Summary

The radiofrequency spectrum is a natural resource used to provide an array of wireless communications services, such as mobile voice and data services, radio and television broadcasting, radar, and satellite-based services, which are critical to the U.S. economy and national security. 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 use and others for government use. Assignment provides an authorization or license to use a specific portion of spectrum to entities, such as wireless companies. Demand for the radiofrequency 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. 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 to commercial users. Prior to auctions, FCC had used comparative hearings, which were quasi-judicial forums, and lotteries as assignment mechanisms. Since 1994--the first full year FCC was authorized to use auctions--FCC has held 59 auctions for over 56,000 licenses to select between competing applications for the same license or spectrum. The Commercial Spectrum Enhancement Act required us to examine FCC's commercial spectrum licensing process and report findings to the committees of jurisdiction by September 19, 2005. 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, investment, entry and participation of small businesses, and competition; and (3) options for improving spectrum management.

The current practice of allocating spectrum is largely regarded as being a "command-and-control" process--that is, the government largely dictates the use of spectrum. In particular, based on regulatory judgments, FCC 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 relevant entities may offer and the equipment and power levels they may use. Available evidence suggests that FCC's use of auctions has had little to no negative impact on end-user prices, investment, and competition; evidence on the impact on entry and participation of small businesses is less clear. According to economic research and many of the industry stakeholders we spoke with, auctions have little to no effect on end-user prices because the auction payments represent a sunk cost, which do not affect future-oriented decisions, such as pricing decisions. Similar arguments were made for the impact of auctions on investment. Industry stakeholders and panelists on our expert panel offered a number of options for improving spectrum management. The most frequently cited options include (1) reexamining the distribution of spectrum to enhance the efficient and effective use of this important resource, (2) ensuring clearly defined rights and flexibility in commercially licensed spectrum bands, and (3) extending and modifying FCC's auction authority. For example, a number of panelists 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. There was no consensus on these options for improvements among stakeholders and panelists on our expert panel, except to extend FCC's auction authority. Twenty-one of 22 panelists supported extending FCC's auction authority, which is scheduled to expire in 2007.