players operating 
within the same market.
    The Chairman. What about one player operating in many 
markets for that ``white space''?
    Ms. Kenney. Well, certainly if that is what is required to 
offer a competitive service to the dominant wireline providers, 
I am not sure we would have a problem with that, as long as 
others are allowed to use that space as well.
    The Chairman. Mr. White, I have not ignored you. I just 
want you to know I hope once we get through this bill, I hope 
we can find a time to explore your suggestion. But I don't 
think we can put that in this bill at this time. I hope you 
realize that.
    Mr. White. Thank you, Senator. Yes. I realize that, but we 
hope that we are getting people to think creatively and start 
understanding the logic of the position of propertization and 
markets in spectrum and that next time a major piece of 
legislation is considered the role of propertization and 
markets can be the center of that legislation.
    The Chairman. I recall when my good friend from Hawaii, 
Senator Inouye and I were able to finally get the spectrum bill 
passed and signed by the President. I called the then-Chairman 
of the FCC and asked him if they had a program at the FCC for 
bonuses to people who made suggestions that brought in 
additional funds for the government. He said, ``yes, they did, 
but why was I interested?'' I said, ``Well, the President just 
signed that bill.'' He didn't think it was funny.
    [Laughter.]
    The Chairman. I did. I kind of played the same problem with 
you, though. How could you--that is why we want to have a 
hearing on your booklet and go through it. It is a good 
suggestion but to get from where we are now to there 
nationally, it is equivalent of changing from one type to 
another. I don't know how you can take this system and transit 
to your system without serious disruption in communications 
right now. So we want to hold a hearing and I am sure other 
people would like to explore that too, but I just have to tell 
you, it is too much I think to ask us to be involved in that in 
this bill.
    Mr. White. I understand.
    The Chairman. I thank you for coming. My last request of 
all of you is if you think of something that you think we 
should have heard today, that relates to this problem we are 
dealing with on ``white spaces'' or spectrum reform, we invite 
you to send us--not another letter like the one I just got from 
you, Mr. Hubbard. I think that is going to take me a little 
while to read, but a short letter. We would welcome your 
additional comments on what we ought to do in this legislation. 
I thank you all very much. I thank the witnesses on the first 
panel who have been willing to stay and respond to the 
questions that my colleagues and I have had. We do appreciate 
your courtesy in appearing here today. Thank you very much.
    [Whereupon, at 11:50 p.m., the hearing was adjourned.]

                            A P P E N D I X

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii

    Last week, this Committee examined the communications challenges 
facing rural America and tribal lands. Unlicensed wireless technologies 
featured prominently in that discussion. If given the opportunity, 
unlicensed technology could very well be a low-cost means of delivering 
high-speed Internet services to remote areas.
    In a world that has become dependent upon the instantaneous 
exchange of information, high-speed Internet access is quickly becoming 
a necessity. It is not an option to leave portions of our country 
behind. If our rural communities are going to have any hope of 
competing in a global marketplace, they will need to have access to 
broadband services. It is that simple.
    Similarly, we need to put forward a far better effort to reach 
these same remote areas with cellular phone signals as well. As we work 
to deploy broadband, we cannot overlook the fact that many parts of 
rural America lack robust cell phone service.
    There have been efforts to ensure that highway travelers do not 
lose service as they cross the country, but sadly, wireless providers, 
in many cases, fail to provide similar access to nearby rural areas, 
which is critical for public safety as well as economic development. I 
am hopeful that we can find ways to resolve this as well.
                                 ______
                                 
                Prepared Statement of Shure Incorporated

I. Introduction and Summary
    Shure Incorporated (Shure) is the leading manufacturer of wireless 
microphones and other high-quality audio products. As a well-known 
international innovator in high-quality audio products with over 80 
years experience, Shure welcomes this opportunity to offer its 
expertise and real-world perspective on important interference concerns 
raised by proposed changes to the uses of the ``vacant'' TV spectrum.
    Under Part 74 of the Federal Communications Commission's (FCC) 
rules, Shure's wireless microphone products operate as low power 
broadcast auxiliary stations. Broadcast auxiliary services are licensed 
services operating on a secondary basis in the limited amount of open 
spectrum not used by television broadcast stations in any given market, 
the so-called ``white spaces.'' Despite the moniker, the ``white 
spaces'' are not ``white'' or vacant. Numerous important services 
currently use the ``white spaces.''
    In 2004, then-FCC Chairman Michael Powell initiated a proceeding 
aimed at opening the ``white spaces'' within TV spectrum to use by 
unlicensed devices. The FCC asked whether unlicensed devices could 
coexist in the ``white spaces'' with incumbent services such as 
wireless microphones. \1\ Shure and other companies demonstrated that 
the FCC's proposal would cause harmful interference to wireless 
microphones and other important services. This interference will 
disrupt communications important to the American public, including 
newscasting, sportscasting, religious broadcasting and entertainment 
programming.
    The variety of incumbent services in the ``white spaces'' presents 
complex and unprecedented interference cases. There is no proven 
interference solution available today that allows unlicensed devices to 
share ``white spaces'' with incumbent services. ``Smart'' technology is 
an intriguing concept that perhaps eventually could be developed into a 
reliable tool for resolving interference issues in certain situations. 
Shure supports the continued hard work and substantial development 
manufacturers in that field that will need to pursue to realize the 
full promise of ``smart'' technology. However, it is critical that 
today's spectrum management policy is grounded in real-world, tested 
interference solutions and not on the mere promise of technologies 
hoped to be developed in the future. The stakes are too high to 
speculate. Harmful interference caused by permitting new unlicensed 
devices to operate in this occupied spectrum today will harm American 
consumers and businesses who rely on high quality transmission of news, 
sport, religious, entertainment, and business events and programming.
    Notwithstanding these significant unresolved interference issues, 
the two bills under consideration (S. 2327 and S. 2332) mandate that 
the FCC conclude its ``white spaces'' proceeding in 180 days and allow 
unlicensed devices to occupy this limited spectrum under certain 
conditions. The goal of these bills is to promote wireless broadband 
access, particularly in rural areas. Shure is concerned these bills 
impose unreasonable deadlines for FCC action and do not adequately 
account for the serious interference issues presented by unlicensed 
device operation in this spectrum. The public interest would not be 
served by unlicensed devices that cause crippling interference to 
licensed services.
    The purpose of this statement is to explain Shure's concerns and 
the technical hurdles that must be cleared before any ``white spaces'' 
proposal can reasonably move forward. Industry experts are currently 
studying these complex interference issues. These experts should be 
allowed to do their job and develop proven interference solutions 
before unlicensed devices are permitted to run roughshod over important 
licensed services. Finally, at a minimum, proposed legislation must be 
amended to make clear that (1) wireless microphones are an incumbent 
service entitled to protection from interference; and (2) unlicensed 
devices will not be permitted access to the ``white spaces'' until 
proven technical solutions adequately prevent interference from 
unlicensed devices to all incumbent services.

II. Wireless Microphones Are Vital to High-Quality Broadcast 
        Productions
    Wireless microphones are essential to today's high-quality 
television and motion picture productions. Wireless microphones are 
used by the news industry, by sports and entertainment groups, and by 
religious organizations. Wireless microphones allow on-the-spot 
coverage of breaking news stories, providing the American public with 
critical and sometimes life-saving information. They enable 
unparalleled access to sporting events, making viewers feel as though 
they are part of the action. Wireless microphones are used at the 
Nation's political conventions to bring full coverage to all points of 
view. Wireless microphones enhance religious broadcasts, enabling 
worshippers to practice their faith in richer, more enjoyable ways. The 
American public relies on wireless microphones to deliver these 
exciting and innovative communications. \2\ In short, wireless 
microphones enable modern broadcast productions.

III. Introducing Unlicensed Devices to the ``White Spaces'' Without 
        Proven Interference Solutions Would Devastate Wireless 
        Microphones
    Shure conducted an extensive technical analysis to determine 
whether wireless microphones could coexist with unlicensed devices, 
based on the technical parameters proposed by the FCC. Shure conducted 
dynamic ``real world'' testing to simulate an unlicensed device 
operating on the same channel in the presence of a wireless microphone. 
Shure proved that wireless microphones were rendered virtually useless 
in the presence of unlicensed devices. Crystal clear reception from the 
wireless microphone quickly began to drop out, and then degenerated to 
the point that the wireless microphone turned off completely. Last 
month, Shure also conducted its simulation for House and Senate staff 
to demonstrate the severe consequences of harmful interference.
    Hallmarks of wireless microphones are their superior sound quality 
in real-time applications. In order to deliver the high level of sound 
quality and reliability that users expect, wireless microphones must 
operate in a known, stable interference environment. Unlicensed devices 
would disrupt that environment and make it inhabitable for wireless 
microphones. This is because there are no ``second chances'' for 
wireless microphone transmissions--you can ask someone to repeat what 
they said on a cell phone or to resend an e-mail, but you can't ask 
someone to re-sing the National Anthem at the Super Bowl. \3\ Once 
interference occurs, the damage is done.

IV. Unlicensed Devices Also Present Serious Risks to Other Licensed 
        Services and Devices
    Unlicensed devices present serious interference issues not only for 
wireless microphones, but also for a wide range of other important 
services operating in the ``white spaces'' including other existing 
broadcasting services, public safety services, law enforcement 
services, medical telemetry devices, and low power and TV translator 
stations.
    The broadcast and consumer electronics industries fear that 
allowing unlicensed devices as proposed by the FCC would wreak havoc on 
the DTV transition. \4\ The ``cliff effect'' of DTV means that it is an 
all-or-nothing technology, interference and loss of service means not 
just a poor picture, but no picture at all. Numerous consumer 
electronics manufacturers caution that ``[a]s a matter of science and 
engineering, there is no question that the potential exists for 
interference from unlicensed wireless devices to the operation of 
digital television receivers and set top boxes.'' \5\ These 
manufacturers warn that ``[u]nduly hasty action in establishing the 
rules and parameters for the operation of unlicensed devices could 
seriously disrupt the digital television transition for millions of 
Americans and taint the roll-out of unlicensed devices.'' \6\ These 
respected manufacturers at the center of the DTV transition ``urge the 
Congress to do nothing that would imperil or disrupt the DTV 
transition, including the authorization of new services which would 
cause interference with television signals.'' \7\ Knowingly introducing 
interference without proven means to mitigate it needlessly threatens 
long-standing Commission and Congressional goals to institute DTV 
service.
    The risks are not limited to DTV service. Set top converters used 
for cable and satellite reception, along with other consumer products 
connected to TV sets, are also vulnerable to interference from 
unlicensed devices.
    Rural television reception is also in jeopardy if unlicensed 
devices enter the ``white spaces.'' \8\ Millions of people in rural 
areas live outside the so-called Grade B contours of broadcast stations 
and rely on broadcast service from low power television stations and 
translators. There is no protection for service outside the Grade B 
contour, exposing these viewers to harmful interference that would 
suddenly eliminate their television reception. This is especially 
unfair because over-the-air television is the primary source of 
emergency information and quality of life information available to 
rural America, a need unfulfilled by satellite television with its 
limited local channel offerings. \9\
    Public safety also operates on several channels in the so-called 
``white spaces.'' Such operations are typically mobile and itinerant--
very similar to wireless microphones--making public safety devices very 
difficult to protect from interference. \10\ Medical telemetry devices 
operate in ``white spaces'' from channels 7-46. \11\ These devices are 
used to monitor cardiac patients. Clearly, interference to public 
safety or medical telemetry applications risks health and safety and 
could have devastating consequences.

V. The Interference Issues Are Extremely Complex and Require Time to 
        Resolve
    In light of the substantial and widespread harm interference would 
cause, the key to moving forward is developing proven interference 
solutions that prevent interference and adequately safeguard the 
variety of spectrum uses in the ``white spaces.'' The range of ``white 
space'' incumbents further complicates this charge. Broadcasters 
transmit from fixed locations at very high power levels and should not 
be very difficult to detect. However, wireless microphones operate 
itinerantly at very low power and are therefore very difficult to 
detect. Viable technical solutions must be capable of detecting both 
types of devices to avoid widespread interference to millions of 
Americans. Although ``smart'' technology has been touted as a viable 
technical solution, as described below, no ``smart'' technology exists 
today that has been proven to remedy interference in the ``white 
spaces.''
    The FCC's ``white spaces'' proceeding demonstrates that (1) 
unlicensed devices would interfere with incumbent services, and (2) no 
proven technical solution exists to protect incumbent services. The FCC 
asked industry to work together on these complex technical issues to 
develop solutions. IEEE, the world's foremost association of electrical 
engineering and wireless networking experts, \12\ established a working 
group (802.22) to study the interference issues resulting from fixed 
installations of unlicensed devices in the ``white spaces.'' \13\ IEEE 
is a neutral, impartial forum for consideration of technical solutions. 
Shure is an active 802.22 working group member. The experts at IEEE 
must be given adequate time to complete their important work to assure 
that the American public will not be subjected to widespread 
interference.

VI. ``Smart'' Technology Is Far From Ready
    There is a widespread but erroneous perception that ``smart'' 
technology is currently able to resolve ``white space'' interference 
issues. This is not true. ``Smart'' technology goes by a variety of 
names--spectrum sensing, cognitive radio, dynamic frequency selection 
(DFS), and listen-before-talk. A form of ``smart'' technology 
eventually may be developed and tested to resolve the ``white spaces'' 
interference issues, but nothing proven exists today for the ``white 
spaces.'' As discussed below, ``smart'' technology is untested and has 
not been proven to remedy ``white space'' interference issues. Further, 
experience shows that testing ``smart'' technology to make sure it 
works as intended stands to be a lengthy, time-consuming process.

A. The Unlicensed Device Community Glosses Over Serious Interference 
        Issues
    The unlicensed device community has not advanced any technical 
solution to prevent harmful interference to licensed wireless 
microphones, despite the extensive FCC record demonstrating that 
unlicensed devices will, in fact, cause such harmful interference. As 
Shure has emphasized, the wireless microphone case is particularly 
vexing, with no ready solution. Unlicensed device proponents also 
underestimate the potential for harmful interference to television 
reception. Congress cannot let the unlicensed device community's zeal 
to gain access to the ``white spaces'' substitute for sound engineering 
judgment and proven interference solutions.
    Importantly, unlicensed device proponents acknowledge that before 
any new unlicensed devices could be deployed in the ``white spaces,'' 
the devices would have to go through the FCC's certification process, 
through which the device manufacturer will have to demonstrate that the 
device meets the technical requirements set forth by the FCC for 
unlicensed device operation in the ``white spaces.'' The precise FCC 
procedure is still uncertain because those technical requirements are a 
long way off. It will take the FCC, with the help of IEEE, substantial 
time to finalize those technical requirements because complex 
interference issues must first be resolved.

B. Other Attempts to Introduce ``Smart'' Technology Have Encountered 
        Substantial Delays
    On November 18, 2003, the FCC authorized use of DFS-equipped 
unlicensed devices in the 5 GHz band so long as they did not cause 
interference to the existing incumbent users--including Department of 
Defense (DOD) radar systems. \14\ The DOD, the National 
Telecommunications & Information Administration (NTIA) and the FCC 
(together, the ``Coordinators'') then initiated a joint testing effort 
to establish approval procedures for DFS-enabled unlicensed devices. 
Despite substantial efforts by the Coordinators, there have been many 
setbacks and, to date, there is still no published testing plan for 
unlicensed devices.
    The original date for the submission of a final testing plan for 
devices capable of operating unlicensed in the 5 GHz band was January 
17, 2005. \15\ On February 23, 2005, however, the FCC extended testing 
for the 5 GHz band for one year stating that ``[t]he industry and the 
Federal Government have found the implementation of DFS to be more 
complex than originally envisioned.'' \16\ These delays have been 
caused by the very fundamental problem that ``smart'' technology is 
designed to solve--ensuring that DFS-equipped devices properly 
acknowledge occupied frequencies and do not transmit over them. Initial 
testing conducted by the Coordinators evidenced serious problems. 
Describing the performance of the initial devices the NTIA stated that 
``[o]verall, between all the manufacturers the radar detection 
capabilities of the devices tested were moderate at best and the radar 
detection was highly dependent upon the RF loading of the channel.'' 
\17\ Later tests resulted in the DFS-equipped devices not only 
detecting simulated DOD radar transmissions, but also falsely detecting 
``radar'' transmissions emanating from other low powered unlicensed 
devices. \18\ This oversensitivity resulted in the DFS-equipped devices 
effectively disabling themselves during testing so as not to transmit 
over perceived higher priority signals. Further reports fail to clarify 
whether the Coordinators have been successful making the devices 
sensitive enough to detect radar and other priority transmissions 
without disabling themselves when other negligible radio frequency 
transmissions are detected. The FCC recently extended testing for 
another 180 days on February 16, 2006, stating that the ``Commission, 
[NTIA], and the U-NII [unlicensed] equipment industry are continuing to 
work together to develop test procedures to ensure that DFS adequately 
protects most Federal Government radar systems. . . .'' \19\
    Significantly, this example shows the difficulty of implementing 
``smart'' technology in what should be a relatively easy case--spectrum 
occupied primarily by a single high-powered incumbent. The ``white 
spaces'' present a much more complex problem because there are numerous 
incumbents in the band--both fixed and mobile--with widely divergent 
technical characteristics. An extensive testing effort will be required 
to ensure that unlicensed devices are capable of detecting and 
preventing interference to incumbent users.

VII. Concerns With Proposed Legislation
    In light of these harmful interference issues and the lack of a 
proven technical solution, Shure has several concerns about moving 
forward with ``white spaces'' legislation. It is unclear whether there 
is adequate ``white space'' spectrum to support meaningful broadband 
deployment, particularly in urban areas. It is questionable whether a 
new strong wireless broadband competitor is likely to develop based on 
use of unlicensed spectrum. Finally, if Congress decides to proceed 
with ``white spaces'' legislation, specific amendments to the proposed 
bills are essential to protect existing services.

A. There Is Little ``Open'' Spectrum, Particularly in Urban Areas
    Congress should be wary of claims that large amounts of ``white 
space'' spectrum exist. Shure's professional wireless microphone users 
often have difficulty finding sufficient ``white space'' spectrum for 
large scale productions. Large events like the national political 
conventions or the Super Bowl have 300 or more wireless microphone and 
audio systems in simultaneous operation. These large productions 
already require more ``open'' television spectrum than is currently 
available. In addition, after the DTV transition, wireless microphones 
will have even less spectrum for their operations as they lose access 
to channels 52-69. This will exacerbate the congestion issues wireless 
microphones already experience. If wireless microphones have difficulty 
finding open spectrum for their operations, it calls into question how 
much spectrum will be available for unlicensed devices.
    Moreover, low power television stations and TV translators are 
still in the process of being assigned their DTV channels, which will 
further crowd broadcast ``white spaces.'' Most of these allocations are 
expected to occur in rural areas, reducing the amount of open spectrum 
that will ultimately be available there.
    Finally, Shure notes that spectrum utilization studies can be very 
subjective and may reach widely divergent conclusions regarding the 
amount of open spectrum in any given market. Consumers Union's 
testimony cites large percentages of ``unused'' broadcast spectrum in 
various markets that presumably could be used to support unlicensed 
devices. \20\ A TechWare, Inc. spectrum analysis, however, indicates 
there is substantially less spectrum available. \21\ Congress must 
carefully consider extravagant claims of unused broadcast spectrum.

B. Unlicensed Spectrum Is Not the Best Vehicle to Promote Broadband 
        Deployment
    Shure also questions whether allowing unlicensed devices in the 
``white spaces'' is the best means to meet Congress' goal of increasing 
broadband deployment, especially in light of the widespread 
interference unlicensed devices may cause to existing services. 
Regulating radio frequency bands under a ``commons'' (i.e., unlicensed) 
regime historically results in an inefficient use of spectrum as a 
result of overcrowding and device interference (sometimes referred to 
as ``the tragedy of the commons''). Past attempts to implement such a 
regime demonstrate how the results fall short of new unlicensed users' 
expectations, and foreshadow potential harm to existing licensed users.
    Experience demonstrates that allowing unlicensed access to spectrum 
results in over-crowding and the inevitable demand for more spectrum. 
Congestion at the unlicensed 900 MHz band resulted in the FCC opening 
the 2.4 GHz band for unlicensed use. \22\ Subsequently, crowding and 
interference in the 2.4 GHz band led the FCC to open 300 MHz in the U-
NII 5 GHz band. \23\ The proponents of an unlicensed regime argue that 
technological advances will allow unlicensed devices to share spectrum 
without causing unwanted interference, but current industry reports 
suggest that interference in unlicensed bands remains a problem that 
current and pending technological advances cannot overcome. For 
example, WiFi hotspots in the 2.4 GHz band can cause direct 
interference for other nearby hotspots. \24\ What results is network 
unavailability, reduced network throughput, or occasionally, the 
network user inadvertently jumping between two competing hotspots. \25\ 
These interference issues would be exacerbated in urban areas where 
there are few, if any, ``white spaces,'' and unlicensed devices would 
be forced to share a very small amount of spectrum. \26\
    These lessons of past unlicensed deployments call into question 
whether opening the ``white spaces'' to unlicensed devices will best 
promote broadband penetration. Further, there are no mandatory buildout 
obligations associated with unlicensed spectrum. If ``white spaces'' 
are opened nationwide, what is to keep companies from ``cherry-
picking'' and serving only urban areas? Absent buildout requirements, 
areas which are unattractive economically to serve stand to remain 
unserved, even in an unlicensed regime. Thus, it is uncertain whether 
Congress' goals will be met by pursuing an unlicensed allocation of 
this spectrum.

C. If Proposed Legislation Moves Forward, Important Amendments Are 
        Needed to Protect Incumbent Services
    If Congress concludes to move forward with ``white spaces'' 
legislation notwithstanding these concerns, additional safeguards are 
needed to protect incumbents. Although ``white spaces'' legislation is 
premised on unlicensed devices not causing interference to existing 
broadcast services, \27\ additional protections are necessary to avoid 
the unintended consequence of unlicensed devices causing harmful 
interference to wireless microphones.

1. Wireless Microphones Are an Incumbent Broadcast Service That Is 
        Entitled to Interference Protection
    Both bills propose to protect ``incumbent licensed services'' from 
interference. Pursuant to Part 74 of the FCC's rules, wireless 
microphones are authorized secondary users of the broadcast band. \28\ 
Thus, they are an incumbent licensed service. Shure requests 
clarification that wireless microphones be included as an ``incumbent 
licensed service'' that is entitled to interference protection.
    Further, S. 2332 directs the FCC to establish procedures to address 
complaints of harmful interference from licensed broadcast stations. As 
stated above, wireless microphones constitute licensed broadcast 
stations in the FCC's broadcast auxiliary service. To the extent 
proposed legislation requires the FCC to address interference 
complaints only from certain classes of users, wireless microphone 
users must be entitled to have interference complaints heard at the 
FCC. \29\

2. Unlicensed Devices Must Not Be Permitted Access to the ``White 
        Spaces'' Until There Are Proven Interference Solutions
    Both bills specify a 180-day deadline for the FCC to issue an order 
setting forth rules and procedures to open up the ``white spaces'' to 
unlicensed devices. Shure is concerned that this may be construed not 
only as a deadline for FCC action, but also as the date on which 
unlicensed devices are authorized to begin operations in the ``white 
spaces.'' It is critical that unlicensed devices not be permitted 
access to the ``white spaces'' until interference solutions are proven 
to protect all incumbent services.
    At the hearing, both Senators Stevens and Allen emphasized their 
intent that unlicensed devices access ``white spaces'' on a non-
interference basis to incumbent services. As Shure has emphasized 
throughout this testimony, there are no proven interference solutions. 
Solutions need to be tested and proven effective before the FCC can 
write rules and establish procedures that sufficiently protect 
incumbent services. Until testing is complete and a proven solution is 
developed, it will be impossible for the FCC to define such technical 
parameters. Moreover, given the complex technical issues before 
industry, it will take time to develop and finalize these parameters. 
Thus, the proposed bills should be amended to make clear that any 
deadline is a deadline for FCC action only, and not a date-certain for 
introduction of unlicensed devices to the ``white spaces.'' Further, 
the proposed bills should be amended to make clear that unlicensed 
devices will not be permitted access to the ``white spaces'' until 
technical solutions have been tested and proven effective to prevent 
interference to incumbent services, including wireless microphones.

3. The 180-Day Deadline for FCC Action Is Problematic
    Both bills impose a 180-day deadline for FCC to issue a decision in 
its ``white spaces'' proceeding, ET Docket 04-186. Despite ongoing 
substantial efforts by interested companies, including in the important 
IEEE forum, to date, the 180-day deadline is not realistically 
achievable. Forcing the FCC to issue a decision before it has all the 
necessary technical information will not serve the public interest, 
risks severe interference consequences, and may ultimately slow the 
``white spaces'' proceeding.
    Without adequate, proven technical solutions, it will be impossible 
for the FCC to establish the technical rules for non-interfering 
unlicensed device operation. In light of the severe and widespread 
consequences of interference, technical experts must be afforded 
adequate time to test and prove their solutions effective.
    As a result of the complex and time-consuming technical work still 
to be done, the FCC should be afforded additional time to issue a 
decision in the ``white spaces'' proceeding. It would be reasonable to 
afford the FCC at least 12-18 months to issue an order to ensure that 
the technical issues are fully considered.

4. FCC Must Be Afforded Discretion to Work Out the Technical Details of 
        ``White Spaces'' Operation
    Certain elements of the proposed bills are limiting and may unduly 
restrict the FCC as it considers an order in the ``white spaces'' 
proceeding. The FCC must be afforded discretion to define the technical 
parameters of ``white space'' operation. This discretion must include 
the ability to exclude certain channels in the ``white spaces'' from 
unlicensed devices. For example, public safety entities have advocated 
excluding public safety channels nationwide from unlicensed device 
operation. The current bills do not clearly afford the FCC the 
discretion to meet that request.
    The FCC should also have the discretion whether to adopt specific 
rules regarding interference complaints. As the entity responsible for 
adjudicating such complaints--and given its overall responsibility for 
adjudicating interference complaints between spectrum users generally--
it is best poised to define rules and procedures for interference 
complaints in the context of the ``white spaces.'' The FCC should also 
retain the discretion whether to require certification or some other 
more rigorous process to ensure that unlicensed devices will not cause 
interference to other licensed services.

VIII. Conclusion
    Introducing unlicensed devices to the ``white spaces'' presents 
complex interference issues with widespread and potentially devastating 
consequences for wireless microphones and other services relied upon by 
millions of Americans. Today, these interference issues are unresolved, 
but technical experts are actively seeking solutions. The American 
public deserves proven interference solutions, not theory and 
conjecture. The public interest would not be served by unlicensed 
devices that cause crippling interference to licensed services.
    While the Committee's goal to promote broadband deployment is an 
admirable one, it is critical that unlicensed devices not be allowed 
into the ``white spaces'' until real-world interference solutions are 
tested and proven effective. The key is preventing interference before 
it becomes an issue. It will take time to develop proven interference 
solutions, and the technical experts studying these issues should be 
able to do their job and get the interference solutions right. If a 
proposed solution doesn't work, there is no way to remedy harmful 
interference after-the-fact--the damage is done. Real-world solutions 
are needed before the ``white spaces'' can reasonably be opened to 
unlicensed devices.

ENDNOTES
    \1\ Unlicensed Operation in the TV Broadcast Bands, ET Docket Nos. 
04-186, 02-380, Notice of Proposed Rulemaking (released May 25, 2004) 
(``NPRM'').
    \2\ Indeed, the News, Sports and Entertainment Production Coalition 
stated that millions of Americans have come to rely on the high quality 
production in live news, sporting and entertainment events made 
possible by wireless microphones and described how the viewing public 
would be harmed if wireless microphone operations were impaired. See 
Letter to the Honorable Michael Powell from the News, Sports and 
Entertainment Production Coalition dated March 11, 2005 filed in ET 
Docket No. 04-186. The News, Sports and Entertainment Production 
Coalition includes the news branches of the major networks, the NFL, 
Major League Baseball, the NCAA, ESPN, Shure, and others.
    \3\ Frequency coordination is mandatory for successful operation of 
large numbers of wireless microphones (such as a national political 
convention). If interference problems require even a single frequency 
change during an event, the entire frequency coordination plan may have 
to be re-done. Logistically, this may be impossible during a live 
performance.
    \4\ See Comments of Pappas Telecasting Companies filed in ET Docket 
No. 04-186 on Nov. 30, 2004 at p. 7. See also Martin Statement on NOI 
(``I fear that these unlicensed devices will create additional 
interference problems when digital television gets underway. 
Interference already threatens to impede the introduction of digital 
television.'').
    \5\ Letter to The Honorable Ted Stevens and The Honorable Daniel 
Inouye from David H. Arland et al. dated March 14, 2006 at p. 1 
(``Consumer Electronics Letter''). Consumer electronics manufacturers 
Thomson Inc., LG Electronics USA, Inc. Hitachi Home Electronics 
(America) Inc., TTE Corporation, Samsung Electronics, Panasonic 
Corporation of North America, JVC Americas Corp., and Sony Electronics 
Inc. signed this letter.
    \6\ Id. at 2.
    \7\ Id.
    \8\ See Separate Statement of Commissioner Kevin J. Martin, 
Additional Spectrum for Unlicensed Devices Below 900 MHz and in the 3 
GHz Bands, ET Docket No. 02-380, Notice of Inquiry, rel. Dec. 11, 2002 
at p. 1 (``Martin NOI Statement'') (``I fear that such unlicensed 
devices could interfere with the broadcast stations many rural viewers 
watch and that rural viewers would lose the few broadcast signals upon 
which they rely.'').
    \9\ See Comments of National Translator Association filed in ET 
Docket No. 04-186 on Nov. 30, 2004 at p 2.
    \10\ NPRM, at para. 35.
    \11\ NPRM, at para. 5.
    \12\ The experts at IEEE developed the standards used for operation 
of wireless LANs.
    \13\ The issue of personal/portable unlicensed devices is beyond 
the scope of 802.22. This is because the interference cases presented 
by personal/portable unlicensed devices are even more complex than 
those presented by fixed unlicensed devices.
    \14\ See Revision of Parts 2 and 15 of the Commission's Rules to 
Permit Unlicensed National Information Infrastructure (U-NII) devices 
in the 5 GHz Band, ET Docket No. 03-122, Report and Order, 18 FCC Rcd 
24484 (2003) (``5 GHz Report and Order''). DFS-equipped devices were 
authorized to operate in 255 megahertz of spectrum between 5.470-5.725 
GHz.
    \15\ See 5 GHz Report and Order at p. 59.
    \16\ See Revision of Parts 2 and 15 of the Commission's Rules to 
Permit Unlicensed National Information Infrastructure (U-NII) devices 
in the 5 GHz band, ET Docket No. 03-122, Order, 20 FCC Rcd 4883 at 4 
(2005) (``5 GHz 2005 Delay Order'').
    \17\ See NTIA Institute for Telecommunications Sciences, U.S. 
Department of Commerce, Development of Performance Testing Methods for 
Dynamic Frequency Selection (DFS) 5-GHz Wireless Access Systems (WAS), 
at pp. 1-17 (2005) (``NTIA Test Report'').
    \18\ See NTIA Test Report at pp. 16-18 (2005).
    \19\ See Revision of Parts 2 and 15 of the Commission's Rules to 
Permit Unlicensed National Information Infrastructure (U-NII) devices 
in the 5 GHz band, ET Docket No. 03-122, Order, FCC 06-12 at 3 (2006) 
(``5 GHz 2006 Delay Order'').
    \20\ Testimony of Jeannine Kenney, Consumers Union, before the 
United States Senate Committee on Commerce, Science and Transportation 
Hearing regarding Wireless Communications Issues & Spectrum Management 
Reform, Mar. 14, 2006, at p. 55.
    \21\ See Comments of MSTV, Inc. filed Nov. 30, 2004 in ET Docket 
No. 04-186 at Exhibit A pp. 14-20. The TechWare, Inc. spectrum study 
was commissioned by MSTV and shows virtually no channels available 
along the northeast corridor from Boston to Washington, D.C. Other 
urban areas show similar congestion, including Dallas, Southern 
Florida, San Francisco and Los Angeles.
    \22\ See William J. Baumol, Toward an Evolutionary Regime for 
Spectrum Governance: Licensing or Unrestricted Entry? p. 11 (AEI-
Brookings Joint Center for Regulatory Studies 2005).
    \23\ Id.
    \24\ Id. at p. 10.
    \25\ Id.
    \26\ Moreover, because there are relatively few, if any, channels 
open in the ``white spaces,'' unlicensed networks may have difficulty 
achieving the high data rates possible in spectrum above 1 GHz where 
there is much more bandwidth available for unlicensed applications.
    \27\ Testimony of U.S. Senator Ted Stevens, United States Senate 
Committee on Commerce, Science and Transportation Hearing regarding 
Wireless Communications Issues & Spectrum Management Reform, Mar. 14, 
2006 at p. 1 (``Senator Allen and I have proposed legislation that will 
allow unlicensed wireless devices to provide new services over the 
unused or ``white spaces'' of television broadcast spectrum, so long as 
such devices do not cause harmful interference to TV service.'').
    \28\ 47 CFR Sec. 74.801 et seq.
    \29\ Shure notes that it is very concerned about S. 2332's 
directive to require field verification of interference as part of an 
FCC complaint adjudication. Given the potentially fleeting nature of 
interference, it may be impossible to replicate, and thus, may be 
impossible to get field verification. Lack of field verification should 
not preclude FCC consideration of an interference complaint. A 
preferable approach is for Congress to afford the FCC, as the expert 
agency, the discretion to fashion rules and procedures for interference 
complaints.
                                 ______
                                 
Joint Prepared Statement of Jerry Ellig, Ph.D., Senior Research Fellow/
    Jerry Brito, J.D., Legal Fellow, Mercatus Center, George Mason 
                               University

    Mr. Chairman and Members of the Committee:
    We appreciate the opportunity to enter written testimony into the 
record of the Committee's hearing on spectrum policy reform. We are 
research fellows with the Mercatus Center, a 501(c)(3) research, 
educational, and outreach organization affiliated with George Mason 
University. \1\
---------------------------------------------------------------------------
    \1\ This testimony reflects only the views of its authors and does 
not represent an official position of George Mason University.
---------------------------------------------------------------------------
    As part of the Mercatus Center's ongoing program to assess the 
costs and outcomes associated with regulation, we recently examined the 
costs of major Federal telecommunications regulations. The attached 
paper examines the findings that are most relevant to spectrum policy. 
\2\ Out of all Federal telecommunications regulations, spectrum policy 
has by far the biggest effect on consumer welfare. Additionally, a 
second attached paper explores the efficiency of allocating spectrum 
for use as a ``commons.'' \3\
---------------------------------------------------------------------------
    \2\ Jerry Ellig, The Economic Costs of Spectrum Misallocation: 
Evidence from the United States, presented to the conference on 
Spectrum Policy in Guatemala and Latin America, Universidad Francisco 
Marroquin, Guatemala City, Guatemala, June 9-10, 2005, available at 
http://cadep.ufm.edu.gt/telecom/lecturas/JerryEllig.pdf. The attached 
paper has been retained in Committee files.
    \3\ Jerry Brito, The Spectrum Commons in Theory and Practice, 
Mercatus Center Working Paper in Regulatory Studies, March 2006, 
available at http://www.mercatus.org/pdf/materials/1572.pdf. The 
attached paper has been retained in Committee files.
---------------------------------------------------------------------------
    The costs of the current spectrum policy are large in an absolute 
sense--in the neighborhood of $77 billion or more annually. Spectrum 
allocation is by far the costliest aspect of U.S. Federal 
telecommunications regulation, and it represents a very large share of 
the total. Even if the actual costs of U.S. spectrum allocation policy 
were only one-tenth the size that scholars estimate, they would still 
account for more than 20 percent of the total consumer cost of 
telecommunications regulation.
    During the past two decades, U.S. spectrum policy has gradually 
become more market-oriented. Consumers have reaped significant benefits 
as a result. Nevertheless, current policy still generates large 
inefficiencies by preventing reallocation of spectrum to its most 
highly-valued uses--most likely wireless voice and data communications.
    The costs of current spectrum allocation policy can be expected to 
fall sometime after 2006, if the FCC carries through on its plan to 
auction an additional 90 MHz of spectrum. \4\ However, the multi-
billion dollar cost estimate should only be taken as a rough 
approximation of the negative effects of spectrum allocation policy on 
consumer welfare. A truly market-based approach would allow market 
transactions to allocate spectrum rather than licenses. Potential users 
could buy or lease spectrum, then choose how to use it. The amount of 
spectrum allocated to wireless telephone, broadcasting, broadband, and 
other services would be determined by market transactions and decisions 
of users, rather than regulatory proceedings. As Ronald Coase noted in 
1959,
---------------------------------------------------------------------------
    \4\ ``FCC to Commence Spectrum Auction that will Provide American 
Consumers New Wireless Broadband Services,'' FCC press release (Dec. 
29, 2004), available at http://hraunfoss.fcc.gov/edocs_public/
attachmatch/DOC-255802A1.pdf. The auction cannot occur until June 2006 
because the Commercial Spectrum Enhancement Act of 2004 requires the 
FCC to notify the National Telecommunications and Information 
Administration at least 18 months prior to the auction of any 
frequencies mentioned in the legislation, so that any public sector 
users can be relocated to other spectrum.

        Certainly, it is not clear why we should have to rely on the 
        Federal Communications Commission rather than the ordinary 
        pricing mechanism to determine whether a particular frequency 
        should be used by the police, or for a radiotelephone, or for a 
        taxi service, or for an oil company for geophysical 
        exploration, or by a motion-picture company to keep in touch 
        with its film stars or for a broadcasting station. Indeed, the 
        multiplicity of these varied uses would suggest that the 
        advantages to be derived from relying on the pricing mechanism 
        would be especially great in this case. \5\
---------------------------------------------------------------------------
    \5\ Ronald Coase, ``The Federal Communications Commission,'' 
Journal of Law & Economics 2 (1959): 16.

    A new school of academics and activists, however, has begun to 
challenge the spectrum property model. While they agree with Coase that 
command-and-control spectrum management is highly inefficient, they 
instead propose to make spectrum a ``commons.'' They claim that new 
spectrum sharing technologies allow a virtually unlimited number of 
persons to use the same spectrum without causing each other 
interference and that this eliminates the need for either property 
rights in, or government control of, spectrum.
    Despite the rhetoric, the commons model that has been proposed in 
the legal and popular literature is not an alternative to command-and-
control regulation, but in fact shares many of the same inefficiencies 
of that system. In order for a commons to be viable, someone must 
control the spectrum resource and set orderly sharing rules to govern 
its use. If the government is the controller of the commons--as many 
suggest it should be--then in allocating and managing the commons the 
government will very likely employ its existing inefficient processes.
    Under market-based allocation, the FCC, courts, or another 
government body would still have a significant role in preventing 
signal interference, but they would not decide which bits of spectrum 
could be used for which purposes.
    Given the documented tendency of economic research to under-
estimate ex ante the cost-saving effects of deregulation and 
competition, the actual benefits of market-based spectrum allocation in 
the United States could be truly staggering. We hope these findings and 
the attached papers are useful to the Committee as it weighs various 
spectrum policy options.
                                 ______
                                 
Response to Written Questions Submitted By Hon. John D. Rockefeller IV, 
                         to Catherine W. Seidel

Cellphone Early Termination Fees
    Many of my constituents are concerned about the practices of cell 
phone carriers that won't let them cancel their service without paying 
a termination fee of $175 or $200, even if they can't get a usable 
signal where they live. That makes it more difficult for people to 
switch carriers, which reduces consumer choice and ultimately keeps 
prices high. The Commission receives thousands of complaints on this 
subject every year. And I receive complaints from constituents about 
this. Consumers have banded together in some states (California, 
Florida, Illinois and South Carolina) to challenge this practice as a 
violation of state business law and consumer protection rules. I 
understand that the industry has asked the Commission to rule that 
Federal law preempts all of those challenges.
    I think that this is a clear case where state laws that protect the 
public from unfair business practices should apply.
    Question 1. Can you tell me the status of this proceeding at the 
FCC?
    Answer. The Commission has initiated two proceedings in response to 
petitions for declaratory rulings that Early Termination Fees (ETFs) 
are ``rates charged'' under section 332(c)(3)(A) of the Communications 
Act, as amended. Both proceedings are currently under review. One 
involves litigation filed in South Carolina, see Wireless 
Telecommunications Bureau Seeks Comment on Petition for Declaratory 
Ruling Filed by SunCom, and Opposition and Cross Petition for 
Declaratory Ruling Filed by Debra Edwards, Seeking Determination of 
Whether State Law Claims Regarding Early Termination Fees are Subject 
to Preemption Under 47 U.S.C. Section 332(c)(3)(A), Public Notice, WT 
Docket No. 05-193, DA 05-1390 (rel. May 18, 2005) (SunCom Petition), 
and the other involves a petition filed by CTIA, see Wireless 
Telecommunications Bureau Seeks Comment on Petition for Declaratory 
Ruling Filed by CTIA Regarding Whether Early Termination Fees and 
``Rates Charged'' within 47 U.S.C. Section 332(c)(3)(A), Public Notice, 
WT Docket No. 05-194, DA 05-1389 (rel. May 18, 2005) (CTIA Petition). 
Over 25,000 comments and reply comments have been received by the 
Commission in these proceedings.

    Question 2. I understand that consumers are using state general 
purpose contract law to challenge the legality of these extremely high 
fees. Why would FCC policy preempt state law that is generally 
applicable to all businesses operating in a state? Does this mean that 
the FCC would preempt the right of wireless firms to enforce subscriber 
contracts in state court? Why is it fair to allow the companies to use 
state contract law but not to allow subscribers to use the same law?
    Answer. These questions are raised in both the SunCom petition and 
the CTIA petition. The Commission will consider the arguments in the 
record, analyze the law and FCC precedent, and resolve these issues 
consistent with Section 332(c)(3)(A).

    Question 3. I also understand that the wireless companies are 
arguing that these cancellation fees are actually part of the rate 
structure of the cellphone service. How can a fee that is charged after 
a customer has terminated their service be a fee for that service? That 
doesn't make any sense to me.
    Answer. These questions are raised in the CTIA petition. The 
Commission will consider the arguments in the record, analyze the law 
and FCC precedent, and resolve the issues consistent with Section 
332(c)(3)(A).

    Question 4. I have heard the argument that the cancellation fee is 
meant to pay off the handset, which is generally offered free or at a 
discount along with a one or two year contract. Isn't $175 a little 
high to pay off a $100 handset to begin with? And, even if the handset 
costs $175, if a customer terminates a two-year contract after one 
year, shouldn't the cancellation fee be cut in half?
    Answer. The record in the SunCom and CTIA proceedings indicates 
that the costs of handsets vary, as do ETF charges. The record also 
indicates that the ETF practices of CMRS providers also vary. Most 
carriers charge flat ETFs, but some ETFs are prorated and decline over 
the term of the contract. One CMRS provider charges a flat ETF charge 
in some of its states and a prorated ETF charge in others. The question 
of whether an ETF is a rate charged is raised in both the SunCom and 
CTIA petitions.
                                 ______
                                 
                                             March 14, 2006
Hon. Ted Stevens,
Chairman,

Hon. Daniel K. Inouye,
Co-Chairman,

Senate Committee on Commerce, Science, and Transportation,
Washington, DC.

Dear Chairman Stevens and Co-Chairman Inouye:

    We, the undersigned digital television and set top box 
manufacturers, are writing to express our views on legislation pending 
before the Committee to authorize unlicensed wireless devices to 
utilize vacant television channel frequencies, in so-called ``white 
spaces.'' We ask that our correspondence be made a part of the official 
record of the hearing held by the Senate Committee on Commerce, 
Science, and Transportation on March 14, 2006.
    As manufacturers of digital television receivers and a wide range 
of consumer electronics products, we have a keen interest in this 
issue. On the one hand, we share the enthusiasm of the sponsors and co-
sponsors of S. 2332 and S. 2327 about the potential of unlicensed 
wireless devices to enhance the communications experiences of many 
Americans and to facilitate the more ubiquitous deployment of broadband 
services. On the other hand, as companies that have participated in the 
creation and development of digital television, in some cases for more 
than 20 years, we are absolutely committed to ensuring that American 
consumers will be able to enjoy and benefit fully from the marvels of 
digital television technology which they have been promised by industry 
and the Congress.
    We applaud the Congress for having established a hard deadline of 
February 17, 2009 for the conversion from analog to digital television 
(DTV) transmission and for creating a subsidy program that should 
lighten the burden of making that transition for households dependent 
on free, over-the-air broadcasting to receive their television 
programming. At this critical juncture in the migration to all digital 
television service, extraordinary care must be taken to ensure that 
government action does not inadvertently undermine the digital 
television conversion. The result of the legislative and regulatory 
process must be a win-win situation for both wireless unlicensed device 
operations and digital television service if American consumers are to 
reap the full benefits of our collective technological innovation.
    As a matter of science and engineering, there is no question that 
the potential exists for interference from unlicensed wireless devices 
to the operation of digital television receivers and set top boxes. 
There exists a great deal of uncertainty about the operation of 
unlicensed wireless devices in vacant broadcast television spectrum. As 
a technical matter, we will be operating in uncharted waters. Unduly 
hasty action in establishing the rules and parameters for the operation 
of unlicensed devices could seriously disrupt the digital television 
transition for millions of Americans and taint the roll-out of 
unlicensed devices.
    Accordingly, we believe that any legislation adopted by the 
Congress authorizing the use of ``white spaces'' for operation of 
unlicensed wireless devices must require that such operation not cause 
interference with television signals. Implementation of this non-
interference requirement should require the Commission to make a 
specific finding to that effect, following appropriate testing. The 
burden of meeting the non-interference requirement should rest with the 
proponent of the unlicensed wireless product or technology seeking to 
use this spectrum. Artificial deadlines should not be imposed as they 
create heightened risk of approving unlicensed wireless device 
operation that could cause interference to television signals. Finally, 
as S. 2332 provides, channels 2 through 4 and 37 should not be 
available for unlicensed wireless device operations.
    Notwithstanding the establishment of a hard date to complete the 
DTV transition, much work remains to ensure that our Nation gets it 
right. We accept our responsibility to help educate consumers about the 
transition and to provide them with abundant choices of product 
functionality and affordability. We urge the Congress to do nothing 
that would imperil or disrupt the DTV transition, including by the 
authorization of new services which would cause interference with 
television signals. We look forward to working with the Committee on 
all relevant legislation to complete a smooth and consumer-friendly 
conversion to digital television for all Americans.
        Sincerely,

               David H. Arland, Vice President, Communications and 
        Government Affairs, Thomson Inc.

               John Taylor, Vice President, Public Affairs and 
        Communications, LG Electronics USA, Inc.

               Paul Thomsen, Director, Design, Technology and 
        Standards, Hitachi Home Electronics (America) Inc.

               Richard Dinsmore, Vice President of Marketing, TTE 
        Corporation.

               John Godfrey, Vice President, Government and Public 
        Affairs, Samsung Electronics America, Inc.

               Peter Fannon, Vice President, Technology Policy, 
        Government and Regulation, Panasonic Corporation of North 
        America.

               David Kline, General Manager, Strategic Product 
        Planning, JVC Americas Corp.

               Michael T. Williams, Executive Vice President, General 
        Counsel/Secretary, Sony Electronics Inc.

                                  
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