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

    The radiofrequency spectrum--a natural resource used for wireless
    communications--is a critical input to various commercial and
    government functions. Because of expanding commercial and
    government demand for spectrum, there is increasing debate on how
    best to manage this resource to meet current and future needs.
    GAO was asked to examine whether future spectrum needs can be
    met, given the current regulatory framework; what benefits and
    difficulties have arisen with the application of market
    mechanisms to spectrum management; and what barriers exist to
    reforming spectrum management.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-03-277
        ACCNO:   A06026
      TITLE:     Telecommunications: Comprehensive Review of U.S. Spectrum
    Management with Broad Stakeholder Involvement Is Needed
         DATE:   01/31/2003
      SUBJECT:   Radio frequency allocation
    	     Strategic planning
    	     Telecommunication

    ******************************************************************
    ** This file contains an ASCII representation of the text of a  **
    ** GAO Product.                                                 **
    **                                                              **
    ** No attempt has been made to display graphic images, although **
    ** figure captions are reproduced.  Tables are included, but    **
    ** may not resemble those in the printed version.               **
    **                                                              **
    ** Please see the PDF (Portable Document Format) file, when     **
    ** available, for a complete electronic file of the printed     **
    ** document's contents.                                         **
    **                                                              **
    ******************************************************************
    GAO-03-277

    a

    GAO United States General Accounting Office

    Report to Congressional Requesters

    January 2003 TELECOMMUNICATIONS Comprehensive Review of U. S. Spectrum
    Management with Broad Stakeholder Involvement Is Needed

    GAO- 03- 277

    In the past, the United States relied primarily on a command and control
    approach to spectrum management, wherein the federal government largely
    dictated the use of spectrum. This approach generally met commercial and
    government users* needs for spectrum. However, increased use of commercial
    wireless services, such as mobile telephones, and expanding government
    agency missions have created growing demand for spectrum resources. GAO
    found that concerns exist as to whether the current spectrum- management
    approach can adequately meet future needs for spectrum.

    Spectrum Serves Many Commercial and Government Needs 3kHz 300GHz Submarine
    communication Amateur

    radio Mobile phone Weather

    radar AM radio Military

    tactical radio Satellites Military and commercial

    satellites Marine communication Military

    applications Broadcast

    TV FM radio

    Federal and public safety

    Source: GAO. The United States and most other countries that GAO spoke
    with are incrementally adopting market- based mechanisms for spectrum
    management. By invoking the forces of supply and demand, market- based
    mechanisms can help promote the efficient use of spectrum, especially in
    an environment with increasing and unpredictable demand. A prominent
    example of a market- based mechanism is the requirement for commercial
    spectrum users to bid at auction for the right to use spectrum. However,
    because of mission and system requirements, there is some question as to
    whether these mechanisms can or should be applied to certain government
    functions. Also, legal and technical limitations can, in some instances,
    hinder the application of these mechanisms to commercial users.

    GAO found several barriers to reforming spectrum management in the United
    States. While active dialogue among key stakeholders is ongoing, differing
    priorities have led to little consensus on appropriate reforms. In
    addition, the current spectrum- management structure* with multiple agency
    jurisdictions and a slow decisionmaking process* has hindered
    consideration of whether fundamental reform is needed. In the past,
    commissions* such as the Defense Base Closure and Realignment Commission*
    have been used to look at major policy change when complex problems arise.

    TELECOMMUNICATIONS

    Comprehensive Review of U. S. Spectrum Management with Broad Stakeholder
    Involvement Is Needed

    www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 277 To view the full report,
    including the scope and methodology, click on the link above. For more
    information, contact Peter Guerrero at (202) 512- 2834 or guerrerop@ gao.
    gov. Highlights of GAO- 03- 277, a report to

    Congressional requesters

    January 2003

    The radiofrequency spectrum* a natural resource used for wireless
    communications* is a critical input to various commercial and government
    functions. Because of expanding commercial and

    government demand for spectrum, there is increasing debate on how best to
    manage this resource to meet current and future needs. GAO was asked to
    examine

    whether future spectrum needs can be met, given the current regulatory
    framework; what benefits and difficulties have arisen with the application
    of market

    mechanisms to spectrum management; and what barriers exist to reforming
    spectrum management. GAO recommends that the

    Chairman of FCC and the Assistant Secretary of Commerce for Communications
    and Information, in consultation with other agencies and congressional
    committees,

    develop a plan for the establishment of an independent commission with
    wide representation to determine whether overarching spectrum management
    reform is needed. GAO received comments from FCC and NTIA stating that
    they would

    take this recommendation into consideration. Because the agencies did not
    specifically agree

    to implement our recommendation, we have added a matter for congressional
    consideration regarding the establishment of such an independent
    commission.

    Page i GAO- 03- 277 Telecommunications Letter 1 Results in Brief 3
    Background 6 Concerns Exist That Future Needs for Spectrum Will Be
    Difficult

    to Meet 9 Many Countries Are Adopting Market- Based Mechanisms to Help
    Meet Future Spectrum Needs 20 Market Mechanisms May Not Be Effective in
    All Contexts and May Be Difficult to Implement 29 Diversity of Views among
    Stakeholders and Current Regulatory Structure Are Barriers to Meeting
    Future Spectrum Needs 34 Conclusions 44 Recommendations for Executive
    Action 44 Agency Comments 45 Matter for Congressional Consideration 45
    Appendix I Scope and Methodology 47

    Appendix II Stakeholders* Views on Auctions and Spectrum Royalties 50

    Stakeholders Identified Several Positive Attributes of Auctions 50 Despite
    Success in Wireless Markets, Concerns Have Been Raised about Certain
    Possible Effects of Auctions 50 Few Stakeholders Favor Royalty System of
    Spectrum Auctions 53 Appendix III Technological Advancements Could Help to

    Relieve Spectrum Scarcity 55

    Appendix IV Suggestions for Issues for Consideration by a Commission 57

    Commission Structure Considerations 57 Potential Goals and Objectives of
    Commission 57 Possible Policies to Consider 57 Potential Regulatory
    Structure Options to Explore 58 Lessons Learned 59 Contents

    Page ii GAO- 03- 277 Telecommunications Appendix V More Details on
    Spectrum Management in Foreign

    Countries Studied 60

    Appendix VI Participants in GAO*s Expert Panel on Spectrum Issues 64

    Appendix VII Comments from the Department of Commerce 65

    Appendix VIII Comments from the Federal Communications Commission 67

    Appendix IX Key Contacts and Major Contributors 69 GAO Contacts 69 Staff
    Acknowledgments 69 Tables

    Table 1: Market- Based Mechanisms Adopted by Countries for Both Government
    and Commercial Users 23 Table 2: Market- Based Mechanisms Adopted by
    Countries for

    Commercial Users Only 27 Table 3: Examples of Commissions Examining Major
    Policy Issues 42 Table 4: National Spectrum Regulators 60 Table 5:
    Spectrum- Decision Authority and Techniques for Resolving Disagreements
    Regarding Spectrum Management 61 Table 6: Funding for Relocation 62 Table
    7: Spectrum- Management Reviews 63

    Page iii GAO- 03- 277 Telecommunications Figures

    Figure 1: Number of Mobile Telephone Minutes Used per Month, on Average,
    1996* 2001, in Billions 10 Figure 2: Countries Studied as Part of GAO*s
    Review 22 Abbreviations

    3G third- generation wireless services CSIS Center for Strategic and
    International Studies DOD Department of Defense DOJ Department of Justice
    FAA Federal Aviation Administration FEMA Federal Emergency Management
    Agency FCC Federal Communications Commission IRAC Interdepartment Radio
    Advisory Committee ITU International Telecommunication Union MHz Megahertz
    NTIA National Telecommunications and Information

    Administration

    This is a work of the U. S. Government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. It may contain
    copyrighted graphics, images or other materials. Permission from the
    copyright holder may be necessary should you wish to reproduce copyrighted
    materials separately from GAO*s product.

    Page 1 GAO- 03- 277 Telecommunications January 31, 2003 The Honorable
    Conrad Burns

    The Honorable Ernest F. Hollings The Honorable Daniel K. Inouye The
    Honorable John F. Kerry United States Senate

    The radiofrequency spectrum is a natural resource that is used to provide
    an array of wireless communications services critical to the U. S. economy
    and to a variety of government functions, such as scientific research,
    national defense, homeland security, and other public safety activities.
    As new technologies and services are brought to market in the private
    sector and new mission needs unfold among government users of spectrum,

    nearly all parties are becoming increasingly concerned about the
    availability of spectrum for future needs, because most of the usable
    spectrum in the United States has already been allocated. Along with this
    concern, there is a growing view that current spectrum management in the
    United States may not be able to respond adequately to the rapidly
    changing needs and competing demands of spectrum users.

    To promote a more efficient use of spectrum, many countries, including the
    United States, are incrementally adopting market- oriented approaches to
    spectrum management. Examples of these approaches include requiring
    commercial spectrum users to bid at auction for the right to use spectrum,
    charging spectrum users market- based fees to use spectrum, and allowing

    greater flexibility in how spectrum is used. However, market- oriented
    mechanisms are not universally supported among interested parties. As a
    result, increasing debate is emerging on how best to manage this scarce
    spectrum resource to meet critical commercial and government needs, both
    now and in the future.

    As agreed with your offices, this is our final report in response to your
    request that we study a variety of spectrum- management issues. Our first
    report, released in September 2002, provided an overview of the
    development of the legal and regulatory framework for spectrum management
    at the federal level and assessed key issues associated with Contents
    United States General Accounting Office Washington, DC 20548

    Page 2 GAO- 03- 277 Telecommunications spectrum management at federal
    agencies. 1 That report contained four recommendations: (1) that the
    Chairman of the Federal Communications

    Commission (FCC) and the Secretary of Commerce, who oversees the National
    Telecommunications and Information Administration (NTIA), jointly develop
    a clearly defined national spectrum strategy; (2) that the Secretary of
    State, the Secretary of Commerce, and the Chairman of FCC jointly review
    the adequacy of the preparation process for the 2003 World
    Radiocommunication Conference; (3) that the Secretary of Commerce direct
    NTIA to analyze the human capital needs of federal agencies for spectrum
    management, as well as develop a strategy for addressing any identified
    shortcomings; and (4) that the Secretary of Commerce develop a strategy
    for enhancing its oversight of federal agencies* use of spectrum. FCC,
    NTIA, and the Department of State generally agreed that these

    recommendations should be implemented. This report builds on that effort
    by examining market- oriented approaches to spectrum management and other
    issues. Specifically, this report discusses (1) concerns about whether
    future spectrum needs can be met, given the current regulatory framework;
    (2) the advantages of marketbased mechanisms and how they have been
    applied to help meet future spectrum needs; (3) whether there are
    difficulties with using market- based mechanisms; and (4) if it is found
    that fundamental spectrum reform is needed, whether the current regulatory
    environment is conducive to facilitating such reform. In addition, in
    appendix II we provide information on certain stakeholders* views on
    auctions and spectrum royalties.

    To respond to these objectives, we reviewed a broad array of technical,
    economic, and legal research related to spectrum management. For example,
    we reviewed spectrum- management reports completed by several foreign
    governments. In addition, we interviewed experts on spectrum issues and
    officials from companies and from government agencies, including FCC and
    NTIA. We also conducted semistructured interviews and analyzed the results
    of these interviews with spectrummanagement officials in 12 other
    countries: Australia, Canada, Finland,

    1 See U. S. General Accounting Office, Telecommunications: Better
    Coordination and Enhanced Accountability Needed to Improve Spectrum
    Management, GAO- 02- 906 (Washington, D. C.: Sept. 30, 2002).

    Page 3 GAO- 03- 277 Telecommunications France, Hong Kong, 2 Italy, Japan,
    Mexico, New Zealand, Spain, Sweden, and the United Kingdom. We selected
    these countries based on their

    geographic size, gross national product per capita, population density,
    level of mobile telephone penetration, primary methods for assigning
    spectrum, and whether the country uses market incentives to encourage
    government conservation of spectrum. For Canada and the United Kingdom,
    which have both recently adopted certain market- based mechanisms, we
    conducted more in- depth case studies of spectrummanagement practices,
    interviewing not only spectrum managers but also government users and
    commercial firms. We also surveyed representatives to the Interdepartment
    Radio Advisory Committee (IRAC), which represents 20 federal agencies that
    use spectrum, regarding their spectrum use and their views on certain
    policy issues. Finally, we invited 10 experts

    to participate in an expert panel (see app. VI for a list of panel
    members). These experts participated in a day- long conference at GAO and
    discussed a series of issues on spectrum- management concerns. For more
    detailed information on how we chose the countries we reviewed, the
    panelists we

    invited to serve on the expert panel, and other aspects of our research
    methodology, see appendix I. We conducted our review from January 2002
    through December 2002 in accordance with generally accepted government
    auditing standards.

    Today, there are considerable concerns about whether the current
    regulatory framework will be able to provide future access to spectrum to
    meet the needs of commercial and government users. In the past, commercial
    wireless providers* access to spectrum has accommodated rapid growth and
    competition in wireless markets. Additionally, most of the government
    spectrum users we spoke with and surveyed said they have had access to
    sufficient spectrum to meet the critical mission needs of their agencies.
    Looking to the future, however, commercial wireless markets are expected
    to continue to grow, and new services and technologies may require
    additional spectrum as well. Likewise, the events of September 11, 2001,
    highlighted the importance of wireless

    2 We recognize that Hong Kong is a special administrative region of China.
    However, the structure and policies used to manage spectrum in that region
    are independent of the spectrum policies of mainland China, and thus
    resemble the policies of an individual country. For ease of exposition, we
    will be including Hong Kong when we discuss countries in several places in
    this report. Results in Brief

    Page 4 GAO- 03- 277 Telecommunications communications for homeland
    security and national defense; federal government and public safety users
    have stated that these events

    exacerbated their already growing needs for spectrum. The rapid growth and
    evolution of the wireless sector has led many experts and industry
    participants to question whether a spectrum- management structure that
    relies largely on *command and control* methods* that is, policies wherein
    government largely dictates the use of spectrum* can adequately address
    today*s complex issues. Recently, there have been numerous

    forums, initiatives, and hearings to address spectrum issues. It appears
    that many parties believe there are significant challenges to meeting the
    growing demands for spectrum within the current regulatory framework and
    are seeing spectrum- management reform as essential.

    Spectrum managers as well as many experts we interviewed identified a
    variety of advantages to implementing market mechanisms as part of
    spectrum- management policies. In the past 10* 15 years, the United States
    and several other countries have adopted certain market- based

    mechanisms as part of the spectrum- management structure. These mechanisms
    are generally designed to allow the normal workings of the marketplace*
    that is, the forces of supply and demand that promote economic and
    technical efficiency* to have a greater impact on spectrum decisions than
    was typically the case in the past. In part, the intent of employing these
    policies is to improve the efficiency of spectrum use. Some countries have
    implemented market- based mechanisms for both government and commercial
    users, while others have adopted these tools solely for commercial users.

    While many of the experts we spoke with believe that the adoption of
    market- based mechanisms may help to address future demands for spectrum,
    the application of these methods may not be desirable or effective in
    certain contexts. Charging government users for the spectrum they use
    could, in theory, encourage more efficient use, but because of the

    primacy of certain government functions* such as homeland security and
    national defense* it may not be desirable. Further, some observers believe
    that, in practice, fees charged to government users will not, in all
    cases, be effective in promoting efficiency in spectrum use. One
    difficulty can arise when government use, such as air traffic control, is
    dictated by international spectrum allocations that limit the ability of
    certain government spectrum users to change their spectrum use in response
    to assessed fees. Also, applying a market- based mechanism in the case of
    government services that have no commercial corollary* and therefore no
    observable price* can be difficult. Additionally, some users and experts

    believe that increasing flexibility in commercial spectrum use* a

    Page 5 GAO- 03- 277 Telecommunications commonly discussed market- based
    mechanism that allows spectrum licensees more freedom to change how they
    use their assigned spectrum without administrative approval* will result
    in more radio interference among users. Finally, some experts note that
    market- based mechanisms work only if each user*s *rights* in the use of
    spectrum are clearly defined;

    such definitions may be difficult to establish. Under the current
    framework for managing spectrum, it has been difficult to resolve
    conflicts among existing spectrum users. While various stakeholders have
    been actively searching for ways to improve spectrum management to meet
    future spectrum needs, certain key conflicts among these stakeholders have
    limited their ability to find solutions that are satisfactory to all. For
    example, considerable conflicts exist between incumbent spectrum users and
    potential new commercial providers, and no consensus exists on how best to
    balance the needs of the private sector

    with those of the public sector. While FCC and NTIA have worked to resolve
    issues, at times their resolution of key policy issues has been protracted
    and contentious. Moreover, in the current regulatory environment, no one
    agency has been given ultimate decisionmaking authority over all spectrum
    in the United States or the authority to impose fundamental reform.
    Therefore, FCC and NTIA may not be in the best position to conduct an
    overarching review of spectrum- management structure that would consider a
    full range of possible structural changes. In the past, presidential or
    congressional commissions have been established to find solutions to
    complex problems such as those faced in reforming the spectrum- management
    system in the United States.

    In order to develop solutions to key spectrum- management issues, this
    report recommends that the Chairman of FCC and the Assistant Secretary of
    Commerce for Communications and Information, in consultation with
    officials from the Department of State, Office of Management and Budget,
    Office of Science and Technology Policy, and pertinent congressional
    committees, work together to develop and implement a plan for the
    establishment of a commission that would conduct a comprehensive
    examination of current U. S. spectrum management. This commission would
    examine, among other things, whether structural reform of our current
    system is needed. The commission should be independent and involve all
    relevant stakeholders* including commercial interests,

    government agencies, regulators, and others* to ensure that the diversity
    of views on key spectrum- management issues are represented. The review
    should be time- limited and, if change is needed, should have as its
    primary objective the establishment of a framework to implement that
    change. Although the commission could be established by statute, executive
    order,

    Page 6 GAO- 03- 277 Telecommunications or other means, a statutory basis
    for the commission may provide the most appropriate framework for
    achieving a wide- ranging review of issues that

    may ultimately need legislative solutions. In appendix IV, we have
    presented possible issues and stakeholder concerns that a commission could
    consider as part of its comprehensive examination.

    We provided a draft of this report to FCC, the Department of Commerce, and
    the Department of State for their review and comment. Regarding our
    recommendation for an independent commission to evaluate the need for
    overarching spectrum reform, FCC and the Department of Commerce stated
    that they would take our recommendation into consideration. The Department
    of State did not provide comments on this report.

    Because FCC and the Department of Commerce did not specifically agree to
    implement our recommendation, the Congress may wish to consider taking
    appropriate action to ensure that the question of whether overarching
    spectrum- management reform is needed is fully examined. This could take
    the form of holding hearings or enacting legislation to establish an
    independent commission that would conduct a comprehensive examination of
    current U. S. spectrum management.

    The radiofrequency spectrum is the medium that enables wireless
    communications of all kinds. Although the radio spectrum spans the range
    from 3 kilohertz to 300 gigahertz, 90 percent of its use is concentrated
    in the 1 percent of frequencies that lie below 3.1 gigahertz, 3 because
    these frequencies have properties that make this portion of the spectrum
    well suited for many important wireless technologies.

    Spectrum is used to provide a variety of services in the United States.
    Companies are licensed to provide mobile telephone, paging, broadcast
    television and radio, and various satellite services. Additionally, some
    companies maintain spectrum licenses for a variety of private tasks,
    including communication in a particular location (such as a large
    industrial complex) or among remote vehicles of a company. A variety of
    government users also employ spectrum to provide public safety services
    and other functions of federal, state, and local government agencies. For

    3 Radio waves are a form of electromagnetic radiation that propagate in
    space as the result of particle oscillations. The number of oscillations
    per second is called *frequency,* which is measured in units of hertz. The
    term *kilohertz* refers to thousands of hertz and *gigahertz* to billions
    of hertz. Background

    Page 7 GAO- 03- 277 Telecommunications example, local and state police
    departments, fire departments, and other emergency services use spectrum
    to transmit and receive critical voice

    and data communications. Federal agencies use spectrum for varied mission
    needs, such as law enforcement, weather services, aviation communication,
    and national defense.

    Since the beginning of radio communications, concern about interference
    among users has been a driving force in the management of spectrum at the
    national and international levels. Interference among spectrum users can
    occur when two or more radio signals interact in a manner that disrupts or
    degrades the transmission and reception of messages. Spectrum managers
    have worked to minimize interference through their two primary spectrum-
    management functions, the *allocation* and the *assignment* of radio
    spectrum. 4 The allocation process begins with the International
    Telecommunication

    Union (ITU), a specialized agency of the United Nations, where member
    nations identify spectrum bands for about 40 broad categories of wireless
    services. The Department of State coordinates and mediates the views of
    FCC and NTIA to reach a U. S. position on spectrum issues for
    international discussions. Once spectrum- allocation decisions are made at
    the ITU, regulators within each country will, to varying degrees, follow
    the ITU decisions when allocating spectrum for particular types of radio
    services or classes of users to meet domestic needs. In the United States,
    spectrum allocation is handled primarily by two agencies: FCC* an
    independent agency that regulates spectrum use for nonfederal users,
    including commercial, private, and state and local government users* and
    NTIA, an agency within the Department of Commerce that regulates spectrum
    for federal government users. NTIA works in consultation with IRAC, which
    is composed of representatives from federal agencies, to manage the
    federal spectrum use.

    Once spectrum is allocated for specific uses, the spectrum- management
    agencies assign portions of spectrum to specific users. Spectrum
    assignment has generally been very proscriptive regarding how a specified
    portion of spectrum can be used. That is, generally a license or
    assignment

    specifies the frequencies the license holder may use, the length of time
    the license covers, the geographic areas the license covers, and the
    services 4 Our September 2002 report, GAO- 02- 906, provided an extensive
    discussion of the organization of spectrum management in the United
    States.

    Page 8 GAO- 03- 277 Telecommunications that may be provided. FCC assigns
    licenses for commercial enterprises, state and local governments, and
    others. NTIA makes frequency

    assignments to federal agencies. In addition to licensed uses for
    spectrum, FCC authorizes unlicensed use of spectrum in some frequencies.
    Unlicensed spectrum has traditionally been used for low- powered devices
    that operate in a limited geographic range, such as cordless phones, baby
    monitors, and garage door openers, and it is increasingly being used to
    provide services such as wireless access to the Internet.

    Over the years, FCC has used a variety of methods to assign spectrum for
    commercial users. Sometimes spectrum has been assigned on a first- come,
    first- served basis. When more than one party applies for the same
    license, FCC has used several alternative approaches to assign the
    license. FCC

    historically used comparative hearings, which give competing applicants a
    quasi- judicial forum in which to argue why they should be awarded a
    license instead of other applicants. In 1981, partially in response to the
    administrative burden of the comparative hearing process, the Congress
    authorized the use of lotteries, which allowed FCC to randomly select
    licensees from the qualified applicant pool. 5 In the Omnibus Budget
    Reconciliation Act of 1993, the Congress authorized FCC to use auctions to
    award spectrum licenses for certain wireless communications services.

    Auctions, a market- based mechanism, grant a license to the company that
    has bid the highest price for specific bands of spectrum. Since auctions
    were put into place, FCC has conducted 42 auctions.

    Since nearly all of the usable radio spectrum in the United States has
    been allocated already, accommodating more services and users often
    involves having more than one user sharing spectrum, or reallocations of
    spectrum from one use to another. *Spectrum sharing** one method of

    accommodating more services and users* enables more than one user to
    transmit or receive radio signals on or near the same frequency band.
    Within the United States, about 56 percent of the spectrum is shared by
    federal and nonfederal users, while about 31 percent is designated
    exclusively for nonfederal use and about 14 percent exclusively for use by
    federal agencies. 6 Another method of accommodating new users and

    technologies is *band clearing,* or reclassifying a band of spectrum from
    5 In 1981, Congress added Section 309( i) to the Communications Act to
    give FCC the authority to assign a broad range of licenses by lottery. In
    1997, Congress eliminated FCC*s authority to issue licenses by lotteries,
    with certain exceptions.

    6 NTIA officials told us that, even within the exclusive bands, some
    sharing may take place.

    Page 9 GAO- 03- 277 Telecommunications one set of radio services and users
    to another, which requires moving previously authorized users off of the
    band. Band- clearing decisions that

    affect federal and nonfederal users may require coordination between FCC
    and NTIA to ensure that moving existing users off of a band is technically
    feasible and meets the users* needs. Such moves often involve costs

    because existing users of the band may need to modify or replace existing
    equipment.

    In addition to spectrum- management policies directed at the allocation
    and assignment of spectrum, advances in technology could also help to
    accommodate more services and users. For example, by compressing pieces of
    information, digital technologies are able to use less spectrum than would
    analog technologies to transmit a given amount of spectrum. Also, with
    appropriate technical standards, ultrawideband devices* which use very low
    power over very large bandwidths* can operate using spectrum occupied by
    existing radio services, in some cases, without causing interference. This
    permits scarce spectrum resources to be used more efficiently, as more
    than one service can use the same spectrum. See appendix III for more
    discussion of technological advancements that could help relieve spectrum
    scarcity.

    In the past, the spectrum available to commercial users has accommodated
    rapid growth in wireless telephone markets and supported a competitive
    structure in that market. In addition, many government agencies* spectrum
    managers say that, in the past, government users* needs for spectrum have
    generally been met. However, concerns exist about the ability to meet the
    growing needs of both commercial and government users. In addition, some
    observers are particularly concerned that some spectrum is not currently
    used as efficiently as possible. Many are also concerned that current
    spectrum- management practices, which generally take a command and control
    approach* that is, policies wherein government largely dictates how
    spectrum is used* may not work effectively as spectrum needs rapidly
    change. Key stakeholders are voicing these concerns as they search for
    ways to meet these needs. Concerns Exist That Future Needs for

    Spectrum Will Be Difficult to Meet

    Page 10 GAO- 03- 277 Telecommunications Many industries that rely on
    spectrum to provide services have grown dramatically over the past 20
    years, including mobile telephone service

    and varied satellite- provided services. In particular, the availability
    of spectrum has accommodated the dramatic growth of mobile telephone
    service since it was first launched in the 1980s. Between 1985 and 2001,
    subscribership increased from approximately 340,000 to over 128 million,

    and wireless use (measured in minutes) grew by almost 800 percent between
    1996 and 2001 (fig. 1). This growth resulted from an increase in
    subscribership as well as a marked increase in the average number of
    minutes used by each subscriber. In terms of revenues, the industry has
    also mushroomed: in 1985 annual revenues were $482 million, and by 2001
    annual revenues stood at over $65 billion. Finally, the number of people
    employed in the mobile telephone sector grew from about 3,000 in 1985 to
    over 200,000 by 2001.

    Figure 1: Number of Mobile Telephone Minutes Used per Month, on Average,
    1996* 2001, in Billions

    Spectrum Allocated to the Commercial Sector Has Accommodated Rapid Growth
    and Competitive Structure in Some Wireless Markets

    19 96

    19 97

    1998 19

    99 20

    00 2001 Minutes of use (billions)

    Source: GAO's analysis of Cellular Telecommunications and Internet
    Association's data.

    0 5

    10 15

    20 25

    30 35

    40 45

    Years

    Page 11 GAO- 03- 277 Telecommunications In addition to the rapid growth in
    wireless services, most observers believe that wireless phone markets are
    highly competitive. According to a recent

    FCC report, 7 94 percent of the U. S. population lives in counties with
    access to 3 or more mobile telephone service providers, and 80 percent
    lives in counties with at least 5 providers. 8 Officials from the wireless
    companies we spoke with and participants on our expert panel
    overwhelmingly perceived wireless markets as competitive. Twelve of the 13
    wireless service providers that we interviewed said that mobile markets
    are competitive. Even in rural areas wireless markets appear competitive.
    For example, officials at the 3 rural companies we spoke with reported
    that

    they were among 3 to 6 competitors in the small and rural markets they
    serve. Similarly, all 10 of the participants on our expert panel reported
    that wireless markets are *extremely* or *moderately* competitive.

    A number of policy decisions implemented by the Congress and FCC have
    helped to accommodate the rapid growth and competitiveness of wireless
    markets. In the 1990s, the Congress mandated the transfer of over 200
    megahertz (MHz) of spectrum from government use to nonfederal use. This
    provided additional spectrum for commercial wireless services. Since 1994,
    FCC has conducted 42 auctions for spectrum dedicated to various kinds of
    wireless services. Additionally, FCC*s licensing scheme for mobile
    telephone service helped ensure that many providers were available in each
    market region. In every region, FCC authorized up to eight different
    mobile telephone licenses.

    Our survey of the 20 IRAC agencies asked whether agencies were able to
    meet their critical mission needs, given their current spectrum resources.
    Of the 16 agencies that responded to this question on our survey, 13 said
    that all or most of their critical mission needs were being met; 3
    agencies responded that some critical needs were not being met. Moreover,
    officials at FCC and NTIA stated that spectrum needs of government users
    have generally been met.

    7 See Federal Communications Commission, Seventh Annual CMRS Competition
    Report,

    FCC 02- 179 (Washington, D. C.: July 3, 2002). 8 FCC notes in its Seventh
    Annual CMRS Competition Report that, as a result of treating providers
    that serve any part of a county as if they served the entire county, the
    report likely overstates the number of providers serving consumers in
    various locations. Government Spectrum

    Managers Say Government Users* Needs Have Generally Been Met

    Page 12 GAO- 03- 277 Telecommunications Officials at three of the four
    government agencies we interviewed in greater depth told us that their
    agencies have generally received the

    spectrum necessary to meet their mission needs. Officials at the Federal
    Aviation Administration (FAA) told us that their agency has been able to
    meet aviation requirements with the currently available spectrum.
    Officials at the Department of Defense (DOD) said that their missions had
    not yet been compromised because of a lack of spectrum. 9 The Federal
    Emergency Management Agency (FEMA), which most often uses spectrum
    allocated to the U. S. Army, also told us that it has been able to obtain
    spectrum when needed. 10 The Department of Justice (DOJ), however, stated
    that in just the past few years, as the use of wireless surveillance
    activities has increased, congestion has increased, resulting in increased
    occurrences of interference.

    Agency officials we interviewed noted that they have taken measures to
    achieve mission requirements in the absence of new spectrum assignments.
    For example:

     Officials stated that their agencies share considerable spectrum with
    other federal agencies, as well as with nongovernmental users. FAA
    officials noted that spectrum allocated for certain systems, such as
    radar, is shared among a number of users, including FAA, DOD, the U. S.
    Customs Service, and the National Weather Service; DOJ officials also
    noted that they share spectrum in the government bands and are in the
    design phase of a plan to implement greater sharing with a variety of
    users having similar missions.

     FAA and DOD officials noted that they perform internal audits of
    spectrum use within their agency. FAA told us that the results of these
    internal audits are used to make more efficient use of the available
    spectrum; DOD said that it has relinquished use of underutilized spectrum
    that has been identified during these audits.  All four government
    agencies told us that, when possible, they use

    commercial vendors* who use spectrum assigned for commercial uses* to
    provide nonsafety* related spectrum services, such as mobile telephone
    service.

    9 DOD pointed out that reallocation of spectrum under the Omnibus Budget
    Reconciliation Act of 1993 did not affect bands in which DOD had extensive
    operations. Reallocation of spectrum under Title III of the Balanced
    Budget Act of 1997, which did identify bands in which DOD has operations,
    has not yet taken place.

    10 Since FEMA did not exist when current wideband channels were allotted,
    FEMA*s operational units were transferred to FEMA from the U. S. Army,
    along with the attendant frequencies.

    Page 13 GAO- 03- 277 Telecommunications  Officials at both DOJ and DOD
    told us that they attempt to economize on spectrum use by implementing new
    technologies. DOJ is planning on

    making greater use of trunking technology; 11 DOD is investigating new
    technologies that use spectrum more efficiently, or do not depend on
    spectrum. Commercial users have expressed a need for more spectrum in
    certain

    highly congested areas, as well as to accommodate new services. This
    spectrum is needed to accommodate the expected growth in the demand for
    wireless voice services as well as for additional services that will be
    provided over telephone handsets, including the transfer of data at higher
    speeds than current wireless devices are able to do* so- called
    thirdgeneration wireless services (3G). Also, certain commercial users
    have argued that additional spectrum should be made available for
    unlicensed use by low- powered devices. These users, as well as staff at
    FCC, have

    stated that more spectrum for unlicensed services is particularly helpful
    in trying to bring new technologies, such as local area Internet access,
    to the market. In a recent speech, an FCC Commissioner noted that a
    research study had predicted that 21 million Americans will be using
    wireless local area networks* a service that can be provided without a
    license* by 2007.

    Officials of the United Telecom Council, an organization that helps
    utilities and railroads to manage their spectrum needs, told us that these
    entities also need more spectrum for the wireless communications used by
    their

    maintenance personnel. These officials told us that since 1997, utilities
    have increasingly had to share spectrum assignments with certain other
    users. 12 Moreover, within these arrangements, no limit exists as to the
    number of licenses that can be assigned for use on any particular
    frequency. As a result, they told us, these frequencies are either too
    congested to be used safely or are in imminent threat of such congestion.
    In a recently released report, NTIA stated that the events of September
    11,

    11 Trunking is like a time- share system that allows several users to
    share spectrum. Under a trunking system, several users share a given set
    of frequencies under the assumption that it would be a rare occurrence for
    all users to need the spectrum at the same time. Thus, less

    spectrum can be provided to meet the users* needs than if each were
    assigned discrete sets of frequencies reserved exclusively for its own
    use.

    12 Prior to 1997, utilities and railroads had spectrum allocated
    exclusively for their industries. But in 1997, in an effort to increase
    the efficient use of spectrum, FCC consolidated 20 previously exclusive
    Private Land Mobile Radio services into two pools* the Public Safety Pool
    and the Industrial/ Business Pool. The frequencies within the Industrial/
    Business Pool are specified in 47 CFR S: 90.35 (b)( 3). Commercial and

    Government Users See Future Spectrum Needs Growing

    Page 14 GAO- 03- 277 Telecommunications 2001 have underlined the
    importance of these industries and the roles they play in times of
    disaster response and recovery.

    Officials at most of the federal government agencies we spoke with also
    told us that they face increasing needs for spectrum and are concerned
    that adequate spectrum will not be available in the future. Furthermore,
    of the 17 IRAC members who responded to our survey, 12 believed that their
    spectrum needs would at least moderately increase over the next 2 to 3
    years. Fifteen of the 17 respondents felt that they would have at least
    some difficulty meeting their future critical mission needs because of
    insufficient spectrum, whether or not they were meeting those needs at
    this time.

    Two of the four agencies that we interviewed in depth also revealed an
    expectation of increased spectrum needs. In particular:

     Officials at DOJ believe that they will need access to additional
    spectrum to support homeland security, accommodate increased border
    patrol, and provide for additional surveillance.  Defense spectrum use
    has grown exponentially since Desert Storm in

    1991, according to DOD spectrum managers we interviewed. A DOD official
    testified before the Senate Committee on Commerce, Science, and
    Transportation in June 2002 that DOD*s spectrum usage is projected to

    grow by more than 90 percent by 2005* and this estimate was made prior to
    September 11, 2001. According to DOD officials we interviewed, since
    September 11th, DOD*s spectrum needs have further increased.

    Finally, public safety officials with whom we spoke said they needed
    additional spectrum. In particular, these officials said that small bits
    of spectrum located in various bands have been allocated for public safety
    use, and that some of these slices of spectrum have been allocated very
    close to certain commercial providers. Public safety officials told us
    that this situation has resulted in there being some interference between
    public safety users and commercial vendors, and they noted their continued
    need

    for more contiguous blocks of spectrum to provide critical safety- of-
    life services. 13 13 While a 24 MHz block of spectrum has been allocated
    to public safety users, it is currently occupied by broadcasters, who may
    not vacate that spectrum for some time. For a further

    discussion of the digital television transition see U. S. General
    Accounting Office,

    Telecommunications: Additional Federal Efforts Could Help Advance Digital
    Television Transition, GAO- 03- 7 (Washington, D. C.: November 2002).

    Page 15 GAO- 03- 277 Telecommunications Given the concern about the
    growing need for spectrum, stakeholders are particularly concerned that
    some users may not be applying the most

    spectrally efficient technologies. 14 If that is the case, then spectrum
    scarcity may be exacerbated by this inefficient use. As such, policies to
    promote more spectrally efficient technologies can help to meet future
    spectrum needs by freeing up unneeded spectrum.

    Some observers, including several of our expert panel members, commercial
    users, and regulators we spoke with in certain other countries, expressed
    concern that government users do not have adequate incentives to conserve
    their use of spectrum and therefore may not deploy this valuable resource
    efficiently. NTIA, which manages federal spectrum, is responsible for
    promoting the efficient use of that spectrum to the

    maximum extent feasible. Our September 2002 report noted that it is not
    clear that NTIA is able to ensure that spectrum is being used efficiently.

    NTIA currently charges federal government users a small spectrummanagement
    fee for each frequency assignment the government user holds. However, it
    is not clear how much these fees, which are designed to recover 80 percent
    of the administrative costs in NTIA*s spectrummanagement budget, encourage
    government users to economize on their use of the spectrum. Officials from
    two federal agencies that use spectrum noted that the current charges*
    approximately $55 per assignment* were

    not high enough to cause them to economize on their use of spectrum.
    Recently, NTIA has expressed an interest in examining a fee structure that
    provides a greater incentive to promote efficient use of spectrum than is
    currently being used by NTIA.

    Federal agency officials told us that they have some nonfinancial
    incentives to conserve spectrum. Officials from two of the agencies we
    interviewed reported that because they are unlikely to get substantial new
    spectrum from NTIA, they face internal pressures to conserve and reshuffle
    current spectrum resources to meet new needs. Also, DOD

    14 This discussion focuses primarily on the concept of *technical
    efficiency** that is, getting the most use, or *output,* out of a portion
    of spectrum, given the mission or market context of its use. Other
    important aspects of efficiency are also relevant in spectrum management.
    In particular, economic efficiency relates to whether spectrum is
    allocated across various uses in a way that maximizes society*s welfare.
    In free markets, economic incentives give signals to firms and consumers
    that help to ensure that resources flow to their most valued use. With
    spectrum, this free flow of resources is not fully functional, so the
    question of whether spectrum is allocated in an economically efficient
    manner is also an important focus of analysis. Concerns Exist about

    Inefficient Spectrum Use in the Public and Private Sectors

    Page 16 GAO- 03- 277 Telecommunications officials stated that the
    department*s internal goal of being a responsible steward of America*s
    resources drives it to use spectrum efficiently.

    Agencies we spoke with noted that NTIA requires that federal agencies
    review their assignments every 5 years. However, in our first report,
    released in September 2002, we noted that one agency official said that
    these reviews are often perfunctory, there is no independent verification
    of the reviews, and there is no other evidence that these reviews are
    effective. Those we spoke with for this report did cite other audits of
    spectrum use in the federal government* including spectrum reviews by the
    White House* as incentives to use spectrum efficiently. Finally, NTIA has
    required the adoption of certain technologies* such as narrowbanding 15
    and trunking* that conserve spectrum. However, NTIA officials told us
    that, in practice, it is difficult for NTIA to invoke its enforcement
    authority because its primary enforcement tool is the ability to remove
    frequency assignments from agencies not complying with certain
    requirements. Because license removal is a radical measure that could
    interfere with government agencies* ability to carry out important
    missions, it is difficult for NTIA to use this approach.

    Some of those we spoke with also expressed concern that public safety
    users do not employ the most efficient technologies and are therefore
    wasteful with their spectrum. The head of a commercial wireless
    organization noted that public safety communications equipment is often
    antiquated. One public safety official we interviewed stated that public
    safety officials often do not have adequate funding to update their
    equipment to be more spectrally efficient.

    Concerns also exist that some nongovernmental users do not have incentives
    to be efficient. In August 2001, FCC commenced an audit of private land
    mobile radio stations licensed on frequencies below 512 MHz. These license
    holders included industrial/ business users and public safety users. 16 As
    part of the audit, FCC sent letters to over 260,000 licensees

    seeking information to determine whether they (1) were meeting required
    construction deadlines and (2) were operational. As of October 2002, FCC

    15 Narrowbanding is a technique for reducing the amount of spectrum
    (bandwidth) needed to transmit a radio signal, thereby freeing up spectrum
    to meet future growth. 16 Specifically, these licenses apply to the
    Industrial/ Business Radio Pool (for example, entities engaged in
    commercial activities; operating educational institutions; operating
    hospitals, clinics, or medical associations) and the Public Safety Radio
    Pool (for example, state and local governments, entities providing rescue
    and disaster relief services).

    Page 17 GAO- 03- 277 Telecommunications had received responses from over
    228,000 licensees, and these licensees reported that over 33,000 licenses
    (7.9 percent of licenses) were not being

    used and could be canceled. FCC officials told us that they would like to
    undertake more spectrum audits such as this.

    Additionally, some concerns exist that certain commercial users may not
    employ spectrally efficient technologies. Members of the expert panel and
    government users have stated that they believe the television broadcasting
    industry does not employ spectrally efficient technologies. Several

    stakeholders noted that in part this is attributable to a lack of receiver
    standards. Some expert panel members and some government users also noted
    that mobile satellite services, radio broadcasters, and the mobile
    telephone industry are also not necessarily using the most spectrally
    efficient technologies. 17 For most of the history of wireless
    transmissions, the national governments of the countries we reviewed have
    used centralized

    administrative techniques* often called command and control* to allocate
    and assign spectrum. An important focus of this regulatory approach has
    generally been to minimize interference among users. Using the ITU
    allocation tables as a starting point, individual countries have
    traditionally allocated spectrum for particular uses and assigned spectrum
    to particular users by licensing them to use the spectrum in specific
    ways.

    Until the past 10 to 15 years, when some countries started using auctions
    to assign spectrum, countries throughout the world assigned spectrum on a
    first- come, first- served basis, or used some other administrative device
    (such as comparative hearings) to decide among applicants who wanted the
    same spectrum. In the United States, FCC used comparative hearings and,
    later, used lotteries to assign spectrum to competing commercial carriers.

    One of the benefits of using market forces to allocate and assign spectrum
    resources is that these methods help to ensure that spectrum moves into
    the services that are most highly valued by consumers, as measured by
    their willingness to pay higher prices for those services. When resources
    move to more valued uses, a form of efficiency known as *allocative

    17 FCC officials noted that analog television is being replaced by digital
    television, which is far more efficient, that analog mobile telephone
    service has largely transitioned to digital service, and that, regarding
    mobile satellite services, FCC is in the process of considering rule
    changes to enable these providers to become more efficient. Concerns Exist
    That

    Primary Reliance on Administrative Management May Not Be Effective in
    Today*s Rapidly Changing Environment

    Page 18 GAO- 03- 277 Telecommunications efficiency* is advanced. For
    example, if, because of the development of cable and satellite television,
    broadcast television were to lose viewers

    and its spectrum were to become more valuable for other uses in higher
    demand, such as mobile telephone service, then market forces* that is,
    market mechanisms in spectrum management* would naturally lead to a
    reallocation of some of that spectrum to these other uses. However,

    without market forces helping to direct resources, spectrum managers would
    have to predict the most valued use of the resource in order to make
    decisions designed to allocate spectrum to the services that would best
    serve society*s interests.

    Because of the growing demand for spectrum and the inability to predict
    where technology will lead, spectrum managers in some countries, as well
    as many other interested parties, are questioning the continued
    appropriateness of relying largely on traditional command and control
    methods for allocating and assigning spectrum. In October 2001, FCC*s
    Chairman underlined the need to move away from reliance on command and
    control methods when he stated that it is becoming an *impossible task*
    for government officials to determine the best use for spectrum and to
    repeatedly adjust allocations and assignments of spectrum to accommodate
    new spectrum needs and new services. Similarly, in June 2002, the
    Assistant Secretary of Commerce for Communications and Information at NTIA
    indicated her support of market- oriented approaches for commercial users
    when she stated that NTIA is hoping that FCC will move forward fairly
    rapidly with its efforts to promote secondary markets for spectrum.

    Because stakeholders are concerned that the current system may not be able
    to meet the country*s future needs for spectrum, they have been having
    discussions and looking to find solutions for these concerns. These forums
    and initiatives are indicative of a general sense among many interested
    parties that managing spectrum is difficult, complex, and challenging, and
    that significant reforms to the current processes may be needed. These
    initiatives include a variety of task forces and working groups,
    including:

     FCC: In June 2002, the Spectrum Policy Task Force, composed of senior
    FCC staff, was announced. The task force*s mission was to identify and
    evaluate changes in spectrum policy to increase public benefit. The task

    force released its report in November 2002, with four key recommendations:
    (1) To provide an incentive for spectrum holders to be technically
    innovative and economically efficient, FCC should move Key Stakeholders
    Are

    Discussing Ways to Meet Future Spectrum Needs

    Page 19 GAO- 03- 277 Telecommunications toward more flexible, market-
    oriented policies, which would require FCC to clearly define spectrum
    users* rights and responsibilities. (2) FCC

    should adopt a new standard for judging acceptable interference, to be
    called the *interference temperature.* (3) FCC should increasingly
    consider the dimension of time to make allocation and assignment
    decisions, so that spectrum users could better share unused and underused
    spectrum. (4) FCC should begin basing its spectrum policy on the *commons*
    and exclusive use models rather than on the command and control model,
    except in cases where there is a compelling public interest, such as
    public safety. 18  NTIA: In April 2002, NTIA held a Spectrum Management
    and Policy

    Summit. The purpose of this conference was to discuss how spectrum
    management could be more effective and to find ways of meeting future
    spectrum needs. Additionally, NTIA included in the Department of
    Commerce*s fiscal year 2003 budget a proposal for an NTIA Spectrum
    Management Reform initiative. The fiscal year 2003 appropriation request
    for the program, which is expected to take about nine years to be
    implemented, was $1.425 million. The purpose of this initiative would be
    to review the management processes that are currently being used to
    allocate and distribute spectrum, including those used by NTIA, FCC, and
    the individual federal agencies that manage spectrum.  Public Safety
    Wireless Advisory Committee: This committee, established

    by FCC and NTIA in response to concerns voiced by the Congress that the
    agencies* individual reporting of public safety*s spectrum needs may be
    insufficient, outlined public safety*s spectrum needs through the year
    2010. The committee suggested focusing on obtaining new spectrum
    allocations for public safety, implementing technologies to allow more
    efficient

    spectrum use and sharing, and encouraging public safety users to utilize
    commercial services when possible.  The Center for Strategic and
    International Studies (CSIS): Recognizing

    increasing demands on the spectrum allocation process, CSIS conducted a
    series of roundtable discussions in the past 2 years on spectrum
    allocation and long- term spectrum- management needs and goals for the U.
    S.

    government and economy. In addition, CSIS has convened a Commission on
    Spectrum Management to further examine the issue and expects to release a
    report on spectrum management in mid- 2003. In addition, both the Senate
    and the House of Representatives are looking at ways to better meet future
    spectrum needs. Issues being examined

    18 See FCC*s *Spectrum Policy Task Force Report: ET Docket No. 02- 135,*
    November 2002, for a more in- depth discussion of each recommendation. FCC
    has issued a public notice asking for comments on this report. The comment
    period ended on January 27, 2003.

    Page 20 GAO- 03- 277 Telecommunications include creating funds for
    reallocating spectrum from one use or user to another and setting aside
    unlicensed spectrum for broadband use.

    Hearings have been held to examine the current process and the impact of
    this system on the implementation of 3G technologies* which include
    transferring data at higher speeds than current technologies generally
    permit. Also, a variety of bills introduced in the 107th Congress
    addressed diverse spectrum- related issues. 19 There appears to be general
    agreement among many regulators and

    experts that a more dynamic system for allocating and assigning spectrum
    is needed. To promote the movement of spectrum to those uses where it is
    most highly valued, the United States and some other countries have
    adopted some market- based mechanisms in their management of the spectrum.
    According to spectrum managers we spoke with in various countries, some
    have adopted these mechanisms for both government and commercial users,
    while others have adopted mechanisms only for commercial users. Spectrum
    managers in the remaining countries we studied said that they were not
    using these market- based mechanisms, but some reported that they were
    exploring using these mechanisms.

    While spectrum users have been shielded historically from the normal
    workings of the marketplace, market- based approaches to spectrum
    management invoke mechanisms or policies that leverage the information

    normally available in markets* such as prices of goods or services* to
    promote the efficient use of spectrum. Regulators can implement
    marketbased mechanisms in a variety of ways. They can:

     Create a market where none previously existed. For example, markets for
    spectrum have been created over the past 10 to 15 years by adopting
    auctions as a method for assigning spectrum licenses to mobile telephone
    and other wireless service providers.  Remove or relax rules and
    regulations that created barriers to the full

    functioning of spectrum markets. For example, some countries reported that
    they are considering rules and regulations to permit users to more readily
    purchase or lease spectrum from other license holders, allowing a

    19 Legislation addressing spectrum policy introduced in the 107th Congress
    included S. 2869, H. R. 5638, H. R. 4738, and H. R. 4641. Many Countries
    Are

    Adopting MarketBased Mechanisms to Help Meet Future Spectrum Needs

    Many Countries Identified Advantages to Using Market- Based Mechanisms for
    Spectrum Management

    Page 21 GAO- 03- 277 Telecommunications more robust secondary market. 20
    Similarly, with more flexibility, spectrum licensees can more readily make
    business decisions to change how they

    use their assigned spectrum without having to get regulatory approval.
    Implement a policy that artificially mimics the functions of a market. For

    example, in some countries, regulators have developed fees that are based
    on information about prices for spectrum that would likely exist under a
    free market. These *incentive- based fees* differ from other regulatory
    fees that are assessed only to recover the cost of the government*s

    management of spectrum. Incentive- based fees are designed to promote the
    efficient use of spectrum by compelling spectrum users to recognize the
    value to society of the spectrum that they use. Mechanisms such as these
    might have the most applicability for users that do not function within a
    commercial context.

    According to the spectrum managers in the 13 countries we reviewed (see
    fig. 2), many have adopted a variety of market- based mechanisms including
    auctions and incentive- based fees, more flexible licenses, and secondary
    markets. Managers in many countries told us that they are moving away from
    administrative processes and adopting market- based mechanisms for a
    variety of reasons. Spectrum managers in the countries we studied shared
    their views on the advantages of market- based policies,

    which included their usefulness in  facilitating the reallocation and
    reassignment of spectrum to its most

    efficient use;  allowing the market to handle the assignment and
    allocation of spectrum, which some believe the market can do better than
    managers can;  requiring government agencies to pay market prices for
    spectrum just as

    they do for other resources, such as land and electricity; and
    addressing the challenges of spectrum management under conditions of
    increasing demand and rising unpredictability of new opportunities for
    using spectrum. 20 In its current Notice of Proposed Rulemaking and its
    Policy Statement on Secondary

    Markets, issued concurrently, FCC established guiding principles for the
    development of secondary markets. Their goals include the establishment of
    clear definitions of spectrum usage rights for assignees and the ability
    of assignees to be able to easily transfer, aggregate, and divide their
    licenses and spectrum usage rights. The countries we studied have followed
    these principles to varying degrees.

    Page 22 GAO- 03- 277 Telecommunications Figure 2: Countries Studied as
    Part of GAO*s Review

    According to spectrum managers in Australia, Canada, 21 and the United
    Kingdom, these countries have adopted market- based mechanisms as part of
    their spectrum- management approaches for both government and commercial
    users. As table 1 shows, in addition to holding auctions, these countries
    have instituted incentive- based pricing* which is designed specifically
    to provide an incentive to conserve on spectrum* for commercial and
    government spectrum. These countries have also introduced greater
    flexibility and secondary markets for spectrum holders. Of these three
    countries, Australia was the first to institute market

    21 While Canada*s fees do not attempt to closely mimic a market, we define
    these as marketoriented because the fees are set using certain *market
    indicators* and are set to recoup more than the cost of administering the
    licenses. Some Countries Have

    Adopted Market- Based Mechanisms for Government and Commercial Users

    Some Countries Have Adopted Market- Based Mechanisms for Government and
    Commercial Users

    Australia Finland Finland

    New Zealand Italy

    Sweden France

    United Kingdom

    Spain

    Source: (c) 1998 Cartesia MapArt.

    Mexico Canada

    United States

    Japan Hong Kong, China

    Page 23 GAO- 03- 277 Telecommunications mechanisms, adopting auctions in
    1994 and incentive- based pricing in the early 1980s. Canada and the
    United Kingdom started using auctions at a

    later time* in 1999 and 2000, respectively. With regard to incentive-
    based pricing, Canada has been using this mechanism since the late 1980s
    and the United Kingdom since 1998. See appendix V for more information on
    spectrum management in all of the countries we reviewed.

    Table 1: Market- Based Mechanisms Adopted by Countries for Both Government
    and Commercial Users Countries Details on the Use of Market- Based
    Mechanisms Australia Canada United Kingdom

    Auctions (for commercial users only) Year of first auction or tender a
    1994 1999 2000 Number of auctions or tenders to date 18 2 2

    Incentive- based pricing (for commercial and government users) Time when
    country instituted pricing Early 1980s Late 1980s 1998

    Revenue from spectrum fees as a percentage of management costs b 400% 500%
    130%

    Flexibility and secondary markets (for commercial users only) Degree to
    which spectrum licensees have

    flexibility in terms of how they use licensed spectrum without regulatory
    approval

    Some licenses have flexibility regarding which technologies can be used
    with the spectrum.

    Licenses acquired in auctions have more flexibility in use of the
    spectrum.

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

    Degree to which spectrum licenses can be traded in secondary markets
    without regulatory approval

    All licenses have clearly defined rights and are tradable without
    regulatory approval.

    Some licenses have clearly defined rights and are tradable without
    regulatory approval.

    Licenses cannot be easily traded.

    Source: Spectrum managers interviewed in each country. Note: GAO*s
    analysis of information elicited from interviews with spectrum managers. a
    The term *tender* can have different meanings with regard to spectrum
    management. For our

    purposes, tender refers to a simple form of auction in which participants
    bid a price they are willing to pay for a spectrum license. b If this
    ratio is 100, it means that spectrum fees are covering only the
    administrative costs of spectrum management. The percentages do not
    include auction revenues.

    The incentive- based pricing systems in these countries were designed to
    encourage government spectrum users to recognize the market value of the
    spectrum they use. 22 Although officials told us that these fees have been
    successful in providing incentives for government agencies to use

    22 These countries are also imposing incentive- based pricing for some
    commercial uses.

    Page 24 GAO- 03- 277 Telecommunications spectrum efficiently, part of that
    success was attributed to other factors. In particular, political
    pressures and budgetary policies were key to

    helping promote efficient spectrum use.  In Australia, the fees paid by
    government and nongovernmental users

    (including the military) are based on a formula that includes factors such
    as the demand for frequency, amount of spectrum assigned, geographic
    location, and power of transmission. Australian officials report that
    government users appear to be able to fulfill their missions despite
    having to pay for spectrum. When asked to explain the mechanism by which
    these fees provide an incentive for government users to conserve on
    spectrum, the spectrum manager we spoke with told us that the impact in
    Australia is

    largely the result of synergy between the spectrum fees and declining
    government agency budgets. Since the 1970s, budgets have been constrained
    because of the government*s attempt to recover some of the benefits of the
    gains in efficiency arising from various government management reforms.
    The official we spoke with believes that this budgetary pressure, combined
    with more appropriate pricing of spectrum licenses, leads government users
    to be more efficient with their spectrum. This greater efficiency may
    manifest itself in government users*

    relinquishing spectrum that they do not currently need.  Spectrum
    managers in Canada reported that they charge incentive- based

    fees for most uses of spectrum, including many government uses. Although
    the fees are currently based on the amount of equipment in use, Canada is
    considering changing its fee structure to be based more on other factors
    such as bandwidth, geography, and the degree to which spectrum is shared.
    Spectrum managers in Canada reported that the fees have

    helped some government agencies to use spectrum more efficiently and that
    a number of licenses have been returned as a result of the fees. They
    reported that some of these results might also have come about because of
    their close working relationship with licensees.  The United Kingdom
    developed an approach for determining spectrum fees for all users, except
    those who had purchased their spectrum at auction and certain providers of
    exempted services (such as certain military functions). The approach
    considers alternative means to provide a service that is currently being
    provided with certain assigned spectrum. Then, an evaluation is made of
    how that service could be provided by

    using alternative spectrum, or without any spectrum at all, if possible. A
    key evaluation is made of the difference in cost between the current means
    of providing the service and the next best means. Adjusted for certain
    other factors, this difference represents the *opportunity cost* of the
    spectrum to the user* that is, the value of the spectrum to that user. As
    such, this dollar value is the basis for the incentive- based portion of
    the fee the user must pay. Officials in the United Kingdom believe that

    Page 25 GAO- 03- 277 Telecommunications spectrum fees are working to
    improve the efficiency of government spectrum use because agencies are
    generally facing budgetary restrictions

    and therefore cannot easily finance spectrum fees through the budgetary
    process. 23 For commercial users, these countries are working to provide
    more

    flexibility in licensing and to establish or improve secondary markets for
    spectrum.  In Australia, licenses may be traded, sold, or sublet. 24 Some
    of these can

    also be traded, sold, or sublet in portions based on geography, time, or
    bandwidth. Australian spectrum managers have not been satisfied with the
    speed of development of secondary markets in that country, however, and
    spectrum managers are considering measures to stimulate these markets.
    Payments among users are also allowed as part of the spectrum- clearing
    process. Although government funding for moving incumbent spectrum holders
    to alternative spectrum is not provided, new spectrum licensees are
    allowed to pay incumbent license holders to induce more rapid clearing of
    spectrum.  In Canada, licenses acquired through auctions have greater
    flexibility of

    use than those acquired in other ways, which enables spectrum licensees to
    more freely decide to modify how they use their assigned spectrum. For
    example, licenses gained through the auction process have a broader class
    of services that can be provided with the spectrum than licenses gained
    through other assignment mechanisms. According to officials there, Canada
    is planning to extend this flexibility to spectrum obtained in comparative
    hearings as well. Although holders of auction- based licenses can also
    participate in the secondary market, officials report that secondary
    markets are not well developed.  The United Kingdom is in the process of
    increasing the flexibility allowed

    by its spectrum licenses. Its recent major review of spectrum management
    recommends allowing more flexibility in the services that spectrum users
    can provide and the technologies they use. The United Kingdom is planning
    to issue future licenses with as much flexibility as possible, while
    recognizing that international coordination and interference management

    23 In March 2002, the United Kingdom released the results of its
    independent review of spectrum management. 24 Only one type of license, a
    class license, cannot be traded, sold, or sublet. Although class licenses
    are referred to as licenses in Australia, they are actually open, standing
    authorities

    that allow anyone to operate certain low- power devices, similar to
    unlicensed spectrum in the United States. Device users do not have to
    apply for a class license and do not pay a fee.

    Page 26 GAO- 03- 277 Telecommunications may sometimes limit flexibility.
    The United Kingdom also sees the development of a robust secondary market
    as a valuable tool for ensuring

    that spectrum flows to its most valued use. 25 According to the spectrum
    managers we spoke with in each country, the United States, New Zealand,
    Mexico, Italy, and Hong Kong have adopted market- based mechanisms for the
    commercial sector only (see table 2). For various reasons, these countries
    do not charge government users more than cost recovery for their use of
    the spectrum. In the United States, NTIA and FCC do not have the authority
    to impose fees that exceed the costs of spectrum management. Similarly,
    managers in Italy are currently prohibited from charging fees above a
    cost- recovery level. 26 Officials in

    New Zealand reported that they had considered charging government users an
    incentive- based value for spectrum, but decided against it because they
    were concerned that determining the value of spectrum not bought and sold
    in a commercial market would be too difficult.

    25 No European Union member states use secondary markets because, prior to
    2003, the European Commission prohibited their use. Since this prohibition
    will be phased out by July 2003, some of these countries are thinking
    about implementing secondary trading of spectrum licenses.

    26 Managers in Italy report that the law may soon be changed to allow for
    spectrum holders to be charged a fee to account for the scarcity of
    resources, thus allowing them to recover costs greater than the cost of
    administering the spectrum. United States and Certain Other Countries Have

    Adopted Some MarketBased Mechanisms for Commercial Users Only

    Page 27 GAO- 03- 277 Telecommunications Table 2: Market- Based Mechanisms
    Adopted by Countries for Commercial Users Only Countries

    Details on the Use of Market- Based Mechanisms New Zealand United States
    Mexico Italy Hong Kong, China Auctions Year of first auction or

    tender 1989 1994 1996 2000 2001 Number of auctions or tenders to date 12
    42 17 2 1

    Flexibility and secondary markets Degree to which spectrum licensees have
    flexibility in terms of how they use licensed spectrum without regulatory
    approval

    Many licenses have flexibility in use of the spectrum.

    Some licenses have more flexibility in use of the spectrum.

    Some licenses have more flexibility in use of

    the spectrum. Licenses are

    restricted to use specified at the time spectrum was

    obtained. Licenses are

    restricted to use specified at the time spectrum was obtained.

    Degree to which spectrum licenses can be traded in secondary markets
    without regulatory approval

    Many licenses have clearly defined rights and are tradable without
    regulatory approval.

    Licenses cannot be easily traded. Licenses cannot be

    easily traded. Licenses cannot be easily traded a Licenses cannot be

    easily traded. Source: Spectrum managers interviewed in each country.
    Note: GAO analyzed information elicited from interviews with spectrum
    managers. a Italy recently approved a law that allows the trading of
    certain broadcasting frequencies, with the

    requirement that they are used exclusively for experimentation with
    terrestrial digital video broadcasting.

    The United States has used auctions since 1994, shortly after
    congressional legislation first authorized auctions to be used for
    commercial spectrum assignment. FCC has also adopted rules that afford
    companies more flexibility regarding various license provisions* such as
    the technologies that a company may use or the services that it may
    provide with its licensed spectrum. FCC plans to increase the flexibility
    of its licenses, and it is considering liberalizing the right to engage in
    secondary markets. In recent congressional testimony, an FCC official
    noted that flexible spectrum rules, which allow companies to respond to
    market conditions without government intervention, are essential in
    today*s dynamic world of wireless communications. With regard to secondary
    market activity, spectrum trades in the United States generally require
    regulatory approval from FCC. Despite this requirement, a majority

    of companies we spoke with in the United States have either purchased
    spectrum licenses from another company or traded spectrum licenses with

    Page 28 GAO- 03- 277 Telecommunications another company. FCC has an
    ongoing proceeding looking at ways to encourage the growth of secondary
    markets. For example, FCC is seeking

    to institute policies that would allow commercial users to sublease slices
    of spectrum covered by a license for variable lengths of time.

    With regard to the use of market- based mechanisms for commercial users in
    other countries, spectrum managers told us the following:  New Zealand
    was the first country to implement a market- based

    mechanism to assign spectrum. Today, New Zealand assigns *management
    rights* to some spectrum it auctions. A winner of such a license is
    allowed to assign the spectrum in various configurations to itself or
    others. As such, auction winners essentially have a profit motive that
    gives them an incentive to assign spectrum to its most valued use.
    Although licenses are tradable in New Zealand without regulatory approval,
    spectrum managers reported that because there is not a scarcity of
    spectrum in that country, there is very little market activity.  More
    recently, Italy has begun to use auctions to assign spectrum, but as

    with many other European countries subject to certain restrictions on the
    regulation of spectrum under European Commission law, Italy is moving more
    slowly than Canada, Australia, and New Zealand to adopt certain market
    mechanisms. At this time, Italy issues very restricted licenses and has a
    very limited secondary market for spectrum.  Spectrum managers in Hong
    Kong reported that they assigned spectrum for 3G services in 2001 using a
    royalty- based auction, which is unique

    among the countries we reviewed. Unlike most auctions in other countries
    in which participants bid the total fixed cash price they are willing to
    pay for spectrum, bidders in Hong Kong bid on the percentage of future
    revenues* that is, a royalty rate* that they would pay to the government
    on an ongoing basis. Officials in Hong Kong told us that they chose the
    royalty method so that the government could share some of the risk
    inherent in paying for spectrum in future years. They explained that the
    risk exists because 3G services are new and their full potential cannot be
    estimated accurately. They also reported that they were concerned that

    requiring companies to spend large amounts of capital in a cash auction
    requiring an up- front payment for spectrum would result in too large a
    financial burden for potential bidders, who also require capital to roll
    out their networks. Spectrum managers told us that the royalty auction
    resulted in four incumbent providers of traditional wireless services
    offering the minimum bid allowable (5 percent of revenue) for the four

    Page 29 GAO- 03- 277 Telecommunications licenses to provide advanced
    wireless services. 27 We further discuss Hong Kong*s use of royalty
    auctions in appendix II.

    Spectrum managers from five of the countries in our study* Japan, France,
    Finland, Spain, 28 and Sweden* reported that they have not used mechanisms
    that we have defined as being market- based in managing their spectrum.
    Some of these countries, however, reported that they are considering
    changing laws and regulations in the future to encourage more efficiency.
    France, which imposes a large fee to participate in comparative hearings,
    reported that it has legislation pending to require most users* including
    government users but not broadcasters* to pay for spectrum. Similarly,
    managers from Finland reported that they are currently reviewing their
    policies to extend spectrum fees to more users. Finally, Sweden reported
    that a committee has proposed changes to Swedish law to allow greater use
    of market- based mechanisms.

    While a move to market- based mechanisms could help to meet future
    spectrum needs by encouraging users to better utilize spectrum, these
    mechanisms may not be effective in some contexts and may be difficult to
    implement. In particular, the context in which certain government users

    function may not be conducive to the influence of market- based
    mechanisms. For commercial users, implementing market- based mechanisms
    may heighten concerns about interference among users. Moreover, market-
    based mechanisms can work well only when license holders have clearly
    defined *rights* regarding their use of spectrum. 27 For the first 5 years
    after the auction, licensees are required to make the minimum

    payment of 50 million Hong Kong dollars per year. After that, they must
    begin making the royalty payments.

    28 On at least one occasion, Spain has considered financial criteria in
    the process of awarding spectrum licenses. Several Countries Have

    Not Adopted Market- Based Mechanisms at This Time, but Some May in the
    Future

    Market Mechanisms May Not Be Effective in All Contexts and May Be
    Difficult to Implement

    Page 30 GAO- 03- 277 Telecommunications Greater reliance on market- based
    mechanisms may not be desirable or effective for some government users or
    uses. The purpose of market- based

    mechanisms is to provide users with an incentive to use spectrum as
    efficiently as possible. This may result in users* considering alternative
    methods of providing services by adopting technologies that either (1) use
    less spectrum, (2) use less congested parts of the spectrum, or (3) do not
    require spectrum at all. Because of the primacy of certain government
    functions* such as homeland security and national defense* charging
    government users for these functions may not be desirable. In addition, if
    particular users are unable to adopt any alternative method in a
    reasonable time frame, market- based mechanisms, such as incentivebased
    spectrum fees, are not likely to result in reduced spectrum use. In other
    words, market- based mechanisms can create an incentive for spectrum
    conservation only if users can actually choose to undertake an alternative
    means of providing a service. Government users provided

    several examples of circumstances in which market- based fees might not
    provide incentives:

     Spectrum used for certain functions, such as air traffic control, has
    been allocated internationally* the same bands of spectrum are allocated
    for this service around the world. The benefit of this in the context of
    air traffic control is that airplanes on international flights can use the
    same radio equipment and systems in every country, making air travel safer
    and less costly than it would be if countries provided services on
    different bands. If FAA wanted to use bands that are different from those
    allocated in these international agreements, airplanes from the United
    States that are making international flights would require multiple
    communications

    systems and procedures, which would impose considerable additional costs
    on carriers. In fact, the United Kingdom charges government users
    incentive- based fees but exempts spectrum used for air traffic control
    from these fees.  It may also be inappropriate to apply market- based
    mechanisms for

    defense systems that involve international agreements. For example, the
    United Kingdom does not charge the Ministry of Defence for spectrum
    identified for North Atlantic Treaty Organization use. In addition, DOD
    has publicly stated that the ability to operate certain systems depends on
    international agreements with other countries that allow DOD to use
    certain frequencies within other countries* borders. DOD officials note
    that it is important for DOD to employ the same systems, and thus the same
    portions of spectrum, inside the United States as it does overseas. DOD
    officials said that it would be very difficult to renegotiate these
    arrangements in response to spectrum reallocations, or to the
    implementation of incentive- based fees for spectrum in the United States.
    Greater Reliance on Market- Based Mechanisms

    for Government Users May Be Undesirable, Ineffective, or Difficult to
    Implement in Some Circumstances

    Page 31 GAO- 03- 277 Telecommunications  Many government defense systems
    that use spectrum* such as large weapons systems, or satellite systems*
    not only involve complex

    international agreements, but are also large and complex from an
    engineering perspective. These systems usually require years of
    development, and spectrum may be only a small part of the total resources
    used by a given system. Thus, once a system is designed and operational,
    any benefits of conserving spectrum by redesigning these systems are
    likely to be outweighed by the costs of making such modifications.
    Consequently, imposing an incentive- based fee for spectrum employed in
    projects with a long time horizon may not result in spectrum conservation.

    In some cases, charging government users a market- based fee for spectrum
    may have the potential to make spectrum use more efficient, such as in
    situations where a government user is providing a service similar to that
    of a commercial vendor. Nevertheless, implementing market- based
    incentives may still be challenging, for several reasons:

     It is difficult to place prices on goods and services that are not
    traded in the marketplace. For commercial users, spectrum prices are
    reflective of the value of the services provided with that spectrum, as
    measured, in

    part, by what consumers will pay for the service. Some government services
    are unique and provide safety- of- life or national defense services. For
    example, FAA*s air traffic control services and DOD*s precision weapons*
    guidance systems rely on spectrum, yet there are no equivalent commercial
    services. Government spectrum users have said that services without a
    direct commercial corollary cannot be easily valued. One government
    representative noted that the value to the nation of spectrum allocated to
    government services is difficult to measure through market

    mechanisms.  If government users can obtain any needed funding for
    spectrum fees

    through the budgetary process, market- based incentives are not likely to
    be effective in conserving spectrum. Two of the three countries that
    believed that their incentive- based pricing systems were providing some
    financial incentives for government users to conserve on spectrum

    reported that one factor contributing to this conservation was a
    requirement for agencies to reduce their overall budgets while paying for
    spectrum. Thus, agencies could not easily finance the increased cost of
    spectrum through the budgetary process. In the United States, most of the
    limits or caps on discretionary spending contained in the Budget
    Enforcement Act of 1990 expired in fiscal year 2002. These limits or caps
    would have constrained discretionary spending, including amounts available
    for using the spectrum, if government users were charged for that use.

    Page 32 GAO- 03- 277 Telecommunications  In the commercial sector, the
    profit motive typically provides an incentive for individuals and
    companies to use spectrum efficiently. Government

    users do not have a similar financial incentive to conserve on spectrum,
    because spectrum efficiency is not directly rewarded within government
    agencies. Thus, imposing fees may create some pressure, but does not mimic
    a profit motive. Linking spectrum- efficient decisions to performance
    contracts and individual awards could create greater individual efforts to
    make such decisions.

    Another impediment to implementing market- based incentives for government
    users may be the views of those users. Our survey of IRAC agencies found
    that 7 of the 17 agencies responding to this survey did not support
    greater flexibility of use for government spectrum users, 13 did not
    support the practice of allowing agencies to buy or sell spectrum, 12 were
    opposed to allowing agencies to lease spectrum, and 13 were opposed to
    paying fees for spectrum that exceeded regulatory costs. However, 9
    agencies were *greatly* or *moderately* supportive of allowing commercial
    users to pay government license holders to relocate to alternative
    spectrum, and 11 greatly/ moderately supported creating a trust fund to
    pay for spectrum reallocation. Despite the potential benefits of adopting
    market- based mechanisms for

    spectrum management, some impediments have limited the implementation of
    these methods for commercial users. Even though both FCC and NTIA support
    the use of market- based mechanisms for commercial users, FCC*s
    implementation of these tools has been limited. Impediments to more
    widespread implementation of market- based mechanisms* such as auctions,
    secondary markets, and flexibility of use* include statutory restrictions,
    the degree to which the most highlyvalued spectrum is already assigned,
    and the sometimes conflicting interests of commercial entities.

    Auctions: FCC has auctioned off only a limited amount of the spectrum it
    oversees. Because most of the spectrum is already assigned, the amount of
    spectrum that could be auctioned without reallocating spectrum is quite

    limited. Also, FCC has attempted to auction additional spectrum by
    relocating some users to other parts of the spectrum. Relocation can
    impose significant costs on the incumbent spectrum holder and sometimes

    on the new entrant who may be required to fund the relocation. In
    addition, FCC officials told us that there are statutory limits to their
    ability to use auctions. Impediments Have Limited

    Implementation of MarketBased Mechanisms for Commercial Users

    Page 33 GAO- 03- 277 Telecommunications Secondary markets: Further
    implementation of secondary markets in the United States will require that
    the rights of licensees with regard to their

    assigned spectrum be more clearly specified. In other resource markets*
    such as those for land* commercial entities usually have the right,
    without regulatory approval, to buy or sell the resource, or to lease the
    resource from another entity that owns it. Although the Communications Act
    of 1934 prohibits the ownership of spectrum, companies have generally been
    able to buy and sell spectrum licenses with FCC*s approval. However,

    according to an FCC official, it is unclear at this time whether, in
    general, license holders can legally lease all or part of their spectrum
    rights to other users for some limited period of time. The opposition of
    some stakeholders, who are concerned that conferring any specific spectrum
    rights will make it more difficult to release spectrum for new services
    and technologies that might develop in the future, further complicates
    providing rights to spectrum users. For over 2 years, FCC has been
    considering these issues under a Notice of Proposed Rulemaking on
    secondary markets and hopes to resolve some of these issues shortly.

    Flexibility of use: Granting greater flexibility in the use of spectrum
    would enable license holders to behave like other resource owners in
    having the opportunity to make economic decisions that put their resource
    to its most highly valued use. Although FCC is examining ways to improve
    access to spectrum by providing additional flexibility, an FCC official
    told us that only a small portion of the spectrum it assigns is held under
    licenses that allow for considerable flexibility of use. FCC*s ability to
    introduce additional flexibility has been limited because most of the
    desirable spectrum has already been assigned, making it more difficult to
    change the rules embodied in these licenses. Moreover, there are
    considerable disagreements among commercial users over the appropriate
    degree of flexibility. In particular, some interested parties are
    concerned that allowing greater flexibility could result in more
    interference among users. In its report, the FCC Spectrum Policy Task
    Force made a number of recommendations for handling this potential
    interference, including the

    promotion of receiver requirements and creation of a new standard for
    quantifying acceptable levels of interference, the *interference
    temperature.*

    Page 34 GAO- 03- 277 Telecommunications While a number of discussions and
    activities are under way to help ensure that future spectrum needs can be
    met, stakeholders appear to be having difficulty finding consensus that
    balances the needs of various interest

    groups. Regulatory actions aimed at providing solutions are often
    protracted. Moreover, because of the bifurcated regulatory structure in
    the United States, an examination of whether an overarching redesign of
    spectrum management is required may best be undertaken by an entity
    independent of the two regulatory agencies currently involved. In the
    past,

    Presidents and the Congress have appointed bipartisan commissions to
    address difficult policy issues such as this.

    Stakeholders have been actively searching for ways to improve spectrum
    management and, thus, to alleviate concerns about meeting future spectrum
    needs. However, certain conflicts among the stakeholders make it difficult
    to find workable solutions that balance the needs of various spectrum
    users. Many conflicts arise because of divergent economic interests among
    users. For example:  Concerns about the cost of reallocation. Incumbent
    users are often

    opposed to relocations of current users to new bands, because such moves
    are likely to require the purchase of new equipment and may thus impose
    significant costs and disruption on incumbents* although some of this cost
    may be shared with the firms receiving licenses to use the cleared
    spectrum. But firms with new services view reallocations as being
    essential for bringing the benefits of wireless services, including
    Internet services, to the American public.  Concerns about interference.
    Many conflicts with regard to spectrum decisions arise over concerns about
    interference. A good example of this

    concern arises with regard to unlicensed spectrum users. Many licensed
    spectrum users, both commercial and government, have expressed concern
    that allowing certain unlicensed uses* wherein devices operating at low
    power and in fairly limited range use the same frequencies as licensed
    providers* may create interference that compromises the quality of
    services provided by licensed users. Conversely, those wanting to

    introduce certain new technologies view access to unlicensed spectrum as
    beneficial to the public interest and maintain that the degree of
    interference created by certain unlicensed uses is not *harmful.*
    Concerns about policies that influence markets* competitiveness. Many

    policy initiatives can have an effect on the competitiveness of wireless
    markets. For example, allowing greater flexibility for spectrum holders to
    use spectrum in a variety of ways could create opportunities for firms to
    enter markets for certain services, increasing the competitiveness of
    those markets. In fact, some experts have noted that, at times, incumbent
    firms Diversity of Views

    among Stakeholders and Current Regulatory Structure Are Barriers to
    Meeting Future Spectrum Needs

    Stakeholders Have Major Disagreements on Spectrum Policy

    Page 35 GAO- 03- 277 Telecommunications oppose certain spectrum policies,
    in part, because of concerns about the effect on competition in the
    market.

    Another area where conflicts among spectrum stakeholders have arisen
    relates to difficulties in determining how to balance the needs* or a

    process to ensure a balancing of needs* between public- sector and
    private- sector spectrum users. Government users have said that because
    they offer unique and critical services that are not comparable to those
    provided in the commercial sector, a dollar value cannot be placed on the
    government*s provision of spectrum- related services. FCC officials,
    commercial users, and others have stated that the ability of commercial
    users to acquire adequate spectrum is also critical to the welfare of
    society, because the commercial wireless sector makes important
    contributions to a healthy, robust economy. FCC and Department of Commerce
    officials acknowledge the difficulty of balancing the critical needs of
    government and commercial spectrum users. To illustrate this

    point, they refer to the difficulties experienced in negotiating two
    recent agreements: the reallocation of spectrum from government to
    commercial users for 3G services and the rules under which ultrawideband
    devices will share spectrum with federal users.

    Under the divided management framework, no one entity has been given
    ultimate decisionmaking authority over all spectrum use. There must be
    coordination and cooperation in order to determine how best to accommodate
    users of spectrum. While any decisions involving spectrum can be
    difficult, those involving spectrum allocations can be particularly

    protracted. Because most of the desirable spectrum has already been
    allocated, allocating spectrum for a new technology or service usually
    requires that some existing users be moved to another part of the
    spectrum. Since existing users are likely to experience costs for
    relocating but little, if any, benefit, they are often reluctant to make a
    move. Even within the jurisdiction of a single spectrum- management
    agency,

    reallocations of spectrum may require lengthy negotiations. Moreover,
    decisions involving the reallocation of spectrum between federal and
    nonfederal users, and thus between regulatory jurisdictions, can be even
    more difficult. Some examples of protracted spectrum decisions both

    within and across regulatory jurisdictions include:

    The reallocation of spectrum in the 700 MHz band. In 1997, the Congress
    directed FCC to reallocate to public safety services the 24 MHz of the
    spectrum that will be recovered from the transition to digital television,
    and to put up for auction the remaining recovered spectrum. In 1999, the
    Regulatory Environment

    Results in Protracted Policy Development and Implementation

    Page 36 GAO- 03- 277 Telecommunications Congress directed that the
    proceeds from these auctions were to be deposited with the Treasury by
    September 30, 2000. Auctions for spectrum

    in the 700 MHz band have been rescheduled several times. Several mobile
    telephone companies supported a postponement of these auctions. Those in
    favor of postponing the auction believed that because it was unclear when
    the spectrum would be vacated, it would be difficult for companies to
    determine the value of the spectrum. On June 18, 2002, the Congress passed
    legislation removing the former statutory auction deadlines but requiring
    FCC to auction, before September 19, 2002, 18 MHz of spectrum, some of
    which was desired by rural carriers. This auction was completed

    in September 2002. The auction of the remaining spectrum in the 700 MHz
    range has been postponed indefinitely.

    The narrowbanding initiative for federal spectrum users. In 1992, the
    Congress directed NTIA to adopt and implement a plan for federal agencies
    with existing mobile radio systems to use more spectrumefficient
    technologies. In 1993, NTIA responded to the Congress with a report that
    included a plan for implementing narrowbanding* a technology that would
    use about half as much bandwidth as agencies are currently using. 29 NTIA
    set interim deadlines for the narrowbanding requirements, which are to be
    fully implemented by 2008. The plan required that some agencies move to
    spectrum occupied by another agency. As a result, the plan provided a time
    line according to which each agency would adopt narrowbanding because, as
    NTIA officials pointed out, the implementation of narrowbanding by any
    given agency depends, in part, on whether the other agencies have adhered
    to the schedules laid out by NTIA. We recently asked NTIA about the
    progress of agencies in meeting their narrowbanding requirements. NTIA was
    not able to tell us how many agencies have complied with the interim
    deadlines, because some agencies had not yet responded to NTIA*s June 2002
    request for information on compliance with narrowbanding requirements.
    NTIA officials noted that while they can legally remove frequency
    assignments from spectrum users that are not complying with the plan, in
    reality it is difficult for the agency to exercise its authority in
    overseeing the adoption

    of narrowbanding. 29 See National Telecommunications and Information
    Administration, Land Mobile Spectrum Efficiency: A Plan of Federal
    Government Agencies to Use More SpectrumEfficient Technologies, NTIA
    Report 93- 300 (Washington, D. C.: October 1993).

    Page 37 GAO- 03- 277 Telecommunications Allocation of spectrum for 3G
    wireless services. Spectrum managers first considered the need for
    spectrum to accommodate these new services in

    1999, when FCC released its spectrum policy statement. In October 2000,
    President Clinton directed that a plan be developed to select spectrum for
    3G services, but this initial attempt was unsuccessful. In a letter in
    June 2001, FCC*s Chairman wrote to the Secretary of the Department of
    Commerce, *It is apparent that additional time is necessary to allow the
    Commission and the Executive Branch to complete a careful and complete
    evaluation of the various possible options* for making spectrum available
    for 3G. FCC*s Chairman stated that the public interest would best be
    served by providing additional time for informed consideration, even if
    this resulted in some delay in reaching allocation decisions. Finally, he
    requested relief from the 2002 statutory deadline for spectrum to be

    auctioned. A task force was established, which included officials at the
    Department of Commerce, FCC, Department of Defense, and other federal
    agencies. In July 2002 the task force released a study concluding that 90
    MHz of spectrum could be allocated to 3G without disrupting

    communications services critical to national security. 30 The deadline set
    for the band clearing to occur is now 2008, although certain provisions
    need to be met before DOD would be expected to relinquish its portion of
    those frequencies. On November 7, 2002, FCC officials released a Notice of
    Proposed Rulemaking that suggests service rules for the reallocated
    spectrum. FCC officials stated that they would likely adopt an order
    establishing the service rules by mid- 2003 and would likely hold an
    auction in 2004. Despite these developments, FCC officials have stated
    that additional spectrum would need to be allocated to fully support 3G
    services.

    30 45 MHz of the spectrum being reallocated would come from government
    users, and the additional 45 MHz from nongovernmental users.

    Page 38 GAO- 03- 277 Telecommunications Recognizing that the absence of a
    generally agreed upon national spectrum strategy can make it difficult for
    FCC and NTIA to avoid

    contentious, protracted negotiations when providing for future spectrum
    needs, 31 we recommended in our September 2002 report that the Secretary
    of Commerce and FCC should establish and carry out formal, joint planning
    activities to develop such a strategy to guide decisionmaking. Both FCC
    and NTIA responded positively to this recommendation, and they have
    recognized the need to address concerns about current spectrum- management
    policies and procedures by establishing task forces and working groups
    within their own agencies. For example, the FCC Spectrum Policy Task Force
    addressed some of these issues and released a report in November 2002, and
    NTIA held a Spectrum Summit in April

    2002 to gather information from stakeholders on the current problems with
    the spectrum- management process. In response to our previous report, FCC
    stated that a cornerstone of both these efforts is to improve coordination
    between FCC and NTIA, to conduct joint planning, and to develop a national
    spectrum- management strategy. NTIA officials told us

    that their request for funding for spectrum reform as part of the
    President*s fiscal year 2003 budget is also a result of their view that
    the United States needs to take a broad view of the organizational
    structure and processes for spectrum management.

    Despite the increased amount of communication between FCC and NTIA, their
    different jurisdictional responsibilities appear likely to result in
    piecemeal efforts that lack the coordination to facilitate major policy
    changes. In particular, FCC and NTIA*s recent policy evaluations and
    initiatives tend to focus on the issues applicable to the users under
    their respective jurisdictions. Thus, while these current efforts may be
    beneficial within the current regulatory environment, an analysis of
    whether there is a need for comprehensive reforms* such as changes in the
    structure of spectrum management* may best be undertaken by an independent
    body.

    31 At NTIA*s Spectrum Management and Policy Summit, held in April 2002, it
    appeared that stakeholders did not have a clear agreement on what would be
    included in a national spectrum strategy. FCC and NTIA Are Attempting to
    Work in a

    More Coordinated Fashion to Address Difficulties in Spectrum Management,
    but Jurisdictional Responsibilities Differ

    Page 39 GAO- 03- 277 Telecommunications As we discussed in our September
    2002 report, the current structure of spectrum- management functions
    within the U. S. government has been in

    place for many years. In particular, the bifurcated system was put into
    place with the Radio Act of 1927, and in 1934 the Federal Communications
    Commission was created to, among other things, oversee nonfederal
    licensing of spectrum. The federal oversight of spectrum has moved within
    the executive branch several times and has been the responsibility of NTIA
    since it was created in 1978. Although the organization of spectrum
    management has been static for many years, the application of spectrum in

    providing services has evolved dramatically. In particular, a plethora of
    new services and applications has emerged in the past 25 years, including
    various types of mobile telephone service, paging services, wireless video

    and data services, wireless local area networks, and Internet access. On
    the government side, the past 25 years have seen untold new wireless
    applications for public safety, national defense, and other key missions.
    Additionally, new technologies, such as ultrawideband and softwaredefined
    radio, would use radio spectrum in new ways.

    Recognizing that the United States may not have an adequate regulatory
    structure to address spectrum- management concerns, commercial and
    government spectrum license holders, as well as other stakeholders, have
    suggested various changes in the domestic spectrum- management structure.
    The ideas range from temporary solutions to overarching systemic changes,
    but they all aim at improving the efficiency of the way spectrum is
    managed. Stakeholders* proposals for improving the process include:

     Creation of spectrum allocation assessment commission: Several
    stakeholders have suggested the creation of a politically independent
    entity that would audit current spectrum allocations and make a
    comprehensive reallocation proposal. Some have suggested using the Base
    Realignment and Closure process as a model for creating an independent
    commission to look at spectrum allocations and assignments.  Move NTIA
    out of the Department of Commerce: Some government

    agencies that we interviewed suggested that NTIA would be better
    positioned as a voice for all government spectrum users if it were moved
    outside of the Department of Commerce. It has been suggested that making
    NTIA either a commission or an executive office would provide it with a
    level of independence it does not currently have within another government
    agency. Eight out of 12 IRAC- member agencies that answered this question
    on our survey were greatly or moderately supportive of making NTIA an
    independent agency outside the Department of Commerce. Some Stakeholders
    Have

    Suggested That Changes to the Structure of SpectrumManagement Functions
    May Be Needed

    Page 40 GAO- 03- 277 Telecommunications  Create a spectrum oversight
    committee: Along with several government spectrum license holders and a
    commercial user, a majority of those on

    our expert panel who responded to a poll felt that creation of a formal
    entity to provide FCC/ NTIA oversight may be appropriate. They said that
    setting up an oversight committee would create an office where disputes
    could be settled. It would also serve as a place to create a uniform
    spectrum policy that both FCC and NTIA could follow.

     Merging FCC and NTIA into one agency: Some expert panel members
    suggested the merging of FCC and NTIA into one regulatory agency. Merging
    the responsibilities would allow a single agency to create one policy for
    the management of spectrum and create a single voice to address problems
    when they arise between parties.  Undertake an independent review of
    spectrum- management practices:

    Seven of our 10 panelists said they favored an independent review of
    current spectrum- management practices, similar to that recently completed
    in the United Kingdom.

    The structure for managing spectrum in the United States is unlike those
    in most countries that we examined. According to information obtained from
    interviews with spectrum managers in other countries, most of the
    countries have a single government entity that manages spectrum for all
    users. For example, Industry Canada makes all final decisions about
    spectrum for all Canadian users, and its decisions are not subject to
    judicial review. Similarly, in New Zealand, the Ministry of Economic
    Development is responsible for both government and nongovernmental users
    of spectrum. Also, some countries have committees or advisory boards that
    analyze conflicting requests and help spectrum managers make decisions.
    For example, the United Kingdom Spectrum Strategy Committee prioritizes
    spectrum needs and makes final decisions when any major conflicts arise.
    Also, the Radio Advisory Board of Canada attempts to garner consensus on
    issues so that Industry Canada does not have to analyze many different
    filings with opposing views.

    While other countries have adopted alternative spectrum- management
    systems, they may have limited applicability for the United States for a
    few key reasons. First, the role of the military in the United States is
    unique in the world. Second, the divided structure in the United States
    reflects the President*s responsibility for national defense and the
    fulfillment of federal agencies* missions, along with the U. S.
    government*s long- standing encouragement and recognition of private
    investment in developing commercial radio and other communications
    services. While alternative structures may not be fully pertinent to our
    domestic structure, it is Spectrum- Management

    Structures in Some Other Countries Differ from Those in the United States,
    but These Alternative Structures May Not Be Applicable in the United
    States

    Page 41 GAO- 03- 277 Telecommunications interesting to note how other
    countries have organized their spectrummanagement functions. For more
    information on spectrum- management

    structures in other countries, see appendix V. In the past, commissions
    have been established to look at certain difficult policy issues. As table
    3 shows, in the United States both the Congress and the Executive Branch
    have created commissions to examine a variety of issues. In the United
    States,

    Commissions Have Been Used to Look at Major Policy Change When Complex
    Policy Disputes Arise

    Page 42 GAO- 03- 277 Telecommunications Table 3: Examples of Commissions
    Examining Major Policy Issues Commission Established

    by Date established Term Reporting Mission

    President*s Commission on Administrative Management

    (Brownlow Committee)

    Executive Order March 1936 Approximately

    10 months Report to the President on

    January 1, 1937 Ensure that the President is chief

    Administrator of an executive branch with institutional support and
    reorganize the government along hierarchical lines, to provide clear lines
    of authority and accountability Commission on Organization of the
    Executive Branch of the Government (First Hoover Commission)

    Act of Congress July 1947 Approximately

    3 years Report to Congress by

    January 13, 1951 Determine how to limit spending to

    the amount consistent with efficient performance of essential services,
    eliminate duplicative services, abolish unnecessary services/ activities,
    and provide definition for and limitations of executive functions
    Commission on Organization of the Executive Branch of the Government
    (Second Hoover Commission)

    Act of Congress July 1953 Approximately

    2 years Report to the Congress by May

    31, 1955 Address the policy issues that

    underlay big government, identify desirable spending reductions, cut back
    and eliminate services, and define responsibilities of executive branch
    officials President*s

    Commission on Postal Organization

    Executive Order April 1967 1 year Final report to the

    President within 1 year

    Study the organization and structure of the postal service and report on
    the feasibility of transferring it from the Post Office Department to a
    government corporation or other such form of organization National
    Commission on Social Security Reform

    Executive Order December

    1981 1 year, 2 months Report to the

    President by January 20, 1983.

    Review the condition of the Social Security trust funds, identify long-
    term problems, and analyze potential solutions that will put Social
    Security on a sound financial footing Defense Base Closure and Realignment
    Commission

    Act of Congress November

    1990 Approximately 5 years 3 reports to the President and

    Congress, 1 for each year that it meets

    Provide a fair process that will lead to timely closure and realignment of
    military installations within the United States

    Amtrak Reform Council Act of

    Congress December 1997 Approximately

    5 years Annual reports to the Congress Evaluate Amtrak performance and

    make recommendations for achieving cost containment, productivity
    improvements, and financial reforms National Gambling Impact Study
    Commission

    Act of Congress August 1996 Approximately

    2 years Report issued no later than 2 years

    after the date of the Commission*s first meeting

    Conduct a comprehensive study of the social and economic impacts of
    gambling in the United States. Source: GAO.

    Page 43 GAO- 03- 277 Telecommunications To ensure that various views and
    opinions are incorporated, many of the past commissions have been set up
    so that their members include a broad

    variety of stakeholders. In a majority of the commissions highlighted in
    table 3, the right to appoint commission members was divided between the
    executive and legislative branches, and in several cases further divided
    in the Congress between majority and minority party appointments in each
    house. Furthermore, when creating commissions, the Congress has

    chosen, at times, to stipulate certain requirements for panel members. For
    example, the legislation setting up the Amtrak Reform Council stipulated
    that presidential appointments should include representatives from both
    labor and management. The commissions above were generally made up of
    between 8 and 15 members.

    In addition to the commissions discussed above, there is a historical
    precedent for having a commission examine the spectrum- management
    process; the First National Annual Radio Conference was established in
    1922 by Secretary of Commerce Herbert Hoover. The group, made up of
    manufacturers, broadcasters, amateur radio representatives, civilian and
    military government radio communications personnel, and others, was
    charged with studying radio interference caused by the rise of radio
    broadcasting and the limitations of the Radio Act of 1912. The conference
    made recommendations to alleviate the overcrowding of the radio waves.
    Three subsequent conferences were held in each of the following years, and
    legislation was introduced to implement various recommendations of the
    conferences throughout this period. In 1927 a compromise was

    reached that led to a bifurcated framework for the management of
    radiofrequency spectrum by the federal government.

    As spectrum management becomes more complex and difficult around the
    world, several other countries we examined are also finding a need to
    undertake a major reevaluation of their spectrum policies. Several

    countries we reviewed are engaged in high- level examinations of their
    spectrum- management systems. Canada is currently updating its 1993
    Spectrum Policy Management Framework; spectrum managers there told us that
    the review will take between 2 and 3 years. In the past few years several
    other countries have completed comprehensive reviews of their policies.
    Australia and the United Kingdom have each recently completed a 1- year
    review and are in the process of addressing some of the recommendations
    made in these studies. Officials in Finland, Italy, and Japan also told us
    that they are currently involved in or have recently

    completed some form of spectrum- management review.

    Page 44 GAO- 03- 277 Telecommunications The availability of spectrum for a
    myriad of applications is of central importance to the U. S. economy and
    to the fulfillment of key government

    functions. In the past, the spectrum- management structure in the United
    States has served our interests well: spectrum for innumerable
    applications has been allocated and assigned, government*s many important
    missions are being fulfilled, and domestic wireless markets have grown
    considerably. However, technology, consumer demand, and government needs
    are growing rapidly. And as the world becomes more globally connected, new
    spectrum needs are putting increased stress on the spectrum- management
    structure. The need for attention to this problem is becoming acute.

    We found that many countries have been responding to pressing
    spectrummanagement requirements in recent years by undertaking major
    reviews of spectrum issues and by instituting new policies and approaches.
    In the United States, numerous discussions and reviews are underway, and
    this activity is playing a vital role in drawing attention to and
    stimulating discussion of options for change to the current spectrum-
    management system. While spectrum reform is increasingly being discussed,
    debated, and reviewed, it does not appear likely that timely reforms can
    be agreed upon amid the diversity of views held by stakeholders. Moreover,
    no single agency has been given ultimate decisionmaking authority over all

    spectrum in the United States or the authority to impose fundamental
    reform. FCC*s recent Spectrum Policy Task Force recommendations illustrate
    that even a major initiative such as this, when conducted by one
    regulatory agency, will focus on policies and issues under the
    jurisdiction of that agency. That is, despite the forward- looking nature
    of FCC*s recommendations, these policies impact only procedures of FCC and
    the stakeholders it oversees; none of the task force*s recommendations
    addresses the overarching structure of spectrum management or the possible
    need for comprehensive reform. As such, a major independent examination of
    spectrum- management policies and structure is needed.

    In order to develop solutions to key spectrum- management issues, this
    report recommends that the Chairman of FCC and the Assistant Secretary of
    Commerce for Communications and Information, in consultation with
    officials from the Department of State, Office of Management and Budget,
    Office of Science and Technology Policy, and pertinent congressional
    committees, work together to develop and implement a plan for the
    establishment of a commission that would conduct a comprehensive
    examination of current U. S. spectrum management. This commission would
    examine, among other things, whether structural reform of our Conclusions

    Recommendations for Executive Action

    Page 45 GAO- 03- 277 Telecommunications current system is needed. The
    commission should be independent and should involve all relevant
    stakeholders* including commercial interests, government agencies,
    regulators, and others* to ensure that the diversity of views on key
    spectrum- management issues are represented. The review should be time-
    limited and, if change is needed, have as its primary

    objective the establishment of a framework to implement that change.
    Although the commission could be established by statute, executive order,
    or other means, a statutory basis for the commission may provide the most
    appropriate framework for achieving a wide- ranging review of issues that
    may ultimately need legislative solutions. In appendix IV, we have
    presented possible issues and stakeholder concerns that a commission could
    consider as part of its comprehensive examination.

    We provided a draft of this report to the National Telecommunications and
    Information Administration of the Department of Commerce, the Department
    of State, and FCC for their review and comment. Both the Department of
    Commerce and FCC stated that they are taking steps to coordinate their
    spectrum- management processes and that each agency, on its own, is making
    progress in developing spectrum policies that will be more responsive to
    the rapidly changing environment. Regarding our recommendation for an
    independent commission to evaluate the need for overarching spectrum
    reform, both of these agencies stated that they would take our
    recommendation into consideration. Additionally, the Department of
    Commerce and FCC provided technical comments on our report that were
    incorporated as appropriate. The comments of the Department of Commerce
    appear in appendix VII and the comments of FCC appear in appendix VIII.
    The Department of State did not provide comments on this report.

    Because neither FCC nor the Department of Commerce specifically agreed to
    implement our recommendation, the Congress may wish to consider taking
    appropriate actions to address spectrum- management concerns. For example,
    the Congress may consider holding hearings on this matter or enacting
    legislation to establish an independent commission that would conduct a
    comprehensive examination of current U. S. spectrum management.

    We are sending copies of this report to the appropriate congressional
    committees. We are also sending this report to the Secretary of State, the
    Agency Comments

    Matter for Congressional Consideration

    Page 46 GAO- 03- 277 Telecommunications Chairman of the Federal
    Communications Commission, and the Secretary of Commerce. We will also
    make copies available to others upon request.

    In addition, the report will be available at no charge on the GAO Web site
    at http:// www. gao. gov. If you have any questions about this report,
    please contact me at 202- 512- 2834 or guerrerop@ gao. gov. Key contacts
    and major contributors to this report are listed in appendix IX.

    Peter Guerrero Director, Physical Infrastructure Issues

    Appendix I: Scope and Methodology Page 47 GAO- 03- 277 Telecommunications
    To respond to the objectives of this report, we gathered information from
    a variety of sources. In particular, we gathered information by (1)

    reviewing economic, legal, and public policy material relevant to spectrum
    issues; (2) interviewing regulatory agencies at state, local, and federal
    levels; (3) interviewing experts familiar with spectrum issues; (4)
    interviewing 17 companies that hold spectrum licenses in the United
    States; (5) interviewing spectrum managers in 12 foreign countries as well
    as other spectrum stakeholders in the United Kingdom and Canada; and (6)
    convening an expert panel to discuss several spectrum- policy issues.

    To better understand the regulatory process and the differences in how
    spectrum is managed for commercial companies and government users, we
    interviewed officials who oversee spectrum allocation at both the Federal
    Communications Commission (FCC) and the National Telecommunications and
    Information Administration (NTIA) and obtained relevant documents from
    both agencies. To acquire a more in- depth understanding of how spectrum
    is managed within government agencies, we conducted interviews with
    officials at the Department of Justice (DOJ), Federal Aviation
    Administration (FAA), Federal Emergency Management Agency (FEMA), and
    Department of Defense (DOD). We also distributed a survey to the
    Interdepartment Radio Advisory Committee (IRAC) member agencies*
    representatives, excluding NTIA and FCC. 32 The survey asked questions
    about federal agencies* ability to meet mission needs, their anticipated
    spectrum needs, and their views on several policy issues. Of the 20
    surveys we distributed at an IRAC meeting, 17 were returned to us. At the
    state and local levels, we talked to a national trade association
    representing public safety officials, as well as officials managing state
    and local public safety systems.

    To get a more thorough understanding of the spectrum auction process,
    including how companies value spectrum and determine their bidding
    strategy, we conducted interviews with two financial companies that
    specialize in spectrum auction consulting and one that specializes in

    32 The following agencies are IRAC members: FEMA, Broadcasting Board of
    Governors, Department of Veterans Affairs, DOJ, U. S. Postal Service,
    Department of State, General Services Administration, National Science
    Foundation, National Aeronautics and Space Administration, Department of
    Interior, Department of Commerce, Department of the

    Treasury, NTIA, Department of Energy, U. S. Army, Department of
    Agriculture, U. S. Navy, Department of Health and Human Services, FAA, U.
    S. Coast Guard, and U. S. Air Force, as well as FCC, in a nonvoting
    capacity. Appendix I: Scope and Methodology

    Appendix I: Scope and Methodology Page 48 GAO- 03- 277 Telecommunications
    bringing wireless technologies to market. We also interviewed two
    academics who have written and published articles on the subject.

    To better understand how companies value spectrum and whether the cost of
    their spectrum is a significant factor in setting end- user prices and
    determining the deployment of new products and services, we interviewed
    representatives of 17 commercial companies that have spectrum licenses.
    These companies provide services in both urban and rural markets. Of the
    17 companies, 2 were radio or television broadcasters, 11 were wireless
    communications companies, 2 provided services via satellite, 1 provided
    local telephone service using wireless rather than wire connections, and 1
    was a paging company. The selection of companies was based on those
    discussed in an FCC report concerning wireless issues.

    To obtain information about spectrum management in other countries, we
    interviewed officials in Australia, Canada, Finland, France, Hong Kong,
    Italy, Japan, Mexico, New Zealand, Spain, Sweden, and the United Kingdom.
    The criteria we used to select the countries included geographic size,
    gross national product per capita, population density, level of mobile
    telephone penetration, primary methods for assigning spectrum, and

    whether the country uses market incentives to encourage government
    conservation of spectrum. In choosing the countries, we also consulted
    with NTIA and Department of State officials. For all countries, we were
    interested in learning about the regulatory structure governing spectrum
    management. We asked about the basic aspects of their management of

    the spectrum, including how the resource is allocated and assigned to
    government and commercial users, the mechanisms and regulatory structure
    they have in place for reaching agreement on spectrummanagement issues,
    how they see the level of competition in their wireless industry, and
    whether they have employed market- based mechanisms in managing the
    spectrum. For Canada and the United Kingdom, we conducted more in- depth
    case studies of spectrum management by interviewing not only spectrum
    managers but also government users and commercial service providers. In
    these two countries* as well as in the United States* we interviewed
    officials who manage spectrum for air traffic control, national law
    enforcement, and local emergency service. We also interviewed commercial
    wireless providers. For many of the countries studied, the information in
    this report is based on statements provided by spectrum managers during
    interviews and could not always be verified through documents or other
    means.

    To determine the validity of our preliminary research findings, we
    assembled an expert panel. To identify potential panelists with recognized

    Appendix I: Scope and Methodology Page 49 GAO- 03- 277 Telecommunications
    expertise in spectrum- management issues, we solicited recommendations
    from officials at FCC and reviewed research on spectrum- management

    issues. From a pool of over 35 potential panelists, we selected 10
    panelists who represented a cross- section of spectrum experts, including
    federal regulators, government and commercial users, band managers,
    financial analysts, economists, and engineers. The name and organizational
    affiliation of each panel member is listed in appendix VI. During a day-
    long meeting at GAO headquarters, the panelists discussed six topics that
    we

    provided in advance: (1) spectrum assignment and payment methods, (2)
    flexibility of use and secondary markets, (3) the scarcity of spectrum,
    (4) incentives for improving the technical efficiency of spectrum use, (5)
    the competitiveness of wireless and wireless equipment markets, and (6)
    ways to balance the needs of commercial and government users. After
    discussing each topic, we asked the panelists to answer specific questions
    on an anonymous ballot. The meeting was recorded and transcribed to ensure
    that we had accurately captured the panel members* statements.

    In addition to the information collected through the work efforts
    described above, we also reviewed technical, legal and regulatory, and
    economic research on relevant spectrum- management issues.

    Appendix II: Stakeholders* Views on Auctions and Spectrum Royalties

    Page 50 GAO- 03- 277 Telecommunications This appendix provides information
    on (1) the positive attributes of auctions identified by stakeholders; (2)
    concerns about the effect of

    auctions on consumer prices for wireless services, the rapidity of
    deployment of new technology, and the ability of small business to
    participate in the provision of wireless services; and (3) stakeholders*
    views on the merits of spectrum royalties.

    Wireless companies that we spoke with and members of our expert panel
    generally perceive auctions to be an improvement over comparative hearings
    and lotteries for the assignment of spectrum. Auctions are generally
    perceived to be faster and more transparent than comparative hearings.
    Also, auctions were seen as promoting economic efficiency by assigning
    spectrum to the party that values it the most. Finally, in contrast with
    comparative hearings and lotteries, auctions capture part of the value

    of the spectrum for the government in the form of winning bids. The
    companies that we spoke with generally characterized auctions as being
    superior to comparative hearings. Some companies described auctions as
    quick, efficient, certain, and the best available mechanism.
    Alternatively, some companies described comparative hearings as slow,
    arbitrary, and

    uncertain. Participants in our expert panel also were generally positive
    about auctions. For example, one participant noted that no one has figured
    out a better mechanism for the initial assignment of licenses.

    Despite the growth and competitiveness of wireless markets, some concerns
    have been expressed about whether the use of auctions as the primary
    spectrum- assignment method has had a detrimental effect on certain
    economic factors. In particular, some observers are concerned that the use
    of auctions will raise consumer prices for wireless services, will

    slow the deployment of wireless networks, and will make it difficult for
    smaller businesses to compete for wireless licenses.

    The effect of auctions on consumer prices. Some concerns have been raised
    that the price companies are paying for spectrum under auctions could
    drive up end- user customer prices. Some economists suggest that

    one- time license payments* such as those associated with auctions or with
    participation in comparative hearings* should not influence customer
    prices, because these fixed costs do not vary with a firm*s output. As
    such, they do not influence a firm*s decisions about how to set its
    prices; such decisions are based on the firms* marginal, or incremental,
    costs. However, other economists have pointed to reasons why auction
    payments could influence consumer prices in certain cases. For example,
    Appendix II: Stakeholders* Views on Auctions

    and Spectrum Royalties Stakeholders Identified Several Positive Attributes
    of Auctions

    Despite Success in Wireless Markets, Concerns Have Been Raised about
    Certain Possible Effects of Auctions

    Appendix II: Stakeholders* Views on Auctions and Spectrum Royalties

    Page 51 GAO- 03- 277 Telecommunications some or all companies might,
    because of an increased need to borrow funds to participate in an auction,
    see their cost of financial capital rise.

    Moreover, these economists argue that while firms may temporarily set
    prices based on marginal costs, firms cannot survive in the long run
    without considering fixed costs, and hence auction payments will be
    reflected in consumer prices.

    Views among those we spoke with on this issue were mixed. Officials at six
    of the companies we spoke with said that the assignment mechanism does not
    influence prices. Similarly, three of the panel members reported that the
    price paid for spectrum had *little/ no* influence on customer prices.
    Additionally, two FCC studies that examined consumer prices for wireless
    services found that the introduction of auctions for spectrum assignment
    did not raise consumer prices. 33 On the other side, officials at eight
    companies we interviewed suggested that the assignment mechanism does
    influence prices; three of these companies reported that they must

    set prices high enough to cover their debt and maintain margins.
    Additionally, four of our expert panelists said that spectrum price had
    *some* influence, and three said it had a *great* influence on customer

    prices. While there is clear disagreement among those we spoke with about
    the effect of auctions on consumer prices, the competitiveness of the
    market is generally seen as a very important factor in determining
    consumer prices. The companies that we spoke with overwhelmingly cited
    competition as an important factor when setting consumer prices.
    Competitive factors were more commonly cited as an important influence on
    price than was the influence of auction payments. Similarly, participants
    in our expert panel also indicated that competition was an important
    consideration for companies when determining what prices they would charge
    consumers.

    The effect of auctions on the rate of infrastructure deployment. Some
    observers argue that payment at auction for spectrum licenses would
    encourage companies to deploy technologies and services faster, because
    the companies would have devoted their own resources for the licenses

    and would need to recoup the investment by using the spectrum in a 33 See
    http:// wireless. FCC. gov/ auctions/ data/ papersAndStudies/ aucspec.
    pdf, Evan Kwerel and Walt Strack, *Auctioning Spectrum Rights* (February
    2001), and Evan Kwerel, *Spectrum Auctions Do Not Raise the Price of
    Wireless Services: Theory and Evidence* (October 2000), FCC Staff Paper.

    Appendix II: Stakeholders* Views on Auctions and Spectrum Royalties

    Page 52 GAO- 03- 277 Telecommunications productive and innovative manner.
    Others, however, argue that the auction payments for spectrum licenses
    could slow the deployment of new

    technologies and services by diverting financial resources away from
    direct investments in infrastructure.

    Officials at nine of the companies we spoke with said that the assignment
    mechanism can influence the rate of deployment of new technologies and
    services, because, for example, high auction prices can affect the firm*s

    access to financial capital. Alternatively, five companies said that the
    assignment mechanism does not influence the deployment of new technologies
    or services. Panel members* views on whether the rate of deployment of
    wireless infrastructure is affected by purchase of licenses in an auction
    were also mixed. Six panelists generally reported that payments for
    spectrum had *little/ no* or only *some* influence on the deployment of
    new wireless technology, while four panelists reported that these payments
    could have a greater influence on the rate of deployment. Finally, the
    United Kingdom*s National Audit Office found that while companies paid
    unprecedented amounts for 3G spectrum in that country, there was no strong
    evidence that the level of proceeds from the auction would have a negative
    impact on the wider economic benefit of 3G.

    The companies that we spoke with told us that a number of other issues
    have an influence on the rate of deployment of wireless infrastructures,
    in addition to the purchase of spectrum licenses through auctions. These
    issues include (1) difficulty with citing cell towers because of problems
    associated with local zoning; (2) FCC mandates for items such as emergency
    911 service, which require large financial investments that divert
    resources away from the deployment of the firm*s network; 34 and (3) FCC
    procedures, such as licensing spectrum that is encumbered (that is,
    currently used by another licensee), that increase business uncertainty.
    Finally, the United Kingdom*s National Audit Office noted that the
    remaining difficulties to be overcome for the roll- out of 3G services in
    that country are mainly technical: for example, the development of
    suitable base station and hand- set equipment. The effect of auctions on
    the ability of small businesses to obtain

    spectrum licenses. Another concern about the adoption of auctions for the
    34 Two rural companies that we spoke with said that FCC mandates are
    especially burdensome on small companies, because the costs must be
    recovered from a smaller customer base.

    Appendix II: Stakeholders* Views on Auctions and Spectrum Royalties

    Page 53 GAO- 03- 277 Telecommunications assignment of spectrum licenses is
    that smaller companies will not be able to compete for licenses with
    larger businesses. FCC addressed this

    concern in a few ways. FCC allowed partitioning of some licenses into
    relatively small pieces to facilitate small business participation in
    wireless markets. Additionally, for some auctions, FCC provided special
    bidding credits, allowed long- term installment payments, or designated
    certain licenses as available only for acquisition by smaller companies,
    in order to

    facilitate their participation and increase their opportunity to acquire
    spectrum licenses.

    Among the companies and experts that we spoke with, several suggested
    alternatives to the current spectrum- assignment mechanism to facilitate
    small business participation. These alternatives included small geographic
    areas, which can be better suited to the business models of small
    companies, and revenue sharing. Alternatively, while FCC has taken steps
    to promote small businesses in certain auctions, some observers do not
    believe this necessarily leads to viable small business participation in
    wireless markets. 35 Those who take this view argue that certain wireless
    services have large economies of scale in their provision because of the
    large costs associated with constructing wireless networks.

    In response to concerns about auctions, some stakeholders have suggested
    royalties as an alternative mechanism for assigning spectrum licenses.
    With a royalty mechanism, a company would pay the government

    a percentage of revenue on an ongoing basis, rather than pay the
    government a one- time fee to obtain a spectrum license. For example, Hong
    Kong spectrum managers reported that they used a royalty auction for 3G
    spectrum in which companies bid on a percentage of their revenue to be
    paid to the government. Spectrum managers in Hong Kong told us

    that a royalty structure enables the financial risk associated with
    purchasing spectrum at an auction to be shared between the government and
    commercial sector.

    We found little support for royalties among the companies that we spoke
    with, the spectrum managers in other countries, or participants on our
    expert panel. Officials at only four of the domestic companies that we

    35 In the Personal Communications Service C- Block auction, participation
    was limited to small businesses, and auction winners were permitted to pay
    off their bids over a 10- year period at a low rate of interest. A number
    of bidders, including the largest winner, NextWave Personal
    Communications, have defaulted on their payments. Few Stakeholders

    Favor Royalty System of Spectrum Auctions

    Appendix II: Stakeholders* Views on Auctions and Spectrum Royalties

    Page 54 GAO- 03- 277 Telecommunications spoke with thought the royalty
    method merited consideration. These companies told us that royalties* in
    lieu of upfront auction payments*

    could help small businesses enter the wireless market by reducing the
    financial resources associated with acquiring spectrum licenses in an
    auction. However, eight companies that we spoke with did not favor
    royalties. Some of these companies noted that royalties would effectively
    function as a tax that would raise consumer prices and possibly increase

    business uncertainty. Participants on our expert panel were uniformly
    opposed to a royalty mechanism. Finally, officials with most foreign
    governments that we spoke with told us that their governments had
    considered and decided against royalties or had not considered royalties
    at all.

    Appendix III: Technological Advancements Could Help to Relieve Spectrum
    Scarcity Page 55 GAO- 03- 277 Telecommunications Because spectrum is a
    finite resource and demand for it is rising, it is

    increasingly scarce. The radiofrequency bands most usable for new wireless
    services in land mobile radio, wireless telephony, and ultrawideband
    applications are the most congested portions of the radio spectrum. But
    advances in technology hold promise for enabling greater efficiency in the
    use of this prime spectrum. The move from analog to digital technologies
    has already greatly

    conserved the use of prime spectrum and holds further promise for the
    future. Digital technologies increase the amount of information that can
    be transmitted within a given amount of bandwidth. For example, by using
    certain digital techniques, wireless telephony networks can now handle
    more calls in a given bandwidth than was possible with analog cellular.
    These benefits are also spreading to other applications. Similarly, the
    transition from analog to digital television will eventually release some
    portion of the broadcast spectrum to be available for other uses. Federal
    users are also required to adopt narrowbanding techniques by 2008* a move
    that will economize on the use of spectrum.

    Ultrawideband technologies also offer opportunities to conserve on
    spectrum use, by allowing a given band to be allocated to multiple uses.
    After a number of years of research and development in the use of wideband
    transmission for surveillance, obstacle detection, and groundpenetrating
    radars, and after consultation with NTIA, FCC agreed to allow experimental
    wideband systems on an unlicensed basis. Because these technologies use
    low power over wide swaths of spectrum, they are able to share bands
    currently in use by many federal and nonfederal systems that are using
    higher power levels and compatible transmission techniques.

    In the more distant future, users and experts are looking to the
    development of software- defined radios to more effectively use spectrum.
    As many experts have noted, much of the radio spectrum is not actually

    being used at a given time. Software- defined radio technology, in which a
    radio receiver searches for unused frequencies at a given time and tunes
    to an available channel, offers the opportunity to use temporarily unused

    spectrum by allowing spectrum to be allocated to various uses and assigned
    to various users dynamically* minute by minute. Softwaredefined radio
    technology promises to offer a way for numerous radio systems that are
    operating in varied frequency bands and different modes (push- to- talk,
    broadcast, secure, and so forth) to operate on a common platform. Not only
    will software- defined radio allow spectrum to be assigned on a minute-
    by- minute basis, but it may also help solve some of Appendix III:
    Technological Advancements

    Could Help to Relieve Spectrum Scarcity

    Appendix III: Technological Advancements Could Help to Relieve Spectrum
    Scarcity Page 56 GAO- 03- 277 Telecommunications the problems related to
    the interoperability of various systems, a wellrecognized problem in
    public safety and search- and- rescue applications.

    Appendix IV: Suggestions for Issues for Consideration by a Commission Page
    57 GAO- 03- 277 Telecommunications This appendix discusses issues that
    would need to be considered in setting

    up a commission if one is established. This is not intended to be an
    exhaustive list of possible topics for consideration, nor should it be
    interpreted as recommending any specific course of action for spectrum
    management.

    When designing a commission to examine the U. S. spectrum- management
    process, the following should be considered:

     Appointment authority: Commissions often have both Congress and the
    President designate members to serve. Several have gone further to achieve
    political balance, allowing both majority and minority congressional
    leadership to make appointments.  Federal Advisory Committee Act:
    Consideration should be given to

    whether the commission will be established as a federal advisory
    committee.  Eligibility: In order to ensure that all of the diverse
    stakeholders* opinions

    are heard, there should be broad representation on the commission. For
    example, the commission should include representation from the government,
    commercial, and technical sectors.  Staff, timeframe, and budget: The
    size and qualifications of the staff, the

    budget for the commission, as well as the time frame of the commission*s
    work will need to be considered.  Commission status: A decision on
    whether the commission should expire

    upon the issuance of its report or have a predetermined recurring status
    should be considered.

     Promote technically efficient use of spectrum;  Promote economically
    efficient use of spectrum;  Ensure that government missions requiring
    spectrum are accomplished;  Promote growth of the private sector;
    Minimize interference among users;  Maximize the rapidity with which
    spectrum management can respond to

    changing needs; and  Recommend future policy and management structures.

     Whether the current policies should be continued;  Whether mechanisms
    that create economic incentives to encourage users

    to use spectrum more efficiently could be developed:  If it is
    appropriate to apply these mechanisms to all users or only to

    subsets of users, including government users; Appendix IV: Suggestions for
    Issues for

    Consideration by a Commission Commission Structure Considerations
    Potential Goals and

    Objectives of Commission

    Possible Policies to Consider

    Appendix IV: Suggestions for Issues for Consideration by a Commission Page
    58 GAO- 03- 277 Telecommunications  Possible mechanisms to consider
    include:

    Requiring users to pay for spectrum licenses in the marketplace;

    Allowing users to sell spectrum in the market place;

    Allowing users to lease spectrum from other users;

    Charging an incentive- based fee that is designed to mimic a market where
    one does not exist;

    Increasing the flexibility of use embedded in a license;

    Providing more spectrum for experimental and unlicensed uses;

    Increasing the use of band managers.  Increasing the information
    available to policy makers and regulators

    regarding spectrum use by:  Auditing its use on a regular basis;
    Measuring its value through some form of accounting.  Making spectrum
    conservation a high level policy goal throughout the

    government;  Funding research on technologies that are spectrally
    efficient;  Establishing rules for determining spectrum- use priorities;
     Setting up a formal spectrum- planning process;  Determining whether
    there should be a major one- time reallocation of

    spectrum; and  Developing rules for reallocating spectrum both within and
    across

    regulatory jurisdictions.  Determining whether the current regulatory
    structure should be

    continued;  Creating a mechanism for better coordination of NTIA, FCC,
    and IRAC

    functions by any of the following means:  Requiring agencies to develop a
    single spectrum plan that would be

    reviewed regularly;  Making coordination among spectrum- management
    agencies a critical objective in the strategic plan of each agency;

     Establishing other policies and procedures that require ongoing
    coordination;  Creating a single agency to manage spectrum; and  Letting
    the federal agencies manage their own spectrum. Potential Regulatory
    Structure Options to

    Explore

    Appendix IV: Suggestions for Issues for Consideration by a Commission Page
    59 GAO- 03- 277 Telecommunications When examining landmark commissions
    that led to government reforms in

    the past, 36 we have cited three main lessons learned that those looking
    to examine the spectrum- management structure should keep in mind:

     Successful commissions have established useful goals for what is to be
    achieved and have had a narrow focus;  Reorganization efforts need to
    recognize the unique federal government

    purpose/ structure (that is, that policies have political, legal, and
    organizational facets to them); and  Efforts have to be made for the
    congressional and executive branches to

    reach agreement about the need for and type of reform. Furthermore, it is
    best when the Congress and executive agencies work in cooperation to
    implement these reforms.

    36 These commissions include the Brownlow Commission (1936* 1937), First
    and Second Hoover Commissions (1947* 1949, 1953* 1955), Ash Council (1969*
    1971), Carter Reorganization Project (1977* 1979), Grace Commission (1982*
    1984), and National Performance Review I (1993* 1994). Lessons Learned

    Appendix V: More Details on Spectrum Management in Foreign Countries
    Studied

    Page 60 GAO- 03- 277 Telecommunications Each of the 12 foreign countries
    we studied was asked a variety of questions relating to its management of
    the spectrum. We asked each

    country general questions about its spectrum- management structure and
    methods for resolving conflicts, about how it assigns spectrum to
    government and commercial users, and for specific details of other aspects
    of its spectrum- management system. Some of the information gathered from
    these countries has been reported in the body of this report and thus is
    not included in this appendix.

    Table 4 lists the government entities primarily responsible for the
    management of the spectrum in each country.

    Table 4: National Spectrum Regulators Country National spectrum regulators

    Australia Australian Communications Authority (ACA) Canada Industry Canada
    Finland Finnish Communications Regulatory Authority (FICORA)

    France National Agency for Frequencies Hong Kong, China Office of the
    Telecommunications Authority (OFTA) Italy General Direction for
    Frequencies Allocation and Management, General Direction for Licensing and

    Assignment Japan Ministry of Public Management, Home Affairs, Posts, and
    Telecommunications Mexico Comision Federal de Telecomunicaciones New
    Zealand Ministry of Economic Development Spain General Directorate for
    Telecommunications Sweden Swedish Post and Telecom Agency (PTS)

    United Kingdom Radiocommunications Agency Source: Spectrum managers
    interviewed in each country.

    We asked spectrum managers how they resolve conflicts that arise regarding
    spectrum allocations and assignments. Many countries told us that they
    have one agency that makes all final spectrum decisions. Other countries
    reported that they have advisory boards or committees that help resolve
    disputes. Table 5 summarizes responses to this question. Appendix V: More
    Details on Spectrum

    Management in Foreign Countries Studied Spectrum Management and Conflict
    Resolution

    Appendix V: More Details on Spectrum Management in Foreign Countries
    Studied

    Page 61 GAO- 03- 277 Telecommunications Table 5: Spectrum- Decision
    Authority and Techniques for Resolving Disagreements Regarding Spectrum
    Management Country Spectrum- decision authority and techniques for
    resolving disagreements regarding spectrum

    management

    Australia The Australian Communications Authority regulates the
    radiofrequency spectrum and reports to the Australian Minister for
    Communications. Potentially contentious issues are resolved by the ACA or
    the Minister in consultation with users, or among users within an ACA
    framework. Canada Industry Canada makes all final decisions with the help
    of the Radio Advisory Board of Canada. The

    Radio Advisory Board of Canada, which consists of representatives from
    most spectrum users in Canada, provides the government with broadly based
    advice regarding spectrum management. Finland FICORA, an agency within the
    same administrative sector as the Ministry of Transportation and

    Communications, is responsible for managing both military and civil use.
    FICORA depends on national level advisory boards to function as discussion
    forums and to provide opportunities for cooperation. One particular board,
    the Radio Advisory Board, advises the Ministry on spectrum policy and
    creates working groups to address specific spectrum- management issues.
    France The National Agency for Frequencies makes final decisions regarding
    all spectrum policy, and the

    Prime Minister formally approves these proposals. If necessary,
    arbitration is available for agencies to reach agreement; however,
    officials told us that arbitration is very rare. Hong Kong, China The
    Office of the Telecommunications Authority manages spectrum for all users
    with the help of the

    Radio Spectrum Advisory Committee. The committee* which consists of
    representatives of public network operators, major radiocommunications
    users, and independent professionals* provides advice to OFTA regarding
    spectrum- management strategies, policies, and procedures. Italy The two
    agencies involved in spectrum management have independent responsibilities
    and make final

    decisions on spectrum management for issues under their jurisdiction.
    Japan The Radio Regulatory Council acts as an advisory body to the
    Ministry of Public Management, Home

    Affairs, Posts, and Telecommunications, which makes all final spectrum-
    management decisions. Mexico Secretariat of Communications and
    Transportation makes all final decisions. New Zealand The Radio Spectrum
    Management Group, a part of the Ministry of Economic Development,
    allocates

    and assigns all spectrum, including spectrum for government users. Spain
    General Directorate for Telecommunications makes all decisions. Sweden The
    Swedish Post and Telecom Agency makes final decisions for all users
    (except broadcasters). It is

    possible to appeal PTS decisions in court. United Kingdom The
    Radiocommunications Agency makes spectrum decisions for commercial users,
    and the spectrum

    managers in each government agency set policy for their individual
    functions. However, a single committee* the United Kingdom Spectrum
    Strategy Committee* exists to prioritize and make final decisions about
    spectrum needs when any conflicts arise. In particular, this committee*
    which is a Cabinet Office committee jointly chaired by the Chief Executive
    of the Radiocommunications Agency and a representative from the Ministry
    of Defence* addresses strategic spectrum- management issues that affect
    the interest of more than one government department and those that revolve
    around balancing spectrum needs of government and commercial users.

    Source: Spectrum managers interviewed in each country.

    We asked spectrum managers whether spectrum users in their country have
    been forced to move to different bands and if the government provided
    funding for relocating users. 37 Countries reported many examples 37 This
    question refers to funding provided by spectrum managers in the form of a
    trust fund or other mechanism, rather than by individual agencies paying
    their own relocation

    expenses.

    Appendix V: More Details on Spectrum Management in Foreign Countries
    Studied

    Page 62 GAO- 03- 277 Telecommunications of moving certain users to make
    room for new services or uses of the spectrum. These cases often involved
    moving government users out of

    spectrum to make room for new technologies. Table 6 includes information
    on government funding for moves, as well as other information about
    funding arrangements.

    Table 6: Funding for Relocation Country Provides government

    funding for relocation Other funding information

    Australia No Auction winners can pay for incumbents to be relocated.
    Canada No New licensees may pay incumbents* both commercial and government
    users* to

    relocate. Finland No New spectrum holders have compensated incumbents for
    their relocation costs.

    When the relocation has been a result of national implementation of an
    internationally approved frequency usage plan, compensation has not been
    paid. France Yes Government users are completely reimbursed for relocation
    costs. Commercial users

    can be funded to upgrade technology to accelerate relocation timelines.
    Hong Kong, China No Italy No Some users have had to compensate the
    Ministry of Defense for spectrum relocation costs.

    Japan No A study group recently looked into funding relocation. Mexico No
    If equipment from the previous user is less than 10 years old, the new
    user needs to

    indemnify the previous user for relocation costs. New Zealand No One move
    was facilitated by the government offering new spectrum rights to the

    incumbent in exchange for displacement. Spain No In some cases, the new
    user has paid for the cost of relocation. Sweden No United Kingdom No
    Officials are exploring funding options for relocations.

    Source: Spectrum managers interviewed in each country.

    We asked spectrum managers whether they were in the process of completing
    or had recently completed a review of spectrum management in their
    country. Some countries were undergoing or had recently conducted
    comprehensive reviews and others were involved in more focused studies.
    Table 7 summarizes the responses to our question on spectrum- management
    reviews.

    Appendix V: More Details on Spectrum Management in Foreign Countries
    Studied

    Page 63 GAO- 03- 277 Telecommunications Table 7: Spectrum- Management
    Reviews Country Spectrum management reviews

    Australia In 2002, the Productivity Commission completed a comprehensive
    spectrum- management review, which took 12 months. Canada The Canadian
    government is in the process of updating its Spectrum Policy Management
    Framework.

    The original framework was developed in 1993 and has been amended somewhat
    since that time. The current study is expected to extensively revise and
    create a new framework for spectrum management in the next 2* 3 years.
    Finland Managers reported that they are involved in a continuous process
    to review their spectrummanagement policies and working methods. They are
    currently involved in a comprehensive project to

    change their fee structure. France The National Agency for Frequencies has
    an ongoing process to review the use of the spectrum and

    make proposals to improve spectrum management. Hong Kong, China OFTA does
    not see a need to conduct a comprehensive spectrum- management review for
    the time

    being. Italy There is currently a study on implementing fees being
    conducted. Japan In 2002 a study group examined certain issues, including
    reallocation and financial help for

    relocations. Mexico Managers reported that in 2003 they plan to review the
    rules for frequency grants and the status of the

    spectrum. New Zealand In 1987, National Economic Research Associates was
    hired as a consultant to the Ministry to conduct

    a review of spectrum management and make recommendations. The Ministry
    received the report and, after public consultation, used the work to craft
    the Telecommunications Act of 1989. In the mid1990s, the Ministry reviewed
    the impact of the new law and passed an amendment based on its findings.
    Spain None Sweden Managers reported that they are not doing or planning to
    do any large- scale studies at the moment.

    However, they noted that spectrum- management policies are continually
    reviewed. United Kingdom In March 2002 the United Kingdom released the
    results of its independent review of spectrum

    management. Source: Spectrum managers interviewed in each country.

    Appendix VI: Participants in GAO*s Expert Panel on Spectrum Issues Page 64
    GAO- 03- 277 Telecommunications Vice President & Global Strategist,
    Precursor Group (a company providing investment research)

    Vice President, Regulatory Policy, Cellular Telecommunications & Internet
    Association

    President, Access Spectrum (a company providing band- management services)

    Attorney, Hogan & Hartson (a law firm with expertise in government
    regulation and policy)

    Chair, Department of Interdisciplinary Telecommunications, University of
    Colorado at Boulder

    President, Association of Public Safety Communications Officials *
    International

    Chief, Office of Plans and Policy, Federal Communications Commission

    Deputy Assistant Secretary of Defense for Spectrum and C3 Policy, Office
    of the Secretary of Defense Senior Vice President, National Economic
    Research Associates

    Associate Administrator (Acting), Office of Spectrum Management, National
    Telecommunications and Information Administration, Department of Commerce
    Appendix VI: Participants in GAO*s Expert

    Panel on Spectrum Issues Rudy Baca Diane Cornell Mark Crosby Michele
    Farquhar Dale Hatfield Glen Nash Robert Pepper Steven Price David Salant
    Fred Wentland

    Appendix VII: Comments from the Department of Commerce

    Page 65 GAO- 03- 277 Telecommunications Appendix VII: Comments from the
    Department of Commerce

    Appendix VII: Comments from the Department of Commerce Page 66 GAO- 03-
    277 Telecommunications

    Appendix VIII: Comments from the Federal Communications Commission Page 67
    GAO- 03- 277 Telecommunications Appendix VIII: Comments from the Federal
    Communications Commission

    Appendix VIII: Comments from the Federal Communications Commission Page 68
    GAO- 03- 277 Telecommunications

    Appendix IX: Key Contacts and Major Contributors Page 68 GAO- 03- 277
    Telecommunications

    Amy D. Abramowitz, (202) 512- 4936 Nancy S. Barry, (617) 565- 8871 In
    addition to those named above, Steve Brown, Michael Clements, Randall
    Fasnacht, Lynn M. Musser, Rebecca L. Medina, Hai Tran, Mindi Weisenbloom,
    and Nancy Zearfoss made key contributions to this report. Appendix IX: Key
    Contacts and Major

    Contributors GAO Contacts Staff Acknowledgments Appendix IX: Key Contacts
    and Major

    Contributors

    (545008)

    The General Accounting Office, the audit, evaluation and investigative arm
    of Congress, exists to support Congress in meeting its constitutional
    responsibilities and to help improve the performance and accountability of
    the federal government for the American people. GAO examines the use of
    public funds; evaluates federal programs and policies; and provides
    analyses, recommendations, and other assistance to help Congress make
    informed oversight, policy, and funding decisions. GAO*s commitment to
    good government is reflected in its core values of accountability,
    integrity, and reliability.

    The fastest and easiest way to obtain copies of GAO documents at no cost
    is through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
    and fulltext files of current reports and testimony and an expanding
    archive of older products. The Web site features a search engine to help
    you locate documents using key words and phrases. You can print these
    documents in their entirety, including charts and other graphics.

    Each day, GAO issues a list of newly released reports, testimony, and
    correspondence. GAO posts this list, known as *Today*s Reports,* on its
    Web site daily. The list contains links to the full- text document files.
    To have GAO e- mail

    this list to you every afternoon, go to www. gao. gov and select
    *Subscribe to daily E- mail alert for newly released products* under the
    GAO Reports heading.

    The first copy of each printed report is free. Additional copies are $2
    each. A check or money order should be made out to the Superintendent of
    Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
    copies mailed to a single address are discounted 25 percent. Orders should
    be sent to: U. S. General Accounting Office 441 G Street NW, Room LM
    Washington, D. C. 20548 To order by Phone: Voice: (202) 512- 6000

    TDD: (202) 512- 2537 Fax: (202) 512- 6061

    Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail:
    fraudnet@ gao. gov Automated answering system: (800) 424- 5454 or (202)
    512- 7470 Jeff Nelligan, managing director, NelliganJ@ gao. gov (202) 512-
    4800

    U. S. General Accounting Office, 441 G Street NW, Room 7149 Washington, D.
    C. 20548 GAO*s Mission Obtaining Copies of

    GAO Reports and Testimony

    Order by Mail or Phone To Report Fraud, Waste, and Abuse in Federal
    Programs Public Affairs
    *** End of document. ***