Telecommunications: Strong Support for Extending FCC's Auction
Authority Exists, but Little Agreement on Other Options to
Improve Efficient Use of Spectrum (20-DEC-05, GAO-06-236).
The radio-frequency spectrum is a natural resource used to
provide an array of wireless communications services, such as
television broadcasting, which are critical to the U.S. economy
and national security. In 1993, the Congress gave the Federal
Communications Commission (FCC) authority to use competitive
bidding, or auctions, to assign spectrum licenses to commercial
users. The Commercial Spectrum Enhancement Act required GAO to
examine FCC's commercial spectrum licensing process.
Specifically, GAO examined the (1) characteristics of the current
spectrum allocation process for commercial uses; (2) impact of
the assignment process--specifically the adoption of auctions to
assign spectrum licenses--on end-user prices, infrastructure
deployment, competition, and entry and participation of small
businesses; and (3) options for improving spectrum management.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-236
ACCNO: A43678
TITLE: Telecommunications: Strong Support for Extending FCC's
Auction Authority Exists, but Little Agreement on Other Options
to Improve Efficient Use of Spectrum
DATE: 12/20/2005
SUBJECT: Competition
Policy evaluation
Radio frequency allocation
Regulatory agencies
Spectrum
Spectrum management
Telecommunications
Telecommunications industry
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GAO-06-236
* Report to Congressional Committees
* December 2005
* TELECOMMUNICATIONS
* Strong Support for Extending FCC's Auction Authority Exists, but
Little Agreement on Other Options to Improve Efficient Use of
Spectrum
* Contents
* Results in Brief
* Background
* Spectrum Allocation Remains Largely a Command-and-Control
Process, But Alternatives Exist
* Spectrum Allocation Is Largely a Command-and- Control
Process
* FCC's Spectrum Policy Task Force Identified Two Alternatives
to the Command-and-Control Allocation Process but Recommends
a Balanced Approach
* The Exclusive, Flexible Rights Model Is a License-Based
Approach to Spectrum Allocation
* The Open-Access Model Is a Non-Licensed Approach to
Spectrum Allocation
* FCC's Spectrum Policy Task Force Advocated a Balanced
Approach
* Little Consensus Exists about the Future Management of
Spectrum
* Auctions Have Little to No Negative Impact on the Wireless
Industry and Are More Efficient than Previous Assignment
Mechanisms
* Auctions Have No Negative Impact on the Wireless Industry
* Auctions Mitigate Many Problems Associated with Previous
Assignment Mechanisms
* Secondary Markets Provide an Additional Mechanism for
Companies to Acquire Licenses and Gain Access to Spectrum
* Industry Stakeholders and Panelists Suggested Several Options to
Improve Spectrum Management
* Extend FCC's Auction Authority
* Reexamine the Use and Distribution of Spectrum
* Ensure Clearly Defined Rights and Flexibility
* Conclusions
* Matter for Congressional Consideration
* Agency Comments
* Scope and Methodology
Report to Congressional Committees
December 2005
TELECOMMUNICATIONS
Strong Support for Extending FCC's Auction Authority Exists, but Little
Agreement on Other Options to Improve Efficient Use of Spectrum
Contents
Tables
Figures
December 20, 2005Letter
The Honorable Ted Stevens Chairman The Honorable Daniel K. Inouye
Co-Chairman Committee on Commerce, Science, and Transportation United
States Senate
The Honorable Joe Barton Chairman The Honorable John D. Dingell Ranking
Minority Member Committee on Energy and Commerce House of Representatives
The radio-frequency spectrum is a natural resource used to provide an
array of wireless communications services that are critical to the U.S.
economy and national security, such as mobile voice and data services,
radio and television broadcasting, radar, and satellite-based services.
Historically, concern about interference among users has been a driving
force in the management of spectrum. The Federal Communications Commission
(FCC)-an independent agency that regulates spectrum use for nonfederal
users, including commercial users-and the National Telecommunications and
Information Administration (NTIA)-an agency within the Department of
Commerce that regulates spectrum for federal government users-have worked
to minimize interference through the "allocation" and "assignment" of
spectrum. Allocation involves designating "bands" of spectrum for specific
types of services or classes of users, such as designating certain bands
for commercial or government use. Assignment provides an authorization or
license to use a specific portion of spectrum to entities, such as
wireless companies; this is referred to as "licensed spectrum." In
contrast, some bands of spectrum are allocated to "unlicensed" use, where
an unlimited number of users without licenses share the band of spectrum.1
Demand for radio-frequency spectrum has exploded over the past several
decades as new technologies and services have been-and continue to
be-brought to the market in the private sector and new mission needs
unfold among government users of spectrum, including wireless
communications critical for public safety officials responding to natural
and man-made disasters. As a result, nearly all parties are becoming
increasingly concerned about the availability of spectrum for future
needs, because most of the usable spectrum in the United States has
already been allocated to existing services and users. These concerns are
compounded by evidence that some of the spectrum is currently
underutilized. Therefore, to promote a more efficient use of this resource
and meet future needs, FCC has increasingly adopted more market-oriented
approaches to spectrum management in recent years, including using a
competitive bidding process, or auctions, to assign spectrum licenses to
commercial users. Prior to auctions, FCC used comparative hearings, which
were quasi-judicial forums, and lotteries as assignment mechanisms. As of
November 30, 2005, FCC has held 59 auctions for over 56,000 licenses to
select between competing applications for the same license, and generated
over $14.5 billion for the U.S. Treasury.2
The Commercial Spectrum Enhancement Act required GAO to examine FCC's
commercial spectrum licensing process.3 As discussed with the committees
of jurisdiction, we examined the (1) characteristics of the current
spectrum allocation process for commercial uses; (2) impact of the
assignment process-specifically the adoption of auctions to assign
spectrum licenses-on end-user prices, infrastructure deployment,
competition, and entry and participation of small businesses; and (3)
options for improving spectrum management. To address these issues, we
reviewed and synthesized relevant economic, legal, and policy-oriented
literature, such as the Spectrum Policy Task Force report, a document
produced by FCC staff. In addition, we hosted, in conjunction with the
National Academies, two balanced and diverse expert panels with 23 experts
representing academia, government, and industry. The experts discussed
policy issues related to spectrum allocation and assignment, as well as
options for improving spectrum management in the future. We also conducted
semi-structured interviews with representatives of academia, government,
and industry. Finally, we interviewed officials at FCC and analyzed data
from FCC's three primary spectrum license databases: the Universal
Licensing System, the Consolidated Database System, and the International
Bureau Filing System. We conducted our work from March through August 2005
in accordance with generally accepted government auditing standards. (See
app. I for additional information on our scope and methodology.)
Results in Brief
FCC's current spectrum allocation process is largely characterized as a
"command-and-control" process-that is, the government largely dictates how
spectrum is used. In particular, FCC, based on regulatory judgments,
determines and limits what types of services-such as broadcast, satellite,
or mobile radio-will be offered in different frequency bands by geographic
area. In addition, FCC issues service rules to define the terms and
conditions for spectrum use within given bands. These rules typically
specify eligibility standards as well as limitations on the services that
may be offered in different frequency bands and the equipment and power
levels that may be used. Many stakeholders we spoke to and panelists on
our expert panel identified a number of weaknesses with the
command-and-control process. For example, panelists and stakeholders noted
that the current process is slow and leads to underutilization of the
spectrum, among other things. In its 2002 Spectrum Policy Task Force
Report, FCC staff identified two alternative spectrum management models to
the command-and-control model: the "exclusive, flexible rights" model and
the "open-access" (or "commons") model.4 The exclusive, flexible rights
model provides licensees with exclusive, flexible use of spectrum, and
transferable rights within defined geographic areas; in contrast, the
open-access model allows an unlimited number of unlicensed users to share
frequencies. Both models are more market-oriented than the
command-and-control model-that is, supply and demand for spectrum-based
services play a greater role in determining how spectrum is used, or
allocated. FCC is currently using elements of each model. For example, in
recent years, FCC has provided significant operational and technical
flexibility for many commercial radio services, such as Personal
Communications Services (PCS). However, there is limited consensus about
fully adopting either alternative model in the future. Many stakeholders
and members of our expert panel, as well as the Spectrum Policy Task
Force, support approaches that would combine elements of all three models.
But, the relative mix of these approaches remains an area of little
agreement.
Available evidence indicates that FCC's use of auctions as an assignment
mechanism for licensed spectrum has had little to no negative impact on
end-user prices, infrastructure deployment, and competition; evidence on
how auctions impact the entry and participation of small businesses is
less clear. According to economic research and many of the industry
stakeholders we spoke to, auctions have little to no effect on end-user
prices because the auction payments represent a sunk cost,5 which does not
affect future-oriented decisions, such as pricing decisions. Similar
arguments were made for the impact of auctions on infrastructure
deployment. In addition, some industry stakeholders told us that
companies' drive for a return-on-investment (i.e., they need to earn a
return on the auction payment) and competition induces companies to invest
and innovate. Thus, rather than diverting resources from investment and
innovation, auctions encourage these actions. Many industry stakeholders
also told us that auctions generally do not place companies at a
competitive or financial disadvantage compared to companies that acquired
licenses through means other than auctions. The evidence is less certain
regarding the effect of auctions on entry and participation of small
businesses. For instance, many industry stakeholders we interviewed stated
that auctions limit participation to large companies with extensive
financial resources. However, others noted that large companies tended to
also dominate the comparative hearing process and that auctions at least
make the process transparent; some stakeholders also commented that the
capital-intensive nature of the wireless communications industry makes it
difficult for small businesses to compete, regardless of the assignment
mechanism used. In addition, FCC's implementation of auctions mitigates a
number of problems associated with comparative hearings and lotteries. For
example, auctions are faster, less costly, and more transparent than these
previous assignment mechanisms. Finally, in addition to auctions,
companies can obtain access to the spectrum resource on the secondary
market, which involves the sale of licenses or the leasing of spectrum
usage rights among private entities. FCC has recently taken steps to
facilitate secondary-market transactions, including streamlining the
license transfer approval process as well as the procedures by which
parties may enter into spectrum leasing arrangements.
Industry stakeholders and panelists on our expert panel suggested a number
of options for improving spectrum management. The most frequently cited
options include (1) extending FCC's auction authority, (2) reexamining the
use and distribution of spectrum, and (3) ensuring clearly defined rights
and flexibility in commercially licensed spectrum bands. Panelists and
stakeholders overwhelmingly supported extending FCC's auction authority.
For example, 21 of 22 panelists supported extending FCC's auction
authority, which is scheduled to expire in 2007.6 To gain a good
understanding of how much spectrum is currently being used, a few
panelists suggested perhaps adopting a "spectrum census" to systematically
track usage. A number of panelists also suggested that the government
evaluate the relative allocation of spectrum for government and commercial
use as well as the allocation of spectrum for licensed and unlicensed
purposes, although there was little consensus on the relative allocations
between these uses. Some panelists suggested that government better define
spectrum users' rights, which would clarify understanding of the rights
awarded with a license. Others also thought that government should provide
licensees with greater flexibility to determine the type of technology
used and services offered, although this flexibility could lead to greater
interference and thus greater flexibility would need to be balanced with
interference protection. There was no consensus on these options for
improvements among stakeholders and panelists on our expert panel, except
for extending FCC's auction authority.
To achieve greater consensus for reform of the spectrum management
process, we previously suggested that the Congress consider establishing
an independent commission that would conduct a comprehensive
examination of spectrum management.7 To date, such a commission has not
been established. In this report, we recommend that the Congress consider
extending FCC's auction authority beyond the current expiration date of
September 30, 2007. We provided a draft of this report to FCC, NTIA, and
the Office of Management and Budget. FCC provided technical comments that
we incorporated where appropriate. NTIA had no comments on the draft. The
Office of Management and Budget (OMB) concurred with our finding that
auctions have mitigated problems associated with comparative hearings and
lotteries and noted that the Administration supports the permanent
extension of FCC's auction authority. OMB also noted that the
Administration has proposed to give FCC authority to use economic
mechanisms to promote efficient spectrum use.
Background
The radio-frequency spectrum is the part of the natural spectrum of
electromagnetic radiation lying between the frequency limits of 9
kilohertz and 300 gigahertz.8 It is the medium that makes possible
wireless communications and supports a vast array of commercial and
governmental services. Commercial entities use spectrum to provide a
variety of wireless services, including mobile voice and data, paging,
broadcast television and radio, and satellite services. Additionally, some
companies use spectrum for private tasks, such as communicating with
remote vehicles. Federal, state, and local agencies also use spectrum to
fulfill a variety of government missions. For example, state and local
police departments, fire departments, and other emergency services
agencies use spectrum to transmit and receive critical voice and data
communications, and federal agencies use spectrum for varied mission needs
such as national defense, law enforcement, weather services, and aviation
communication.
Spectrum is managed at the international and national levels. The
International Telecommunication Union (ITU), a specialized agency of the
United Nations, coordinates spectrum management decisions among nations.
Spectrum management decisions generally require international
coordination, since radio waves can cross national borders. Once spectrum
management decisions are made at the ITU, regulators within each nation,
to varying degrees, will follow the ITU decisions. In the United States,
responsibility for spectrum management is divided between two agencies:
FCC and NTIA. FCC manages spectrum use for nonfederal users, including
commercial, private, and state and local government users under authority
provided in the Communications Act. NTIA manages spectrum for federal
government users and acts for the President with respect to spectrum
management issues.9 FCC and NTIA, with direction from the Congress,
jointly determine the amount of spectrum allocated to federal and
nonfederal users, including the amount allocated to shared use. Figure 1
shows the current allocation of spectrum between federal and nonfederal
users.
Figure 1: Distribution of Spectrum Between Federal and Nonfederal Users
Note: Not all spectrum frequencies are equivalent. For example, at higher
frequencies, more bandwidth is required to provide communications
services. Additionally, licenses can vary considerably in terms of
bandwidth, as well as the geographic area and population covered.
Historically, concern about interference or crowding among users has been
a driving force in the management of spectrum.10 FCC and NTIA work to
minimize interference through two primary spectrum management
functions-the "allocation" and the "assignment" of radio spectrum.
Specifically:
o Allocation involves segmenting the radio spectrum into bands of
frequencies that are designated for use by particular types of radio
services or classes of users. For example, the frequency bands between 88
and 108 megahertz (MHz) are allocated to FM radio broadcasting in the
United States. In addition to allocation, spectrum managers also specify
service rules, which include the technical and operating characteristics
of equipment.
o Assignment, which occurs after spectrum has been allocated for
particular types of services or classes of users, involves providing a
license or authorization to use a specific portion of spectrum to users,
such as commercial entities or government agencies. FCC assigns licenses
for frequency bands to commercial enterprises, state and local
governments, and other entities, while NTIA makes frequency assignments to
federal agencies.11
In some frequency bands, FCC authorizes unlicensed use of spectrum-that
is, users do not need to obtain a license to use the spectrum.12 Rather,
an unlimited number of unlicensed users can share frequencies on a
non-interference basis. Thus, the assignment process does not apply to the
use of unlicensed devices. However, manufacturers of unlicensed equipment
must receive authorization from FCC before operating or marketing an
unlicensed device.
When FCC assigns a portion of spectrum to a single entity, the license is
considered exclusive. When two or more entities apply for the same
exclusive license, FCC classifies these as mutually exclusive
applications-that is, the grant of a license to one entity would preclude
the grant to one or more other entities. For mutually exclusive
applications, FCC has primarily used the following three assignment
mechanisms.
o Comparative hearings were quasi-judicial forums in which competing
applicants argued why they should be awarded a license, and FCC awarded
licenses based on pre-established comparative criteria. FCC principally
used comparative hearings from 1934 to 1984. Critics asserted that
comparative hearings were time consuming and resource intensive, lacked
transparency, and often led to protracted litigation.
o Lotteries entailed FCC randomly selecting licensees from a pool of
qualified applicants. Congress authorized FCC to use lotteries to assign
mutually exclusive licenses in 1981, partially in response to the
administrative burden associated with comparative hearings. FCC used
lotteries from 1984 to 1993.13 Critics contended that lottery winners were
not always the best suited to provide services; thus, several years could
pass before the licenses were transferred in the secondary market to
entities capable of deploying a system and effectively using the spectrum.
o Auctions are a market-based mechanism in which FCC assigns a license to
the entity that submits the highest bid for specific bands of spectrum.
The Congress provided FCC with authority to use auctions to assign
mutually exclusive licenses for certain subscriber-based wireless
services in the Omnibus Budget Reconciliation Act of 1993.14 In subsequent
years, the Congress has modified and extended FCC's auction authority,
including exempting some licenses from competitive bidding, such as
licenses for public safety radio services and noncommercial educational
broadcast services. Critics of auctions have suggested that auctions raise
consumer prices for wireless services, slow the deployment of wireless
systems, and are a barrier for small businesses.
As of November 30, 2005, FCC has conducted 59 auctions to select between
competing applications for the same license, which have generated over
$14.5 billion for the U.S. Treasury. However, only a very small portion of
total licenses has been auctioned. In particular, FCC has auctioned
approximately 56,100 licenses-about 2 percent of total licenses. (See fig.
2.) The other 98 percent of licenses have been assigned through other
means.15
Figure 2: Percent of Licenses Auctioned
Notes:
To calculate the percentage of licenses that have been auctioned, we
divided the number of auctioned licenses by the number of licenses
included in FCC's three spectrum license databases.
Not all spectrum frequencies are equivalent. For example, at higher
frequencies, more bandwidth is required to provide communications
services.
In recent years, two government-led task forces have examined spectrum
policy in the U.S. FCC established the Spectrum Policy Task Force,
comprised of FCC staff, to assist the Commission in identifying and
evaluating changes in spectrum policy that would increase the public
benefits derived from the use of spectrum. In November 2002, the task
force released a report that contained a number of recommendations,
including promoting more market-based mechanisms to allocate spectrum.16
The Commission subsequently implemented several of the task force's
recommendations, including developing rules for leasing spectrum. The
Federal Government Spectrum Task Force,17 comprised of the heads of
executive branch departments, agencies, and offices, examined spectrum
policy for government use, including homeland security, public safety,
scientific research, federal transportation infrastructure, and law
enforcement. In June 2004, the Department of Commerce released two reports
based on the task force's findings, which contained a number of
recommendations for reforms to federal agencies' use of spectrum. For
example, the Department of Commerce recommended adopting incentives for
more efficient use of spectrum by government agencies. However, as we
noted in 2003, the bifurcated responsibility between FCC and NTIA for
spectrum management can hinder reform.18 Specifically, neither FCC nor
NTIA has ultimate decision making authority over spectrum management or
the authority to impose fundamental reform. Because of the lack of a
single decision making point for spectrum reform, we recommended that the
Congress consider establishing an independent commission that would
conduct a comprehensive examination of spectrum management. To date, such
a commission has not been established.
Spectrum Allocation Remains Largely a Command-and-Control Process, But
Alternatives Exist
Spectrum allocation remains largely a command-and-control process,
although FCC is providing greater flexibility in some instances,
particularly as it licenses newly available spectrum. Many stakeholders
with whom we spoke and panelists on our expert panel identified a number
of weaknesses with the command-and-control process. FCC staff identified
two alternative spectrum management models: the exclusive, flexible rights
model and the open-access, or commons, model. Under these models, users of
spectrum, rather than FCC, would exert a greater influence on the use of
spectrum. Although there is limited consensus about fully adopting either
alternative model in the future, many stakeholders and members of our
expert panel, as well as the Spectrum Policy Task Force, support balanced
approaches that would combine elements of all three models.
Spectrum Allocation Is Largely a Command-and-Control Process
FCC currently employs largely a command-and-control process for spectrum
allocation.19 That is, FCC applies regulatory judgments to determine and
limit what types of services-such as broadcast, satellite, or mobile
radio-will be offered in different frequency bands by geographic area. In
addition, for most frequency bands FCC allocates, the agency issues
service rules to define the terms and conditions for spectrum use within
the given bands. These rules typically specify eligibility standards as
well as limitations on the services that relevant entities may offer and
the technologies and power levels they may use. These decisions can
constrain users' ability to offer services and equipment of their
choosing.
FCC has provided greater operational and technical flexibility within
certain frequency bands. For example, FCC's rules for Commercial Mobile
Radio Service (CMRS), which include cellular and PCS services, are
considered less restrictive. Under these rules, wireless telephony
operators are free to select technologies, services, and business models
of their choosing. In contrast, spectrum users have relatively little
latitude for making such choices in frequency bands allocated for
broadcast television services.
Despite these efforts, many industry stakeholders and experts with whom we
spoke cited a number of weaknesses in the command-and-control process for
spectrum allocation. The most frequently cited weakness by our expert
panel was the slowness of the allocation process. Because of the
regulatory nature of the command-and-control process, arriving at
allocation decisions can be a protracted process. The slow moving
allocation process delays consumers' access to new technologies. In
addition, some panelists noted that the current allocation process leads
to underutilization of spectrum. For example, a recent study found that
during a four-day period in New York City, only 13 percent of spectrum
between 30 MHz and 2.9 GHz was occupied at one time or another.20 Another
weakness cited by a number of stakeholders was that the
command-and-control process does not systematically allocate spectrum to
its highest value uses. As a result, highly valued services may not be
fully deployed.
FCC's Spectrum Policy Task Force Identified Two Alternatives to the
Command-and-Control Allocation Process but Recommends a Balanced Approach
The Spectrum Policy Task Force Report, a document produced by FCC staff,
identified two alternative spectrum management models to the
command-and-control model: the exclusive, flexible rights model, and the
open-access model. The exclusive, flexible rights model extends the
existing license-based allocation process by providing greater flexibility
to license holders. The open-access model allows an unlimited number of
unlicensed users to share frequencies, with usage rights governed by
technical standards. Both models allow flexible use of spectrum, so that
users of spectrum, rather than FCC, play a larger role in determining how
spectrum is ultimately used. FCC's Spectrum Policy Task Force recommended
a balanced approach to allocation-utilizing aspects of the
command-and-control; exclusive, flexible rights; and open-access models.
The Exclusive, Flexible Rights Model Is a License-Based Approach to
Spectrum Allocation
The exclusive, flexible rights model provides licensees with exclusive,
flexible use of the spectrum and transferable rights within defined
geographic areas. This is a licensed-based approach to spectrum management
that extends the existing allocation process by providing greater
flexibility regarding the use of spectrum and the ability to transfer
licenses or to lease spectrum usage rights. Licensees with exclusive
licenses can exclude others from using the spectrum they have been
assigned, and with flexible rights they enjoy flexibility to provide the
services they wish with their licenses, provided they comply with
applicable FCC rules and policies. To a certain extent, the model treats
spectrum like real estate, and some have suggested moving far in this
direction by turning spectrum licenses into full property rights-an option
that existing legislation currently prohibits.21 FCC's broadband PCS rules
closely resemble this model, in that they provide substantial flexibility
to licensees in terms of technology and use of spectrum.
Proponents cite several advantages with the exclusive, flexible rights
model. First, proponents argue that this model would promote the
economically efficient use of spectrum. For example, advocates typically
point to CMRS to support this argument, as CMRS licenses are exclusive and
governed by relatively flexible rules; in addition, the market for CMRS
services is highly valuable, innovative, and fast-growing. Second,
proponents suggest that the model provides certainty for licensees. The
model provides a reliable means of protecting commercial users from
interference, allowing them to guarantee quality of service on a wide
scale. Third, proponents argue that greater certainty will encourage
investment in technology and infrastructure.
Opponents cite several problems with the exclusive, flexible rights model.
For example, opponents assert that the model might not promote technically
efficient, or intensive, use of spectrum. According to some critics,
exclusivity might reduce licensees' incentives to invest in developing
more technically efficient technologies as users have guaranteed access to
spectrum, thereby deterring innovation. In addition, some opponents assert
that the model could encourage "hoarding" of spectrum, as licensees could
benefit from blocking access to spectrum by potential competitors. In
other words, companies may buy rights to spectrum-with no intention of
using the spectrum-to prevent a competitor from acquiring rights to the
same spectrum.
The Open-Access Model Is a Non-Licensed Approach to Spectrum Allocation
The open-access model allows a potentially unlimited number of unlicensed
users to share frequency bands, with usage rights governed by technical
standards, but with no rights to interference protection. This approach
does not require licenses, and as such is similar to the current FCC Part
15 rules (which govern unlicensed use in the 900 MHz, 2.4 GHz, and 5.8 GHz
bands)-where cordless phones and Wi-Fi technologies operate. As with
exclusive, flexible rights, users would have greater latitude in
determining how they use spectrum. However, in this case, markets for
end-user equipment, rather than for licenses, would determine how
different frequency bands are used or allocated. Under this model,
commercial spectrum-based service providers would not seek to maximize
their return on spectrum licenses, but rather, on the sale of equipment
that, once purchased, would allow consumers to enjoy wireless services.
Proponents of the open-access model cite several advantages with this
approach to spectrum allocation. For example, proponents assert that the
open-access model will promote the technically efficient use of spectrum.
In order to avoid interference, users have an incentive to develop smarter
equipment that will use the spectrum intelligently. An example of
technically efficient equipment is agile radio. Agile radios can determine
if a specific frequency is currently in use, emit in that band if it is
not, and switch to another band in microseconds if another user begins to
emit in
that band.22 In fact, supporters of the open-access model believe that
open access to spectrum will foster the development of technologies that
will reduce spectrum scarcity, and therefore interference problems, as a
new type of wireless architecture becomes possible. According to
proponents, the open-access model for spectrum allocation also limits the
ability for companies to "hoard" spectrum-that is, since there would be no
exclusive use of spectrum in this model, companies could no longer block
their competitors from acquiring spectrum by simply acquiring or holding
on to spectrum themselves. In addition, since users would no longer need
to buy spectrum rights, the open-access model reduces barriers to entry
into spectrum-based markets, according to proponents.
Opponents cite several problems with the open-access model. One cited
problem is that an open-access approach could lead to the overuse of
spectrum. Specifically, opponents believe that the technologies that could
end spectrum scarcity are years away from realization. Without such
technologies, an unlimited number of unlicensed users would result in the
overuse of spectrum and interference. Moreover, opponents argue that the
uncertainty about interference would inhibit investment. Another cited
problem is the potential irreversibility of this model-that is, once
consumers have the equipment, it would be difficult to prevent them from
accessing the spectrum if the spectrum were needed for some other purpose
in the future. One only need to imagine the difficulties involved with
trying to prevent people from using their garage door openers-which
operate in some bands under Part 15 rules-to understand this potential
challenge.
FCC's Spectrum Policy Task Force Advocated a Balanced Approach
The Spectrum Policy Task Force report recommended a balanced approach to
spectrum allocation-utilizing aspects of the command-and-control;
exclusive, flexible rights; and open-access models. In particular, FCC's
task force recommended the following:
o moving away from the command-and-control model, except for limited
exceptions such as public safety or to conform to treaty requirements;
o using the exclusive, flexible rights model where scarcity of spectrum is
a concern and transaction costs are low; and
o using the open-access model where scarcity is a lesser concern and
transaction costs are relatively high.
Little Consensus Exists about the Future Management of Spectrum
We found little consensus on the future management of spectrum. As noted
above, there is disagreement about the merits of the exclusive, flexible
rights and open-access models. However, many industry stakeholders we
spoke with and panelists on our expert panel support a mixed approach,
which incorporates spectrum use under an exclusive, flexible rights
licensed model and an open-access model. For example, those who favor open
access do not all believe that licensing should suddenly be done away
with, but that different approaches ought to be tested and compared before
any policy decision is made. Similarly, a number of industry stakeholders
we spoke with who favor providing spectrum users with flexible rights in
licensed bands also believe that unlicensed spectrum is, at the minimum,
appropriate for use by certain devices within certain bands.
Auctions Have Little to No Negative Impact on the Wireless Industry and
Are More Efficient than Previous Assignment Mechanisms
Auctions have little to no negative effect on end-user prices,
infrastructure deployment, or competition, although the effect on entry
and participation of small businesses is less certain. FCC's
implementation of auctions has also mitigated problems arising with
comparative hearings and lotteries. In addition to auctions, secondary
markets provide another means for entities to acquire licenses or lease
spectrum in order to gain access to spectrum.
Auctions Have No Negative Impact on the Wireless Industry
Some critics of spectrum auctions have suggested that auctions negatively
impact the wireless industry. Since auctions require licensees to pay for
licenses, and in some instances the payments can represent a significant
outlay, these critics believe that auctions (1) raise consumer prices as
entities seek to recoup their auction payments, (2) slow infrastructure
deployment by diverting financial resources to the government, (3) distort
competition by creating an environment where some entities that acquired
licenses via auction compete with other entities that previously acquired
licenses via other means, and (4) deter entry and hinder small business
participation in the wireless industry by necessitating large payments
prior to the issuance of licenses.
We found that FCC's implementation of auctions has no negative impact on
end-user prices, infrastructure deployment, and competition; the evidence
on the impact on entry and participation of small businesses is less
clear. In particular:
o End-user prices. We found that auctions have little to no impact on
end-user prices. Economic research suggests that auction payments do not
affect end-user prices, since these payments represent a sunk cost, which
do not affect future-oriented decisions. For example, using data on
cellular prices from 1985 to 1998, one author empirically found that
auctions had no effect on prices.23 Additionally, industry stakeholders we
spoke to and panelists on our expert panel noted that competition
ultimately affects end-user prices. Thus, regardless of a company's desire
to recoup its auction payment, the company will select prices that
maximize future profits based on competition in the market. Among the
panelists on our expert panel, a majority said that auctions do not affect
end-user prices. Specifically, 10 panelists said that auctions do not
affect end-user prices, 3 said that auctions decrease prices, and 5 said
that auctions increase prices.24
o Infrastructure Deployment. We found that auctions have little to no
impact on infrastructure deployment. Similar to the argument for end-user
prices, economic research suggests that auction payments do not deter
infrastructure deployment; companies will make decisions about
infrastructure deployment based on the future profit potential of those
investments. Some industry stakeholders with whom we spoke, and panelists
on our expert panel, mentioned that auction payments may in fact stimulate
infrastructure deployment. In particular, since an auction payment
represents an investment, the company will seek a return on that
investment. To earn that return, a wireless company will sell subscriber
services, which are made possible through the deployment of wireless
networks. Among panelists on our expert panel, eight said that auctions
increase investment, five said that auctions had no effect on investment,
and seven said that auctions decrease investment.
o Competition. We found little evidence that auctions affect the
competitive environment. Many stakeholders told us that auctions generally
do not place companies at a competitive or financial disadvantage compared
to companies that acquired licenses through other, non-auctioned, means
that might not have involved payment for the licenses, such as lotteries.
These stakeholders noted that (1) companies acquired non-auctioned
licenses many years ago, (2) many non-auctioned licenses have subsequently
been sold and paid for, and (3) companies that acquired non-auctioned
licenses have subsequently acquired additional licenses via auction.
Therefore, any competitive advantage these companies gained by obtaining
licenses through means other than auctions has dissipated. Among our
panelists, 11 said that auctions increase the degree of competition, while
3 said that auctions had no effect on competition, and 4 said that
auctions decrease competition.
o Entry and participation of small businesses. Some industry stakeholders
we interviewed stated that auctions limit participation to large companies
with extensive financial resources.25 These stakeholders assert that small
companies are unable to acquire the financial resources necessary to
successfully compete in FCC's auction process. However, others noted that
large companies also tended to dominate the comparative hearing process.
In addition, some stakeholders noted that the capital intensive nature of
the wireless industry-not the assignment mechanism-makes it difficult for
small businesses to participate. Expert opinion diverged on this issue:
among our expert panelists, eight said that auctions increase entry while
another eight said that auctions decrease entry, and three panelists said
that auctions had no effect on entry.
Auctions Mitigate Many Problems Associated with Previous Assignment
Mechanisms
As mentioned earlier, comparative hearings and lotteries-the two primary
assignment mechanisms employed until 1993-suffered from several problems.
Comparative hearings were generally time consuming and resource intensive,
as entities employed engineers and lawyers to prepare applications and FCC
dedicated staff to evaluating applications based on pre-established
comparative criteria. Further, decisions arising from comparative hearings
lacked transparency and often led to protracted litigation. While
lotteries were less time consuming and resource intensive, they did not
necessarily assign licenses to the entities that were best suited to
provide services. Thus, several years could pass before the licenses were
transferred in the secondary market to entities capable of deploying a
wireless system and effectively using the spectrum. Further, neither
comparative hearings nor lotteries provided a mechanism for the public to
financially benefit from commercial entities using a valuable national
resource.26
FCC's implementation of auctions mitigates a number of problems associated
with comparative hearings and lotteries. For example:
o Auctions are a relatively quick assignment mechanism. With auctions, FCC
reduced the average time for granting a license to less than one year from
the initial application date, compared to an average time of over 18
months with comparative hearings.
o Auctions are administratively less costly than comparative hearings.
Entities seeking a license can reduce expenditures for engineers and
lawyers arising from preparing applications, litigating, and lobbying; and
FCC can reduce expenditures associated with reviewing and analyzing
applications.
o Auctions are a transparent process. FCC awards licenses to entities
submitting the highest bid rather than relying on possibly vague criteria,
as was done in comparative hearings.
o Auctions are effective in assigning licenses to entities that value them
the most. Alternatively, with lotteries, FCC awarded licenses to
randomly-selected entities.
o Auctions are an effective mechanism for the public to realize a portion
of the value of a national resource used for commercial purposes. Entities
submitting winning bids must remit the amount of their winning bid to the
government, which represents a portion of the value that the bidder
believes will arise from using the spectrum. As mentioned earlier,
auctions have generated over $14.5 billion for the U.S. Treasury.
Many industry stakeholders we contacted, and panelists on our expert
panel, stated that auctions are more efficient than previous mechanisms
used to assign spectrum licenses. For example, among our panelists, 11 of
17 reported that auctions provide the most efficient method of assigning
licenses; no panelist reported that comparative hearings or lotteries
provided the most efficient method. Of the remaining panelists, several
suggested that the most efficient mechanism depended on the service that
would be permitted with the spectrum.27
Secondary Markets Provide an Additional Mechanism for Companies to Acquire
Licenses and Gain Access to Spectrum
While FCC's initial assignment mechanisms provide one means for companies
to acquire licenses, companies can also acquire licenses or access to
spectrum through secondary market transactions. Through secondary markets,
companies can engage in transactions whereby a license or use of spectrum
is transferred from one company to another. These transactions can
incorporate the sale or trading of licenses. In some instances, companies
acquire licenses through the purchase of an entire company, such as
Cingular's purchase of AT&T Wireless. Ultimately, FCC must approve
transactions that result in the transfer of licenses from one company to
another.
In recent years, FCC has undertaken actions to facilitate secondary-market
transactions. FCC authorized spectrum leasing for most wireless radio
licenses with exclusive rights and created two categories of spectrum
leases: Spectrum Manager Leasing-where the licensee retains legal and
working control of the spectrum-and de Facto Transfer Leasing-where the
licensee retains legal control but the lessee assumes working control of
the spectrum. FCC also streamlined the procedures that pertain to spectrum
leasing. For instance, the Spectrum Manager Leases do not require prior
FCC approval and de Facto Transfer Leases can receive immediate approval
if the arrangement does not raise potential public interest concerns.28
While FCC has taken steps to facilitate secondary market transactions,
some hindrances remain. For example, some industry stakeholders told us
that the lack of flexibility in the use of spectrum can hinder secondary
market transactions.
Secondary markets can provide several benefits. First, secondary markets
can promote more efficient use of spectrum. If existing licensees are not
fully utilizing the spectrum, secondary markets provide a mechanism
whereby these licensees can transfer use of the spectrum to other
companies that would utilize the spectrum, thereby increasing the amount
of available spectrum and reducing the perceived scarcity of spectrum.29
Second, secondary markets can facilitate the participation of small
businesses and introduction of new technologies. For example, a company
might have a greater incentive to deploy new technologies that require
less spectrum if the company can profitably transfer the unused portion of
the spectrum to another company through the secondary market. Also,
several stakeholders we spoke to noted that secondary markets provide a
mechanism whereby a small business can acquire spectrum for a geographic
area that best meets the needs of the company.
Industry Stakeholders and Panelists Suggested Several Options to Improve
Spectrum Management
Industry stakeholders and panelists on our expert panel offered a number
of options for improving spectrum management. The most frequently cited
options include (1) extending FCC's auction authority, (2) reexamining the
distribution of spectrum-such as between commercial and government use-to
enhance the efficient and effective use of this important resource, and
(3) ensuring clearly defined rights and flexibility in commercially
licensed spectrum bands. There was no consensus on these options for
improvements among stakeholders we interviewed and panelists on our expert
panel, except for extending FCC's auction authority.
Extend FCC's Auction Authority
Panelists on our expert panel and industry stakeholders with whom we spoke
overwhelmingly supported extending FCC's auction authority. For example,
21 of 22 of panelists on our expert panel indicated that the Congress
should extend FCC's auction authority beyond the September 30, 2007
expiration date. As mentioned earlier, panelists and stakeholders believe
that auctions are more efficient than previous mechanisms used to assign
spectrum licenses; moreover, auctions are viewed as being faster, less
costly, and more transparent than the previous mechanisms. Additionally,
extending FCC's auction authority could generate significant revenues for
the government.30 However, panelists and stakeholders also noted that the
government should use spectrum auctions to promote the efficient use of
spectrum, not necessarily to maximize revenues for the government.
While panelists on our expert panel overwhelmingly supported extending
FCC's auction authority, a majority also suggested modifications to
enhance the use of auctions.31 However, there was little consensus on the
suggested modifications. The suggested modifications fall into the
following three categories:
o Better define license rights. Some industry stakeholders and panelists
indicated that FCC should better define the rights accompanying spectrum
licenses, as these rights can significantly affect the value of a license
being auctioned. For example, some industry stakeholders express concern
with FCC assigning overlay and underlay rights to frequency bands when a
company holds a license for the same frequency bands.32
o Enhance secondary markets. Industry stakeholders we contacted and
panelists on our expert panel generally believe that modifying the rules
governing secondary markets could lead to more efficient use of spectrum.
For example, some panelists on our expert panel said that FCC should
increase its involvement in the secondary market. These panelists thought
that increased oversight could help to both ensure transparency in the
secondary market and also promote the use of the secondary market.
Additionally, a few panelists said that adoption of a "two-sided" auction
would support the efficient use of spectrum. With a two-sided auction, FCC
would offer unassigned spectrum and existing licensees could make
available the spectrum usage rights they currently hold.
o Reexamine existing small business incentives. The opinions of panelists
on our expert panel and industry stakeholders with whom we spoke varied
greatly regarding the need for and success of FCC's efforts to promote
economic opportunities for small businesses. For example, some panelists
and industry stakeholders do not support incentive programs for small
businesses. These panelists and industry stakeholders cited several
reasons for not supporting these incentives, including (1) the wireless
industry is not a small business industry; (2) while the policy may have
been well intended, the current program is flawed; or (3) such incentives
create inefficiencies in the market. Other industry stakeholders suggested
alternative programs to support small businesses. These suggestions
included (1) having licenses cover smaller geographic areas, (2) using
auctions set aside exclusively for small and rural businesses, and (3)
providing better lease options for small and rural businesses. Finally,
some industry stakeholders with whom we spoke have benefited from the
small business incentive programs, such as bidding credits,33 and believe
that these incentives have been an effective means to promote small
business participation in wireless markets.
Reexamine the Use and Distribution of Spectrum
Panelists on our expert panel suggested a reexamination of the use and
distribution of spectrum to ensure the most efficient and effective use of
this important resource. One panelist noted that the government should
have a good understanding of how much of the spectrum is being used. To
gain a better understanding, a few panelists suggested that the government
systematically track usage, perhaps through a "spectrum census." This
information would allow the government to determine if some portions of
spectrum were underutilized, and if so, to make appropriate allocation
changes and adjustments.
A number of panelists on our expert panel also suggested that the
government evaluate the relative allocation of spectrum for government and
commercial use as well as the allocation of spectrum for licensed and
unlicensed purposes. While panelists thought the relative allocation
between these categories should be examined, there was little consensus
among the panelists on the appropriate allocation. For instance, as shown
in figure 3, 13 panelists indicated that more spectrum should be dedicated
to commercial use, while 7 thought the current distribution was
appropriate. No panelists thought that more spectrum should be dedicated
to government use. Similarly, as shown in figure 4, nine panelists
believed that more spectrum should be dedicated to licensed uses, six
believed more should be dedicated to unlicensed uses, and five thought the
current balance was appropriate.
Figure 3: Panelists' Views on the Allocation of Spectrum between
Commercial and Government Use
Figure 4: Panelists' Views on the Allocation of Spectrum between Licensed
and Unlicensed Use
Ensure Clearly Defined Rights and Flexibility
Similar to a suggested modification of FCC's use of auctions, some
panelists on our expert panel suggested better defining users' rights and
increasing flexibility in the allocation of spectrum. Better defining
users' rights would clarify the understanding of the rights awarded with
any type of license, whether the licensees acquired the license through an
auction or other means. In addition, some panelists stated that greater
flexibility in the type of technology used-and service offered-within
frequency bands would help promote the efficient use of spectrum. In
particular, greater flexibility would allow the licensee to determine the
efficient and highly valued use, rather than relying on FCC-based
allocation and service rules. However, some panelists on our expert panel
and industry stakeholders with whom we spoke noted that greater
flexibility can lead to interference, as different licensees provide
potentially incompatible services in close proximity.34 Thus, panelists on
our expert panel stressed the importance of balancing flexibility with
interference protection.
Conclusions
As commercial enterprises and government agencies increasingly utilize
spectrum to provide consumer services and fulfill important missions, the
management of spectrum to ensure its efficient use takes on greater
importance. Many industry stakeholders and panelists on our expert panel
told us that the current command-and-control process for allocating
spectrum is less effective than other approaches. As a result, they stated
that spectrum is not being fully utilized at all times and perhaps not
being used for its highest-value purposes. Yet, few stakeholders or
experts agree on how to improve the process. To achieve greater consensus
for reform of the spectrum management process, we previously suggested
that the Congress consider establishing an independent commission that
would conduct a comprehensive examination of spectrum management.35
One aspect of spectrum management that appears very effective is the use
of auctions for assigning licenses for commercial entities. As implemented
by FCC, spectrum auctions resolve problems associated with previous
assignment mechanisms, while giving rise to little or no problems. Most
stakeholders and experts with whom we spoke support extending FCC's
auction authority beyond the current expiration date of September 30,
2007.
Matter for Congressional Consideration
Given the success of FCC's use of auctions and the overwhelming support
among industry stakeholders and experts for extending FCC's auction
authority, the Congress should consider extending FCC's auction authority
beyond the current expiration date of September 30, 2007.
Agency Comments
We provided a draft of this report to FCC, NTIA, and the Office of
Management and Budget for their review and comment. FCC provided technical
comments that we incorporated where appropriate. NTIA had no comments on
the draft. OMB concurred with our finding that auctions have mitigated
problems associated with comparative hearings and lotteries and noted that
the Administration supports the permanent extension of FCC's auction
authority. OMB also noted that the Administration has proposed to give FCC
authority to use economic mechanisms to promote efficient spectrum use.
We are sending copies of this report to the appropriate congressional
committees. We are also sending this report to the Secretary of Commerce,
Chairman of the Federal Communications Commission, and the Director of the
Office of Management and Budget. 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://w ww.gao.gov.
Should you have any questions about this report, please contact me at
202-512-2834 or h eckerj@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Individuals making key contributions to this report
include
Amy Abramowitz, Stephen Brown, Emilie Cassou, Michael Clements, Nikki
Clowers, Kate Magdalena Gonzalez, Eric Hudson, Terri Russell, Mindi
Weisenbloom, and Alwynne Wilbur.
JayEtta Z. Hecker, Director, Physical Infrastructure Issues
Scope and MethodologyAppendix I
The Commercial Spectrum Enhancement Act required us to review the Federal
Communications Commission's (FCC) commercial spectrum licensing process.
The objectives of our study included examining the (1) characteristics of
the current spectrum allocation process for commercial uses; (2) impact of
the assignment process-specifically the adoption of auctions to assign
spectrum licenses-on end-user prices, infrastructure deployment,
competition, and entry and participation of small businesses; and (3)
options for improving spectrum management.
To address all three objectives, we conducted a comprehensive, structured
literature review of economic, legal, and public policy material relevant
to spectrum issues. Our literature review included domestic studies on
spectrum management that were published in the last 25 years. To identify
articles for our literature review, we searched a number of databases,
including LexisNexis, Hein Online, Westlaw, and ProQuest, using key terms
such as "spectrum," "assignment," and "license." We eliminated articles
and studies from our literature review that did not directly relate to our
objectives or did not provide original analysis. We also considered the
methodological soundness of the articles and studies included in our
literature review; we determined that the findings of these studies were
sufficiently reliable for our purposes.
We also extracted data from FCC's license databases (Universal Licensing
System, Consolidated Database System, and International Bureau Filing
System) to determine the distribution of active licenses among different
segments of the wireless industry and to identify the largest holders of
licenses. To assess the reliability of the information from these
databases, we interviewed FCC officials responsible for the databases
about their data collection and verification policies, and procedures for
license information. We also electronically tested the databases. We
concluded that information from FCC's license databases was sufficiently
reliable for the purposes of this report. In addition, we interviewed FCC,
National Telecommunications and Information Administration, and Office of
Management and Budget officials and conducted semi-structured interviews
with representatives from academia and the wireless industry to obtain a
broad range of perspectives on spectrum allocation and assignment issues.
We selected representatives from academia and the wireless industry based
on their organization's vested interest in spectrum policy, or their
expertise in spectrum policy as represented by presentations or
publications. (Table 1 lists the companies, academic institutions, or
other entities of the representatives we interviewed.)
Table 1: List of non-government interviewees
Alaska Native Broadband 1 License, LLC
Arraycomm
Bear Stearns
Brattle Group
Cingular
Consumers Energy Company
CSIS
CTIA
Dobson
Enterprise Wireless Allocation
Hogan and Hartson LLP
Information Technology Industry Council
Intel
Lockheed Martin
Lucent Technologies
Manhattan Institute
Metro PCS
Mobile Relay Associates
Motorola
National Association of Broadcasters
New America Foundation
New Skies Satellites
Nextel
Prudential Financial
Stanford University
Sprint PCS
T-Mobile
United Telecom Council
University of California, Berkley
University of Maryland
University of Pennsylvania
Verizon Wireless
Yale Law School
Source: GAO.
We also contracted with the National Academies to convene a balanced,
diverse panel of experts to discuss spectrum allocation and assignment
issues and options to improve spectrum management in the future. We worked
closely with the National Academies to identify and select 23 panelists
who could adequately respond to our general and specific questions about
spectrum allocation, assignment processes, and options for improvement. In
keeping with National Academies policy, the panelists were invited to
provide their individual views, and the panel was not designed to reach a
consensus on any of the issues that we asked them to discuss. The
panelists convened at the National Academies in Washington, D.C., on
August 9 and 10, 2005. Twelve panelists participated on the panel on
August 9, 2005; eleven panelists participated on the panel on August 10,
2005. (See table 2 for the list of panelists on each day.) The agendas and
questions were identical for both days. To start each day, the panel
moderators provided an overview of the issues to be discussed; during the
remainder of the day, the panelists addressed the questions we had
provided for their consideration. At the end of the each session, we asked
the panelists to individually answer a short series of questions about the
topics discussed in order to more systematically capture individual
panelists' views on key dimensions. We did not verify the panelists'
statements, although we did ask the panelists, in some instances, to
clarify certain details. The views expressed by the panelists do not
necessarily represent the views of GAO or the National Academies.
Table 2: Panelists on GAO/National Academies expert panel
Name Affiliation
August 9, 2005
Dale Hatfield (moderator) Independent consultant and Adjunct Professor,
University of Colorado, Boulder
Peter Cramton Professor, University of Maryland, College Park
David Donovan President, Association for Maximum Service
Television, Inc.
Gerald Faulhaber Professor, The Wharton School, University of
Pennsylvania
Bruce Franca Deputy Chief, Office of Engineering and
Technology, Federal Communications Commission
Ellen Goodman Associate Professor, Rutgers School of Law,
Camden
Mark McHenry President, Shared Spectrum
William Moroney President and CEO, United Telecom Council
Charla Rath Executive Director, Spectrum and Public Policy,
Verizon Wireless
David Reed Fellow, HP Labs and Adjunct Professor,
Massachusetts Institute of Technology
Steve Sharkey Director, Spectrum and Standards Strategy,
Motorola, Inc.
Badri Younes Director, Spectrum Management, Department of
Defense
August 10, 2005
Gregory Rosston Deputy Director, Stanford Institute for Economic
(moderator) Policy Research, Stanford University
Paul Besozzi Attorney, Patton Boggs, LLP
Diane J. Cornell Vice President, Regulatory Policy, Cellular
Telecommunications and Internet Association
Joe Gattuso Senior Policy Advisor, Office of the Assistant
Secretary, National Telecommunications and
Information Administration
Kalpak Gude Vice President, Government Regulatory Affairs
and Associate General Counsel, PanAmSat
Thomas W. Hazlett Professor of Law and Economics, George Mason
University
Dewayne Hendricks CEO, The Dandin Group
Kevin Kahn Intel Senior Fellow, Communications Technology
Lab, Intel Corporation
David Sidall Attorney, Paul, Hastings, Janofsky & Walker, LLP
Jennifer Warren Senior Director, Trade & Regulatory Affairs,
Lockheed Martin
Jimmy R. "Rusty" Williams Infrastructure Services Manager, Planning &
Engineering, Southern Company Services
Source: GAO.
After the expert panel was conducted, we analyzed a transcript of the
panel's discussion and survey responses in order to identify principal
themes and panelists' views. The results of the expert panel should be
interpreted in the context of two key limitations and qualifications.
First, although we were able to secure the participation of a balanced,
highly qualified group of experts, there are other experts in this field
who could not be included because of the need to limit the size of the
panel. Although many points of view were represented, the panel was not
representative of all potential views. Second, even though we conducted
preliminary research, in cooperation with The National Academies, and
heard from national experts in their fields, two panels cannot represent
the current practice in this vast arena. More thought, discussion, and
research must be done to develop greater agreement on what is really
known, what needs to be done, and how to do it. These two key limitations
and qualifications provide contextual boundaries. Nevertheless, the panel
provided a rich dialogue on spectrum allocation and assignment issues, as
well as options for improving spectrum management in the future; the
panelists also provided insightful comments in responding to the questions
posed to the panel.
(544100)
www.gao.gov/cgi-bin/getrpt? GAO-06-236 .
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact JayEtta Z. Hecker at (202) 512-2834 or
heckerj@gao.gov.
Highlights of GAO-06-236 , a report to congressional committees
December 2005
TELECOMMUNICATIONS
Strong Support for Extending FCC's Auction Authority Exists, but Little
Agreement on Other Options to Improve Efficient Use of Spectrum
The radio-frequency spectrum is a natural resource used to provide an
array of wireless communications services, such as television
broadcasting, which are critical to the U.S. economy and national
security. In 1993, the Congress gave the Federal Communications Commission
(FCC) authority to use competitive bidding, or auctions, to assign
spectrum licenses to commercial users.
The Commercial Spectrum Enhancement Act required GAO to examine FCC's
commercial spectrum licensing process. Specifically, GAO examined the (1)
characteristics of the current spectrum allocation process for commercial
uses; (2) impact of the assignment process-specifically the adoption of
auctions to assign spectrum licenses-on end-user prices, infrastructure
deployment, competition, and entry and participation of small businesses;
and (3) options for improving spectrum management.
What GAO Recommends
In 2003, GAO recommended that an independent commission examine spectrum
management. In this report, GAO recommends that the Congress consider
extending FCC's auction authority beyond the current expiration date of
September 30, 2007. FCC provided technical comments on this report and OMB
generally agreed with the report.
The current spectrum allocation process is largely characterized as a
"command-and-control" process, in which the government largely dictates
how the spectrum is used. Many stakeholders we spoke with, along with
panelists on our expert panel, identified a number of weaknesses of the
existing spectrum allocation process, including that the current process
is slow and leads to underutilization of the spectrum. FCC staff have
identified two alternative allocation models: the "exclusive, flexible
rights" model-which would extend the existing process by providing greater
flexibility to spectrum license holders-and the "open-access" (or
"commons") model-which would allow an unlimited number of unlicensed users
to share spectrum. While little consensus exists about fully adopting
either alternative model, FCC staff, as well as many stakeholders and
panelists on our expert panel, recommend a balanced approach that would
combine elements of the current process and the two alternative models.
FCC's use of auctions to assign spectrum appears to have little to no
negative impact on end-user prices, infrastructure deployment, and
competition; evidence on how auctions impact the entry and participation
of small businesses is less clear. Additionally, FCC's implementation of
auctions has mitigated problems associated with comparative hearings and
lotteries, which FCC previously used to assign licenses. In particular,
auctions are quicker, less costly, and more transparent. Finally,
secondary markets provide an additional mechanism for companies to acquire
licenses and gain access to spectrum, and FCC has undertaken actions to
facilitate secondary-market transactions, such as streamlining the
approval process for leases.
Industry stakeholders and panelists on our expert panel offered a number
of options for improving spectrum management. The most frequently cited
options include (1) extending FCC's auction authority, (2) reexamining the
use and distribution of spectrum-such as between commercial and
governmental use-to enhance the efficient and effective use of this
important resource, and (3) ensuring flexibility in commercially licensed
spectrum bands. Stakeholders and panelists on our expert panel
overwhelmingly supported extending FCC's auction authority; however, there
was little consensus on the other identified options for improvement.
Images Depicting Common Uses of Spectrum
*** End of document. ***