Telecommunications: Options for and Barriers to Spectrum Reform
(14-MAR-06, GAO-06-526T).
The radio-frequency spectrum is used to provide an array of
wireless communications services that are critical to the U.S.
economy and various government missions, such as national
security. With demand for spectrum exploding, and most useable
spectrum allocated to existing users, there is growing concern
that the current spectrum management framework might not be able
to respond adequately to future demands. This testimony, which is
based on previous GAO reports, provides information on (1) the
extent to which the Federal Communications Commission (FCC) has
adopted market-based mechanisms for commercial use, (2) the
extent to which market-based mechanisms have been adopted for
federal government users of spectrum, (3) options for improving
spectrum management, and (4) potential barriers to spectrum
reform.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-526T
ACCNO: A48939
TITLE: Telecommunications: Options for and Barriers to Spectrum
Reform
DATE: 03/14/2006
SUBJECT: Competition
Radio frequency allocation
Regulatory agencies
Spectrum management
Strategic planning
Telecommunications
Telecommunications industry
User fees
Wireless
Economic analysis
Supply and demand
******************************************************************
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GAO-06-526T
* Background
* FCC Has Adopted Several Market-Based Mechanisms for Commerci
* FCC Has Introduced Some Flexibility in the Spectrum Allocati
* FCC's Use of Auctions for Commercial Licenses Is Seen as an
* FCC Has Acted to Facilitate Secondary Market Transactions
* Market-Based Mechanisms Have Not Been Adopted for Federal Go
* Incentive-Based Fees Have Not Been Used to Promote Spectrum
* Applying Market-Based Mechanisms to Federal Government Users
* Industry Stakeholders and Panelists Suggested Several Option
* Extend FCC's Auction Authority
* Reexamine the Use and Distribution of Spectrum
* Ensure Clearly Defined Rights and Flexibility
* The Current Framework for Spectrum Management May Pose Barri
* Concluding Observations
* Contact and Acknowledgments
* GAO's Mission
* Obtaining Copies of GAO Reports and Testimony
* Order by Mail or Phone
* To Report Fraud, Waste, and Abuse in Federal Programs
* Congressional Relations
* Public Affairs
Testimony
Before the Committee on Commerce, Science, and Transportation United
States Senate
United States Government Accountability Office
GAO
For Release on Delivery Expected at 10:00 a.m. EST
Tuesday, March 14, 2006
TELECOMMUNICATIONS
Options for and Barriers to Spectrum Reform
Statement of JayEtta Z. Hecker, Director Physical Infrastructure Issues
GAO-06-526T
Mr. Chairman and Members of the Committee:
We appreciate the opportunity to provide testimony on spectrum reform
issues. As you know, the radio-frequency spectrum is used to provide an
array of wireless communications services that are critical to the U.S.
economy and various government missions, such as national security. Demand
for radio-frequency spectrum has exploded over the past several decades as
new technologies and services have been-and continue to be-brought to the
market in the private sector, and new mission needs unfold among
government users. As a result, nearly all parties are becoming
increasingly concerned about the availability of spectrum for future needs
because most of the usable spectrum in the United States has already been
allocated to existing services and users. Compounding this concern is
evidence that some of the spectrum is currently underutilized. Many
parties believe that spectrum management reform-such as greater reliance
on market-based mechanisms that invoke the forces of demand and supply-is
essential to meeting the growing and unpredictable demand for spectrum.
My statement today will identify (1) the extent to which the Federal
Communications Commission (FCC) has adopted market-based mechanisms for
commercial uses of spectrum,1 (2) the extent to which market-based
mechanisms have been adopted for federal government use of spectrum, (3)
options for improving spectrum management, and (4) potential barriers to
spectrum reform. My comments are based on our body of work on spectrum
management, including our recently issued report to this Committee;2 these
reports were prepared in accordance with generally accepted government
auditing standards.
In summary:
1FCC manages spectrum use for nonfederal users, including commercial,
private, and state and local government users.
2GAO, Telecommunications: Strong Support for Extending FCC's Auction
Authority Exists, but Little Agreement on Other Options to Improve
Efficient Use of Spectrum, GAO-06-236 (Washington, D.C.: Dec. 20, 2005);
GAO, Telecommunications: Comprehensive Review of U.S. Spectrum Management
with Broad Stakeholder Involvement is Needed, GAO-03-277 (Washington,
D.C.: Jan. 31, 2003); and GAO, Telecommunications: Better Coordination and
Enhanced Accountability Needed to Improve Spectrum Management, GAO-02-906
(Washington, D.C.: Sept. 30, 2002).
o FCC is incrementally adopting market-based approaches to
managing the commercial use of spectrum. Market-based mechanisms
can help promote the efficient use of spectrum by invoking the
forces of supply and demand-that is, they provide users an
incentive to use the spectrum as efficiently as possible. Examples
of market-based mechanisms include introducing flexibility in the
use of spectrum, using auctions to assign licenses, and enhancing
the use of secondary markets as a means for companies to obtain
access to spectrum. FCC has adopted these mechanisms for
commercial uses. For example, although FCC currently employs
largely a command-and-control process for spectrum allocation, it
has provided greater flexibility within certain spectrum bands. In
addition, FCC began using auctions to assign spectrum licenses for
commercial uses in 1994. According to industry stakeholders, FCC's
implementation of auctions is seen as an improvement over
comparative hearings and lotteries, the primary assignment
mechanisms employed in the past. Finally, FCC has taken steps to
facilitate greater secondary market activity, which may provide an
additional mechanism to promote the efficient use of spectrum.
o While some countries have adopted market-based mechanisms to
encourage the efficient use of spectrum by government agencies,
the Department of Commerce's National Telecommunications and
Information Administration (NTIA) has not adopted similar
mechanisms for federal government use in the United States. NTIA
imposes fees that recover only a portion of its cost to administer
spectrum management, rather than incentive-based fees-that is,
fees that more closely resemble market prices and thus encourage
greater spectrum efficiency among government users; currently,
NTIA does not have authority to impose fees that exceed its
spectrum management costs. However, adopting market-based
mechanisms for federal government use of spectrum might be
difficult or undesirable in some contexts because of the primacy
of certain government missions, the lack of flexibility in use of
spectrum for some agencies, and the lack of financial incentives
for government users.
o As we reported in December 2005, industry stakeholders and
experts have identified a number of options for improving spectrum
management. The most frequently cited options include (1)
extending FCC's auction authority, (2) reexamining the use and
distribution of spectrum, and (3) ensuring clearly defined rights
and flexibility in commercially licensed spectrum bands; there was
no consensus on these options, except for extending FCC's auction
authority. Given the success of FCC's use of auctions and the
overwhelming support for extending FCC's auction authority, we
suggested that the Congress consider extending FCC's auction
authority beyond the 2007 expiration date. Congress extended FCC's
auction authority to 2011 with the passage of the Deficit
Reduction Act of 2005.3
o The current management framework may pose barriers to reform
since, while two agencies have been given responsibility for
aspects of spectrum management, neither has been given ultimate
decision-making authority over all spectrum use or the authority
to impose fundamental reform, such as increasing the reliance on
market-based mechanisms. Under this divided management framework,
FCC manages spectrum for nonfederal users while NTIA manages
spectrum for federal government users. However, spectrum
management issues and major reform cross the jurisdictions of both
agencies. To address these barriers, we have previously
recommended that (1) the Secretary of Commerce and FCC establish
and carry out formal, joint planning activities to develop a
national spectrum plan to guide decision making; and (2) the
relevant administrative agencies and congressional committees work
together to develop and implement a plan for the establishment of
a commission that would conduct a comprehensive examination of
current spectrum management.4 To date, these recommendations have
not been implemented.
The radio-frequency spectrum is the part of the natural spectrum
of electromagnetic radiation lying between the frequency limits of
9 kilohertz and 300 gigahertz.5 It is the medium that makes
wireless communications possible and supports a vast array of
commercial and governmental services. Commercial entities use
spectrum to provide a variety of wireless services, including
mobile voice and data, paging, broadcast radio and television, and
satellite services. Additionally, some companies use spectrum for
private tasks, such as communicating with remote vehicles.
Federal, state, and local agencies also use spectrum to fulfill a
variety of government missions. For example, state and local
police departments, fire departments, and other emergency services
agencies use spectrum to transmit and receive critical voice and
data communications, and federal agencies use spectrum for varied
mission needs such as national defense, law enforcement, weather
services, and aviation communication.
Spectrum is managed at the international and national levels. The
International Telecommunication Union (ITU), a specialized agency
of the United Nations, coordinates spectrum management decisions
among nations. Spectrum management decisions generally require
international coordination, since radio waves can cross national
borders. Once spectrum management decisions are made at the ITU,
regulators within each nation, to varying degrees, will follow the
ITU decisions. In the United States, responsibility for spectrum
management is divided between two agencies: FCC and NTIA. FCC
manages spectrum use for 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.6 FCC and NTIA, with direction from
the Congress, jointly determine the amount of spectrum allocated
to federal and nonfederal users, including the amount allocated to
shared use.
Historically, concern about interference or crowding among users
has been a driving force in the management of spectrum.7 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, FCC
and NTIA 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.
When FCC assigns a portion of spectrum to a single entity, the
license is considered exclusive. When two or more entities apply
for the same exclusive license, FCC classifies these as mutually
exclusive applications-that is, the grant of a license to one
entity would preclude the grant to one or more other entities. For
mutually exclusive applications, FCC has primarily used three
assignment mechanisms-comparative hearings, lotteries, and
auctions. FCC historically used comparative hearings, which gave
competing applicants a quasi-judicial forum in which to argue why
they should be awarded a license instead of other applicants. In
1981, partially in response to the administrative burden of the
comparative hearing process, the Congress authorized the use of
lotteries, which allowed FCC to randomly select licenses from the
qualified applicant pool. 8 The Congress provided FCC with
authority to use auctions to assign mutually exclusive licenses
for certain subscriber-based wireless services in the Omnibus
Budget Reconciliation Act of 1993.9 Auctions are a market-based
mechanism in which FCC assigns a license to the entity that
submits the highest bid for specific bands of spectrum. As of
November 30, 2005, FCC has conducted 59 auctions for over 56,000
licenses to select between competing applications for the same
license, which have generated over $14.5 billion for the U.S.
Treasury. However, only a very small portion of total licenses has
been auctioned. (See fig. 1.)
Figure 1: 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.
Licenses can vary considerably in terms of bandwidth, as well as
the geographic area and population covered.
In some frequency bands, FCC authorizes unlicensed use of
spectrum-that is, users do not need to obtain a license to use the
spectrum.10 Rather, an unlimited number of unlicensed users can
share frequencies on a non-interference basis. Thus, the
assignment process does not apply to the use of unlicensed
devices. However, manufacturers of unlicensed equipment must
receive authorization from FCC before operating or marketing an
unlicensed device.
To promote the more efficient use of spectrum, FCC is
incrementally adopting market-based approaches to spectrum
management. For instance, FCC has introduced some flexibility in
the spectrum allocation process, although it remains largely a
command-and-control process. In addition, in 1994, FCC instituted
auctions to assign certain spectrum licenses. According to
industry stakeholders, FCC's use of auctions is seen as an
improvement over comparative hearings and lotteries, the primary
assignment mechanisms employed in the past. Finally, FCC has taken
steps to facilitate greater secondary market activity, which may
provide an additional mechanism to promote the more efficient use
of spectrum.
FCC currently employs largely a command-and-control process for
spectrum allocation.11 That is, FCC applies regulatory judgments
to determine and limit what types of services-such as broadcast,
satellite, or mobile radio-will be offered in different frequency
bands by geographic area. In addition, for most frequency bands
FCC allocates, the agency issues service rules to define the terms
and conditions for spectrum use within the given bands. These
rules typically specify eligibility standards as well as
limitations on the services that relevant entities may offer and
the technologies and power levels they may use. These decisions
can constrain users' ability to offer services and equipment of
their choosing.
However, FCC has provided greater operational and technical
flexibility within certain frequency bands. For example, FCC's
rules for Commercial Mobile Radio Service (CMRS), which include
cellular and Personal Communications Services (PCS), are
considered less restrictive. Under these rules, wireless telephony
operators are free to select technologies, services, and business
models of their choosing. FCC has not provided comparable
flexibility in other bands.12 For example, spectrum users have
relatively little latitude for making similar choices in frequency
bands allocated to broadcast television services.
Further, the Spectrum Policy Task Force Report, a document
produced by FCC staff, identified two alternatives to the
command-and-control model: the "exclusive, flexible rights" model,
and the "open-access" model.13 The exclusive, flexible rights
model provides licensees with exclusive, flexible use of the
spectrum and transferable rights within defined geographic areas.
This is a licensed-based approach to spectrum management that
extends the existing allocation process by providing greater
flexibility regarding the use of spectrum, and the ability to
transfer licenses or to lease spectrum usage rights. The
open-access model allows a potentially unlimited number of
unlicensed users to share frequency bands, with usage rights
governed by technical standards, but with no rights to
interference protection. This approach does not require licenses,
and as such is similar to FCC's Part 15 rules (which govern
unlicensed use in the 900 MHz, 2.4 GHz, and 5.8 GHz bands)-where
cordless phones and Wi-Fi technologies operate. Both models allow
flexible use of spectrum, so that users of spectrum, rather than
FCC, play a larger role in determining how spectrum is ultimately
used. FCC's Spectrum Policy Task Force recommended a balanced
approach to allocation-utilizing aspects of the
command-and-control; exclusive, flexible rights; and open-access
models. FCC is currently using elements of these two alternatives
models, although it primarily employs the command-and-control
model.
In 1994, FCC began using auctions-a market-based mechanism that
assigns a license to the entity that submits the highest bid for
specific bands of spectrum. FCC's implementation of auctions
mitigates a number of problems associated with comparative
hearings and lotteries-the two primary assignment mechanism
employed until 1993. For example:
o Auctions are a relatively quick assignment mechanism. With
auctions, FCC reduced the average time for granting a license to
less than 1 year from the initial application date, compared to an
average time of over 18 months with comparative hearings.
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 we reported in December 2005, many industry stakeholders we
contacted, and panelists on our expert panel, stated that auctions
are more efficient than previous mechanisms used to assign
spectrum licenses.14 For example, among our panelists, 11 of 17
reported that auctions provide the most efficient method of
assigning licenses; no panelist reported that comparative hearings
or lotteries provided the most efficient method. Of the remaining
panelists, several suggested that the most efficient mechanism
depended on the service that would be permitted with the
spectrum.15
While FCC's initial assignment mechanisms provide one means for
companies to acquire licenses, companies can also acquire licenses
or access to spectrum through secondary market transactions.
Through secondary markets, companies can engage in transactions
whereby a license or use of spectrum is transferred from one
company to another. These transactions can incorporate the sale or
trading of licenses. In some instances, companies acquire licenses
through the purchase of an entire company, such as Cingular's
purchase of AT&T Wireless. Ultimately, FCC must approve
transactions that result in the transfer of licenses from one
company to another.
Secondary markets can provide several benefits. First, secondary
markets can promote more efficient use of spectrum. If existing
licensees are not fully utilizing the spectrum, secondary markets
provide a mechanism whereby these licensees can transfer use of
the spectrum to other companies that would utilize the spectrum.
Second, secondary markets can facilitate the participation of
small businesses and introduction of new technologies. For
example, a company might have a greater incentive to deploy new
technologies that require less spectrum if the company can
profitably transfer the unused portion of the spectrum to another
company through the secondary market. Also, several stakeholders
with whom we spoke noted that secondary markets provide a
mechanism whereby a small business can acquire spectrum for a
geographic area that best meets the needs of the company.
In recent years, FCC has undertaken actions to facilitate
secondary-market transactions. FCC authorized spectrum leasing for
most wireless radio licenses with exclusive rights and created two
categories of spectrum leases: Spectrum Manager Leasing-where the
licensee retains legal and working control of the spectrum-and de
Facto Transfer Leasing-where the licensee retains legal control
but the lessee assumes working control of the spectrum. FCC also
streamlined the procedures that pertain to spectrum leasing. For
instance, the Spectrum Manager Leases do not require prior FCC
approval and de Facto Transfer Leases can receive immediate
approval if the arrangement does not raise potential public
interest concerns.16 While FCC has taken steps to facilitate
secondary market transactions, some hindrances remain. For
example, some industry stakeholders told us that the lack of
flexibility in the use of spectrum can hinder secondary market
transactions.
In some countries, spectrum managers have adopted market-based
mechanisms to encourage the efficient use of spectrum by
government agencies. In the United States, NTIA has not adopted
incentive-based fees for federal government users of spectrum;
rather, NTIA applies fees that recover only a portion of the cost
of administering spectrum management. Additionally, adopting
market-based mechanisms for government use of spectrum might be
difficult or undesirable in some contexts because of the primacy
of certain government missions, the lack of flexibility in use of
spectrum for some agencies, and the lack of financial incentives
for government users.
Spectrum managers in some countries have adopted market-based
mechanisms for government users of spectrum. For example, in
Australia, Canada, and the United Kingdom, spectrum managers have
implemented incentive-based fees for government users of spectrum.
Incentive-based fees are designed to promote the efficient use of
spectrum by compelling spectrum users to recognize the value to
society of the spectrum that they use. In other words, these fees
mimic the functions of a market. These incentive-based fees differ
from other regulatory fees that are assessed only to recover the
cost of the government's management of spectrum.
In the United States, NTIA has not adopted incentive-based fees,
or other market-based mechanisms, for federal government users of
spectrum. Currently, NTIA charges federal agencies spectrum
management fees, which are based on the number of assignments
authorized to each agency. In our 2002 report, we noted that,
according to NTIA, basing the fee on the number of assignments,
rather than the amount of spectrum used per agency, better
reflects the amount of work NTIA must do for each agency.17
Moreover, NTIA stated that this fee structure provides a wider
distribution of costs to agencies. However, NTIA's fee does not
reflect the value of the spectrum authorized to each agency, and
thus it is not clear how much this encourages the efficient use of
spectrum by federal agencies. The fee also recovers only a portion
of the cost of administering spectrum management. NTIA does not
currently have the authority to impose fees on government users
that exceed its spectrum management costs.18
Applying market-based mechanisms might be difficult or undesirable
for federal government users in some situations. The purpose of
market-based mechanisms is to provide users with an incentive to
use spectrum as efficiently as possible. However, the
characteristics of government use of spectrum impose challenges to
the development and implementation of market-based mechanisms for
federal government users, and in some situations, make
implementation undesirable. For example:
o Primacy of certain federal government missions. Because of the
primacy of certain federal government missions-such as national
defense, homeland security, and public safety-imposition of
market-based mechanisms for use of the spectrum to fulfill these
missions might not be desirable. In fact, NTIA officials have told
us that the agency rarely revokes the spectrum authorization of
another government agency because doing so could interfere with
the agency's ability to carry out important missions.
o Lack of flexibility in use of spectrum. Market-based mechanisms
can create an incentive to use spectrum more efficiently only if
users can actually choose to undertake an alternative means of
providing a service. In some situations, federal government
agencies do not have a viable alternative to their current
spectrum authorization. For example, spectrum used for air traffic
control has been allocated internationally for the benefit of
international air travel. Thus, the Federal Aviation
Administration has little ability to use spectrum differently than
prescribed in its current authorizations. In situations such as
this, market-based mechanisms would likely prove ineffective.
o Lack of financial incentives. If federal government users can
obtain any needed funding for spectrum-related fees through the
budgetary process, market-based mechanisms are not likely to be
effective. However, imposing fees will make the cost visible to
agency managers, thus providing them information they need if they
are to manage spectrum use more efficiently. Whether more
efficient spectrum use actually occurs will depend in part on
whether agencies receive appropriations for the full amount of the
fees or only for some portion. If agencies do not receive
appropriations for the full amount, some pressure will be created,
but it will not be as strong as the private sector's profit
motive.
As we reported in December 2005, industry stakeholders and
panelists on our expert panel offered a number of options for
improving spectrum management.19 The most frequently cited options
include (1) extending FCC's auction authority, (2) reexamining the
distribution of spectrum-such as between commercial and government
use-to enhance the efficient and effective use of this important
resource, and (3) ensuring clearly defined rights and flexibility
in commercially licensed spectrum bands. There was no consensus on
these options for improvements among stakeholders we interviewed
and panelists on our expert panel, except for extending FCC's
auction authority.
Panelists on our expert panel and industry stakeholders with whom
we spoke overwhelmingly supported extending FCC's auction
authority. For example, 21 of 22 panelists on our expert panel
indicated that the Congress should extend FCC's auction authority
beyond September 2007-the date auction authority was set to expire
at the time of our expert panel. Given the success of FCC's use of
auctions and the overwhelming support among industry stakeholders
and experts for extending FCC's auction authority, we suggested
that the Congress consider extending FCC's auction authority. In
February 2006, the Congress extended FCC's auction authority to
2011 with the passage of the Deficit Reduction Act of 2005.20
While panelists on our expert panel overwhelmingly supported
extending FCC's auction authority, a majority also suggested
modifications to enhance the use of auctions.21 However, there was
little consensus on the suggested modifications. The suggested
modifications fall into the following three categories:
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 expressed concern with FCC assigning overlay
and underlay rights to frequency bands when a company holds a
license for the same frequency bands.22
o Enhance secondary markets. Industry stakeholders we contacted
and panelists on our expert panel generally believed that
modifying the rules governing secondary markets could lead to more
efficient use of spectrum. For example, some panelists on our
expert panel said that FCC should increase its involvement in the
secondary market. These panelists thought that increased oversight
could help to both ensure transparency in the secondary market and
also promote the use of the secondary market. Additionally, a few
panelists said that adoption of a "two-sided" auction would
support the efficient use of spectrum. With a two-sided auction,
FCC would offer unassigned spectrum, and existing licensees could
make available the spectrum usage rights they currently hold.
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,23 and
believe that these incentives have been an effective means to
promote small business participation in wireless markets.
Panelists on our expert panel suggested a reexamination of the use
and distribution of spectrum to ensure the most efficient and
effective use of this important resource. One panelist noted that
the government should have a good understanding of how much of the
spectrum is being used. To gain a better understanding, a few
panelists suggested that the government systematically track
usage, perhaps through a "spectrum census." This information would
allow the government to determine if some portions of spectrum
were underutilized, and if so, to make appropriate allocation
changes and adjustments.24
A number of panelists on our expert panel also suggested that the
government evaluate the relative allocation of spectrum for
government and commercial use as well as the allocation of
spectrum for licensed and unlicensed purposes. While panelists
thought the relative allocation between these categories should be
examined, there was little consensus among the panelists on the
appropriate allocation. For instance, as shown in figure 2, 13
panelists indicated that more spectrum should be dedicated to
commercial use, while 7 thought the current distribution was
appropriate; no panelists thought that more spectrum should be
dedicated to government use. Similarly, as shown in figure 3, nine
panelists believed that more spectrum should be dedicated to
licensed uses, six believed more should be dedicated to unlicensed
uses, and five thought the current balance was appropriate.
Figure 2: Panelists' Views on the Allocation of Spectrum between
Commercial and Government Use
Figure 3: Panelists' Views on the Allocation of Spectrum between
Licensed and Unlicensed Use
Similar to a suggested modification of FCC's auction authority,
some panelists on our expert panel suggested better defining
users' rights and increasing flexibility in the allocation of
spectrum. Better defining users' rights would clarify the
understanding of the rights awarded with any type of license,
whether the licensees acquired the license through an auction or
other means. In addition, some panelists stated that greater
flexibility in the type of technology used-and service
offered-within frequency bands would help promote the efficient
use of spectrum. In particular, greater flexibility would allow
the licensee to determine the efficient and highly valued use,
rather than relying on FCC-based allocation and service rules.
However, some panelists on our expert panel and industry
stakeholders with whom we spoke noted that greater flexibility can
lead to interference, as different licensees provide potentially
incompatible services in close proximity.25 Thus, panelists on our
expert panel stressed the importance of balancing flexibility with
interference protection.
Under the current management framework, neither FCC nor NTIA has
been given ultimate decision-making authority over all spectrum
use or the authority to impose fundamental reform, such as
increasing the reliance on market-based mechanisms. FCC manages
spectrum for nonfederal users while NTIA manages spectrum for
federal government users.26 As such, FCC and NTIA have different
perspectives on spectrum use. FCC tends to focus on maximizing
public access to and use of the spectrum. Alternatively, NTIA
tends to focus on protecting the federal government's use of the
spectrum from harmful interference, especially in areas critical
to national security and public safety. Further, despite increased
communication between FCC and NTIA, the agencies' different
jurisdictional responsibilities appear to result in piecemeal
efforts that lack the coordination to facilitate major spectrum
reform. For example, FCC's and NTIA's recent policy evaluations
and initiatives-the FCC Spectrum Policy Task Force and the Federal
Government Spectrum Task Force, respectively-tend to focus on the
issues applicable to the users under their respective
jurisdictions.27
Major spectrum reform must ultimately address multidimensional
stakeholder conflicts. One source of conflict relates to balancing
the needs of government and private-sector spectrum users.
Government users have said that because they offer unique and
critical services, a dollar value cannot be placed on the
government's provision of spectrum-based services. At the same
time, private-sector users have stated that their access to
spectrum is also critical to the welfare of society, through its
contribution to a healthy and robust economy. A second source of
conflict relates to balancing the needs of incumbent and new users
of spectrum. Since most useable spectrum has been allocated and
assigned, accommodating new users of spectrum can involve the
relocation of incumbent users. While new users of spectrum view
relocations as essential, incumbent users often oppose relocations
because the moves may impose significant costs and disrupt their
operations. A third source of conflict relates to existing
technology and emerging technology. Some new technologies, such as
ultra wideband,28 may use the spectrum more efficiently, thereby
facilitating more intensive use of the spectrum. However, users of
existing technology, both commercial and government, have
expressed concern that these new technologies may create
interference that compromises the quality of their services.
The current spectrum management framework may pose a barrier to
spectrum reform because neither FCC nor NTIA has ultimate
authority to impose fundamental reform and these stakeholder
conflicts cross the jurisdictions of both FCC and NTIA. As such,
contentious and protracted negotiations arise over spectrum
management issues. We previously made two recommendations to help
further the reform process. First, we recommended that the
Secretary of Commerce and FCC should establish and carry out
formal, joint planning activities to develop a national spectrum
plan to guide decision making.29 Additionally, we also recommended
that the relevant administrative agencies and congressional
committees work together to develop and implement a plan for the
establishment of an independent commission that would conduct a
comprehensive examination of current spectrum management.30 To
date, neither recommendation has been implemented.
With authorization from Congress, FCC has taken several steps to
implement a more market-oriented approach to spectrum management.
In recent years, FCC has taken actions to facilitate
secondary-market transactions. FCC authorized spectrum leasing for
most wireless radio licenses with exclusive rights and also
streamlined the procedures that pertain to spectrum leasing. In
addition, FCC has conducted 59 auctions for a wide variety of
spectrum uses, including personal communications services and
broadcasting. FCC's auctions have contributed to a vibrant
commercial wireless industry. The Congress' recent decision to
extend FCC's auction authority was, in our opinion, a positive
step forward in spectrum reform. However, more work is needed to
ensure the efficient and effective use of this important national
resource. To help reform spectrum management, we have previously
recommended that (1) the Secretary of Commerce and FCC should
establish and carry out formal, joint planning activities to
develop a national spectrum plan to guide decision making; and (2)
the relevant administrative agencies and congressional committees
work together to develop and implement a plan for the
establishment of a commission that would conduct a comprehensive
examination of current spectrum management.31 To date, these
recommendations have not been implemented.
Mr. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions you or other Members of the
Committee may have at this time.
For questions regarding this testimony, please contact JayEtta Z.
Hecker on (202) 512-2834 or [email protected]. Individuals making
key contributions to this testimony include Amy Abramowitz,
Michael Clements, Nikki Clowers, Eric Hudson, and Mindi
Weisenbloom.
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Background
3Pub. L. No. 109-171, S:3003, 120 Stat. 4 (2006).
4 GAO-02-906 and GAO-03-277 .
5Radio signals travel through space in the form of waves. These waves vary
in length, and each wavelength is associated with a particular radio
frequency. Radio frequencies are grouped into bands and are measured in
units of Hertz. The term kilohertz refers to thousands of Hertz, megahertz
(MHz) to millions of Hertz, and gigahertz to billions of Hertz.
6The Department of State also plays a role in spectrum management by
coordinating and mediating the U.S. position and leading the nation's
delegation to international conferences on spectrum management.
7Interference occurs when two or more radio signals interact in a manner
that disrupts the transmission and reception of messages.
8In 1981, Congress added Section 309(i) to the Communications Act to give
FCC the authority to assign a broad range of licenses by lottery. The
Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 260, tit. III,
S: 3002, terminated FCC's authority to assign licenses by lotteries,
except with respect to licenses for non-commercial broadcast stations and
public broadcast stations. See, 47 U.S.C. S: 309(i)(5) and 47 U.S.C. S:
397(6).
947 U.S.C. S: 309(j). In subsequent years, the Congress has modified and
extended FCC's auction authority, including exempting some licenses from
competitive bidding, such as licenses for public safety radio services and
noncommercial educational broadcast services.
10Traditional unlicensed devices are low-powered equipment that operate in
a limited geographic range, such as cordless phones, baby monitors, garage
door openers, and wireless access to the Internet.
FCC Has Adopted Several Market-Based Mechanisms for Commercial Uses
FCC Has Introduced Some Flexibility in the Spectrum Allocation Process but
Allocation Remains Largely a Command-and-Control Process
11NTIA employs a similar process for federal government spectrum users.
12In some instances, statutory restrictions are an impediment to granting
greater flexibility.
13For more information on these alternative spectrum management models,
including the perceived advantages and disadvantages of each, see
GAO-06-236 .
FCC's Use of Auctions for Commercial Licenses Is Seen as an Improvement Over
Past Assignment Mechanisms
FCC Has Acted to Facilitate Secondary Market Transactions
14See GAO-06-236 . We convened, in collaboration with the National
Academies, two panels of experts to discuss spectrum allocation and
assignment issues and options to improve spectrum management. The
panelists convened at the National Academies on August 9, 2005, and
August, 10, 2005. A total of 23 panelists participated on our two expert
panels. For more information on the expert panels, see GAO-06-236 .
15For example, some panelists did not support using auctions to assign
spectrum licenses for public safety services.
16The public interest concerns arise as a result of FCC policies
pertaining to (1) eligibility and use of the license and spectrum, (2)
foreign ownership limitations, (3) designated entity and entrepreneur
benefits, and (4) competition. See Promoting Efficient Use of Spectrum
Through Elimination of Barriers to the Development of Secondary Markets,
WT Docket No. 00-230, Second Report and Order, Order on Reconsideration,
and Second Further Notice of Proposed Rulemaking, 19 FCC Rcd. 17503
(2004).
Market-Based Mechanisms Have Not Been Adopted for Federal Government Use of
Spectrum
Incentive-Based Fees Have Not Been Used to Promote Spectrum Efficiency Among
Federal Government Users of Spectrum in the United States
17 GAO-02-906 .
Applying Market-Based Mechanisms to Federal Government Users May Not Be
Effective in All Contexts
18In its 2005 program assessment of NTIA, OMB noted that NTIA does not
currently have sufficient mechanisms in place to ensure efficient and
effective federal spectrum use. OMB further notes that NTIA lacks the
authority to implement market-based or other incentives to promote
efficient and effective use of the federal spectrum among federal
agencies. According to OMB, NTIA plans to study incentives to promote the
more efficient and effective use of spectrum and seek authority to
implement incentives, as appropriate.
Industry Stakeholders and Panelists Suggested Several Options to Improve
Spectrum Management
Extend FCC's Auction Authority
19 GAO-06-236 .
20Pub. L. No. 109-171.
21Fifteen of twenty-two panelists suggested modifications to enhance the
use of auctions.
22Underlay rights allow unlicensed users to operate in the same spectrum
bands as licensees, as long as the unlicensed users do not cause undue
interference for licensees. For example, ultra-wideband technology
operates at very low power levels over a very wide range of spectrum, and
thus might avoid interfering with licensed spectrum users in the same
spectrum bands. Overlay rights allow unlicensed users to operate in
licensed spectrum bands during times or in geographic areas where
licensees are not using the spectrum.
Reexamine the Use and Distribution of Spectrum
23A bidding credit is a percentage discount applied to the high bid amount
if the bidder meets designated entity criteria established in the auction
rules. In February 2006, FCC issued a notice of proposed rule making to
consider whether its general competitive bidding rules should be modified.
24In February 2006, the Technology CEO Council released a report entitled,
Freeing Our Unused Spectrum: Toward a 21st Century Telecom Policy
(Washington, D.C.: Feb. 2006). This report included recommendations for
FCC and NTIA to examine how efficiently spectrum bands are being used and
encourage more efficient use of bands that are not found to be used
efficiently.
Ensure Clearly Defined Rights and Flexibility
The Current Framework for Spectrum Management May Pose Barriers to Reform
25With the current allocation process, FCC attempts to keep incompatible
service separated to avoid interference. With licensees exerting greater
control, this protection could be reduced.
26In some countries, a single government entity regulates spectrum for all
users. For example, Industry Canada has exclusive spectrum management
responsibility in Canada.
27At a recent NTIA-sponsored workshop addressing spectrum management, the
topics discussed included issues relevant for both FCC and NTIA, and the
participants included spectrum managers from several government agencies,
as well as FCC officials, commercial users, and other experts.
28Ultra wideband devices emit a low-power signal over large swaths of
spectrum.
29 GAO-02-906 .
Concluding Observations
30 GAO-03-277 .
31 GAO-02-906 and GAO-03-277 .
Contact and Acknowledgments
(544120)
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Highlights of GAO-06-526T , testimony before the Committee on Commerce,
Science, and Transportation, United States Senate
March 14, 2006
TELECOMMUNICATIONS
Options for and Barriers to Spectrum Reform
The radio-frequency spectrum is used to provide an array of wireless
communications services that are critical to the U.S. economy and various
government missions, such as national security. With demand for spectrum
exploding, and most useable spectrum allocated to existing users, there is
growing concern that the current spectrum management framework might not
be able to respond adequately to future demands. This testimony, which is
based on previous GAO reports, provides information on (1) the extent to
which the Federal Communications Commission (FCC) has adopted market-based
mechanisms for commercial use, (2) the extent to which market-based
mechanisms have been adopted for federal government users of spectrum, (3)
options for improving spectrum management, and (4) potential barriers to
spectrum reform.
What GAO Recommends
In previous reports, GAO recommended that (1) the Secretary of Commerce
and FCC should jointly develop a national spectrum plan to guide decision
making, and (2) the relevant administrative agencies and congressional
committees work together to develop and implement a plan for the
establishment of an independent commission that would conduct a
comprehensive examination of current spectrum management. To date, these
recommendations have not been implemented.
FCCis incrementally adopting market-based approaches for managing the
commercial use of spectrum. Market-based mechanisms can help promote the
efficient use of spectrum by invoking the forces of supply and demand. For
example, although FCC currently employs largely a command-and-control
process for spectrum allocation, it has provided greater flexibility
within certain spectrum bands. In addition, FCC began using auctions to
assign spectrum licenses for commercial uses in 1994. Finally, FCC has
taken steps to facilitate greater secondary market activity, which may
provide an additional mechanism to promote the efficient use of spectrum.
While some countries have adopted market-based mechanisms to encourage the
efficient use of spectrum by government agencies, the Department of
Commerce's National Telecommunications and Information Administration
(NTIA) has not adopted similar mechanisms for federal government use in
the United States. NTIA imposes fees designed to recover only a portion of
its cost to administer spectrum management, rather than fees that would
more closely resemble market prices and thus encourage greater spectrum
efficiency among government users; currently, NTIA does not have authority
to impose fees that exceed its spectrum management costs. However,
adopting market-based mechanisms for federal government use of spectrum
might be difficult or undesirable in some contexts because of the primacy
of certain government missions, the lack of flexibility in use of spectrum
for some agencies, and the lack of financial incentives for government
users.
Industry stakeholders and experts have identified a number of options for
improving spectrum management. The most frequently cited options include
(1) extending FCC's auction authority, (2) reexamining the use and
distribution of spectrum, and (3) ensuring clearly defined rights and
flexibility in commercial spectrum bands; there was no consensus on these
options, except for extending FCC's auction authority. Given the success
of FCC's use of auctions and the overwhelming support for extending FCC's
auction authority, GAO suggested that the Congress consider extending
FCC's auction authority beyond 2007. Congress extended FCC's auction
authority to 2011 with the passage of the Deficit Reduction Act of 2005.
The current spectrum management framework may pose barriers to reform,
since neither FCC nor NTIA has been given ultimate decision-making
authority over all spectrum use, or the authority to impose fundamental
reform, such as increasing the reliance on market-based mechanisms. Under
the divided management framework, FCC manages spectrum for nonfederal
users, including commercial uses, while NTIA manages spectrum for federal
government users. As such, FCC and NTIA have different perspectives on
spectrum use. Further, spectrum management issues and major reform cross
the jurisdictions of both agencies. Thus, contentious and protracted
negotiations arise over spectrum management issues.
*** End of document. ***