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entitled 'Telecommunications: Preliminary Information on the Federal 
Communications Commission's Spectrum Allocation and Assignment Process' 
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United States Government Accountability Office: 

Washington, DC 20548: 

November 10, 2005: 

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: 

Subject: Telecommunications: Preliminary Information on the Federal 
Communications Commission's Spectrum Allocation and Assignment Process: 

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.[Footnote 1] 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[Footnote 2]. 

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.[Footnote 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, 
investment, entry and participation of small businesses, and 
competition; 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 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. To 
obtain a range of perspectives on assignment and allocation issues, we 
also conducted semistructured interviews with representatives and 
officials from academia, government, and industry. We also analyzed 
data from FCC's three primary spectrum license databases: Universal 
Licensing System (ULS), Consolidated DataBase System (CDBS), and 
International Bureau Filing System. To determine the reliability of the 
information from these databases, we interviewed officials at the 
Wireless, Media, and International Bureaus within FCC about their data 
collection and verification policies and procedures for license 
information and electronically tested the ULS and CDBS databases. We 
concluded that information from FCC's license databases was 
sufficiently reliable to enable us to answer our objectives. We 
conducted our work from March through August 2005 in accordance with 
generally accepted government auditing standards. 

In September and October 2005, we briefed the Senate Commerce Committee 
staffs and provided copies of the briefing materials to the House 
Commerce Committee staffs, respectively. As requested, this report 
summarizes and transmits that briefing. The full briefing is included 
in enclosure I. We plan to issue a final report on this work in 
December 2005. 

Summary: 

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. 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 it is slow, and sometimes leads to 
underutilization of the spectrum. In the Spectrum Policy Task Force 
Report, FCC staff identifies two alternative spectrum management models 
that would allow it to move away from a command-and-control approach to 
allocation: the "exclusive, flexible rights" model, and the "open- 
access, or commons," model. The exclusive, flexible rights model 
provides licensees with exclusive, flexible use, and transferable 
rights within defined geographic areas. In contrast, the open-access 
model allows an unlimited number of unlicensed users to share 
frequencies, with usage rights governed by technical standards. Both 
models are more market-oriented than the command-and-control model-- 
that is, supply and demand for spectrum-based services would 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 service 
(PCS) and advanced wireless services. However, there is limited 
consensus about fully adopting either alternative model in the future. 
Recognizing that the two alternative models are not necessarily 
mutually exclusive, many stakeholders and panelists on our expert panel 
support mixed approaches to spectrum management that would combine 
elements of both models. 

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,[Footnote 4] which do not affect future-oriented decisions, such 
as pricing decisions. Similar arguments were made for the impact of 
auctions on investment. 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 with 
companies that acquired licenses through means other than auction. 
These stakeholders noted that many licenses initially assigned through 
a process other than auction have been resold or that companies that 
acquired licenses via means other than auction have subsequently 
acquired additional licenses via auction; therefore, any competitive 
advantage these companies gained by obtaining licenses through other 
means have dissipated. 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. In addition to auctions, companies 
can obtain licenses on the secondary market, which is the sale or lease 
of licenses among private entities. FCC has recently taken steps to 
facilitate secondary market transactions, including streamlining the 
leasing approval process. 

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.[Footnote 5] 

Agency Comments: 

We provided a draft of this report to FCC, NTIA, and the Office of 
Management and Budget (OMB) for their review and comment. FCC provided 
technical comments that we incorporated where appropriate. NTIA had no 
comments on the draft and OMB provided no comments. 

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://www.gao.gov. 

Should you have any questions about this report, please contact me at 
202-512-2834 or heckerj@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. 

Signed by: 

JayEtta Z. Hecker, Director, 
Physical Infrastructure Issues: 

Enclosure: 

Radiofrequency Spectrum Management: 

Briefing for Congressional Committees: 

Contents: 

* Introduction to mandate, objectives, and scope and methodology: 

* Background on spectrum management: 

* Objective 1: Spectrum allocation: 

* Objective 2: Spectrum assignment: 

* Objective 3: Panelists' and stakeholders' suggestions for 
improvement: 

* Summary: 

* Attachments: 

Introduction: 

Mandate and Objectives: 

The Commercial Spectrum Enhancement Act [NOTE 1] required that GAO 
review commercial spectrum license policy, as implemented by the 
Federal Communications Commission (FCC). The act required that GAO 
report to the committees of jurisdiction by September 19, 2005. 

On the basis of the mandate's language and discussions with staff from 
multiple committees, we identified the following three objectives: 

1. What are the characteristics of the current spectrum allocation 
process for commercial uses? 

2. How has the adoption of auctions to assign spectrum licenses 
affected end-user prices, investment, entry and participation of small 
businesses, and competition? 

3. What options for improving spectrum management have been suggested? 

NOTE: 

[1] Public Law 108-494, tit. 11 (2004). 

Scope and Methodology: 

We hosted, in conjunction with the National Academies, 2 expert panels 
with 23 individuals representing academia, government, and industry in 
August 2005. (See attachment I for a list of panelists.) 

We conducted semistructured interviews with over 30 representatives of 
academia, government, and industry. 

We reviewed relevant economic, legal, and policy-oriented literature. 

We analyzed data from FCC's three primary spectrum license databases. 

We conducted our work from March through August 2005 in accordance with 
generally accepted government auditing standards. 

Background: 

Definition: 

What is radiofrequency spectrum? 

Radiofrequency spectrum is the medium that enables wireless 
communications critical for commercial enterprises and government 
agencies. 

* Commercial enterprises use spectrum to provide a variety of wireless 
services, including mobile voice and data, broadcast television and 
radio, and satellite services, in addition to a variety of private 
tasks. 

* Government agencies use spectrum to fulfill a variety of missions, 
including national defense, aviation communication, public safety, and 
weather services. 

Management of Spectrum: 

Spectrum is managed at the international and national levels. 

* The International Telecommunications Union (ITU), a specialized 
agency of the United Nations, coordinates spectrum management decisions 
among nations. 

* In the United States, responsibility for spectrum management is 
divided: 

- FCC regulates spectrum use for nonfederal users, including 
commercial, private, and state and local government users under 
authority provided in the Communications Act. 

- The National Telecommunications and Information Administration (NTIA) 
manages spectrum use for federal government users and acts for the 
President with respect to spectrum management issues. NTIA has directed 
federal agencies to use only as much spectrum as they need to promote 
efficiency in the federal spectrum it manages. 

- FCC and NTIA, with direction from the Congress, jointly determine the 
amount of spectrum allocated to federal and nonfederal users. (See 
graph on next page for the current allocation between federal and 
nonfederal users.) 

* The Department of State coordinates the views of FCC and NTIA to 
reach a U.S. position on spectrum issues for international discussions. 

Federal and Nonfederal Spectrum: 

[See PDF for image] --graphic text: 

Pie chart with three items. 

Federal exclusive: 13.7%; 
Shared: 55.6%; 
Nonfederal exclusive: 30.6%. 

Source: NTIA. 

[End of figure] 

Allocation and Assignment: 

Historically, concern about interference among users has been a driving 
force in spectrum management. 

Spectrum managers allocate and assign spectrum so as to minimize 
interference. 

* Allocation involves designating "bands" of spectrum for specific 
types of services. Spectrum managers also specify the service rules, 
which include the technical and operating characteristics of equipment. 

* Assignment involves providing an authorization or license to use a 
specific portion of spectrum to entities, such as commercial 
enterprises or government agencies. 

Assignment Mechanisms: 

When a portion of spectrum is assigned 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 applicants, FCC has used three primary 
assignment mechanisms: 

(1) Comparative hearings, used principally from 1934 to 1984, gave 
competing applicants a quasi-judicial forum in which to argue why they 
should be awarded a license over competitors. Critics assert that 
comparative hearings were time-consuming and resource intensive, often 
leading to protracted litigation, and lacked transparency. 

(2) Lotteries, used principally from 1984 to 1993, allowed FCC to 
randomly select licensees from a pool of qualified applicants. Critics 
contend that lottery winners were not always the best suited to provide 
services; thus, several years could pass before the licenses were 
transferred in the private market to entities capable of deploying a 
system and effectively using the spectrum. FCC's lottery authority was 
eliminated by statute in 1997. [NOTE 2] 

(3) Auctions, in use since 1993, are a market-based mechanism, which 
grant a license to the applicant that has bid the highest price. 
Critics have suggested that auctions raise consumer prices for wireless 
services, slow the deployment of wireless systems, and are a barrier 
for small businesses. 

NOTE: 

[2] See, 47 U.S.C. §309(i)(5): 

Auction Authority: 

The Omnibus Budget Reconciliation Act of 1993 authorized FCC to award 
spectrum licenses via competitive bidding (or auctions) for certain 
subscriber-based wireless services. Competitive bidding authority 
applied to mutually exclusive applications. 

The act also established policy objectives for FCC's use of auctions, 
including: 

* the development and rapid deployment of new technologies, products, 
and services; 

* the promotion of economic opportunity and competition and the 
dissemination of licenses among a wide variety of applicants, including 
small businesses; 

* the recovery for the public of a portion of the value of the public 
spectrum resource; and: 

* the efficient and intensive use of spectrum. 

Auction Results: 

Since 1994, FCC has conducted 59 auctions, which have generated over 
$14.4 billion for the U.S. Treasury. However, a very small portion of 
total licenses has been auctioned; FCC has auctioned approximately 
56,100 licenses about 2 percent of total licenses. [NOTE 3] 

[See PDF for image] --graphic text: 

Pie chart with two items: 

Auctioned licenses: 2%; 
Nonauctioned licenses: 98%. 

Source: GAO analysis of FCC data. 

[End of figure] 

See attachment II for the assignment mechanism used and current 
ownership of licenses for several key industries. 

NOTE: 

[3] To calculate the percent 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. 

Spectrum Task Forces: 

Two task forces have been established to improve spectrum management in 
the United States. 

FCC's Spectrum Policy Task Force: the task force's mission is to assist 
the Commission in identifying and evaluating changes in spectrum policy 
that would increase the public benefits derived from the use of 
radiofrequency spectrum. 

* In November 2002, the task force released its report to the 
Commission. The report contained a number of recommendations to improve 
spectrum policy by promoting more flexible and market-based mechanisms 
to allocate spectrum. [NOTE 4] 

* The Commission has implemented several of the task force's 
recommendations, such as developing rules for leasing spectrum. 

NOTE: 

[4] The task force report was a product of FCC staff, and not formally 
adopted by the full Commission. 

The Federal Government Spectrum Task Force, initiated at the direction 
of the President, examined domestic spectrum policy to promote its 
development and implementation in a variety of areas, including 
national and homeland security, public safety, scientific research, 
federal transportation infrastructure, and law enforcement. 

* In June 2004, the Department of Commerce released two reports based 
on work of the task force. These reports contained a number of 
recommendations for policy reforms to federal agencies' spectrum uses, 
such as adopting incentives for more efficient use of spectrum by 
government agencies. 

Objective 1: Spectrum Allocation: 

Current Allocation Process: 

FCC currently employs a largely command-and-control spectrum allocation 
process, although the agency is moving towards more flexible licenses. 

* Under the command-and-control process, FCC defines the services that 
can be provided, the type of equipment that can be used, and the power 
levels and geographic boundaries, among other things, within frequency 
bands. 

* In recent years, FCC has provided greater operational and technical 
flexibility within some frequency bands, such as in those dedicated to 
broadband personal communications service (PCS) and wireless 
communications service (WCS). 

FCC Task Force Options for Allocation: 

FCC's Spectrum Policy Task Force identified two alternative models for 
managing the spectrum allocation process-the exclusive, flexible rights 
model and the open-access, or commons, model. Both models are market- 
oriented options for spectrum management. 

* Exclusive, flexible rights model provides licensees with exclusive, 
flexible use, and transferable rights within defined geographic areas. 

- This is a license-based approach, with characteristics similar to 
real estate. 

- It extends the existing allocation process by granting greater 
flexibility regarding use of spectrum and permitting the leasing of 
licensed spectrum. 

- FCC's broadband PCS rules closely resemble this model, in that they 
provide substantial flexibility to licensees in terms of technology and 
usage. 

- Advantages cited by proponents include that this model (1) promotes 
economic efficiency, (2) creates certainty for licensees, and (3) 
encourages investment. 

- Disadvantages cited by critics include that it (1) might not 
encourage technical efficiency, (2) could deter innovation, and (3) 
could encourage "hoarding" by license holders. 

* Open-access model allows an unlimited number of unlicensed users to 
share frequencies, with usage rights governed by technical standards, 
but with no right to interference protection. 

- Open access does not require licensing, similar to today's unlicensed 
spectrum. 

- FCC's Part 15 rules (which govern unlicensed use in the 900 MHz, 2.4 
GHz, and 5.8 GHz bands) closely resemble this model. Cordless phones 
and Wi-Fi technologies operate in these bands. 

- Advantages cited by proponents include that this model (1) promotes 
technical efficiency, (2) could reduce "hoarding," and (3) reduces the 
need for long-term capital investment. 

- Disadvantages cited by critics include it (1) could result in overuse 
of spectrum and interference, (2) could lead to underinvestment, and 
(3) could lead to service limitations. 

* FCC's Spectrum Policy Task Force recommended a balanced approach, 
focusing primarily on incorporating both the exclusive, flexible rights 
model and the open-access model. Specifically, the task force 
recommended: 

- moving away from command-and-control, with limited exceptions, such 
as public safety or to conform to treaty obligations; 

- using the exclusive, flexible rights model primarily where scarcity 
of spectrum is a concern and transaction costs are low; and: 

- using the open-access model where scarcity is a lesser concern and 
transaction costs are high. 

Spectrum Allocation Management: 

We found that there is little consensus about the future management of 
the spectrum allocation process. 

* There is little agreement about adopting either the exclusive, 
flexible rights model or the open-access model for commercial spectrum 
allocation. 

* Many stakeholders support a mixed approach, with both licensed and 
unlicensed spectrum, but little consensus exists about the relative 
amount of spectrum dedicated to licensed and unlicensed purposes. (See 
next slide for panelists' perspectives.) 

* There is little agreement about the relative amount of spectrum 
dedicated to commercial and governmental purposes. (See next slide for 
panelists' perspectives.) 

Distribution and Use of Spectrum: 

Panelists' perspectives on the most appropriate allocation of spectrum 
between licensed and unlicensed services: 

[See PDF for image] --graphic text: 

Two pie charts, one with three items and one with two. 

More for licensed: 9; 
More for unlicensed: 6; 
Current allocation is appropriate: 5. 

Panelists' perspectives on the most appropriate allocation of spectrum 
between government and commercial services[A]: 

More to commercial: 13; 
Current allocation is appropriate: 7. 

[A] no panelists thought more should go to government. 

Source: GAO. 

[End of section] 

Objective 2: Spectrum Assignment: 

Auctions: 

FCC was authorized to use auctions to assign spectrum licenses in 1993. 
This authority was extended and expanded. FCC's auction authority is 
set to expire on September 30, 2007. 

Auctions address problems associated with previous methods used to 
assign mutually exclusive licenses. Auctions are: 

* relatively quick, reducing the average time for granting a license to 
less than a year from the initial application date; 

* less costly than previous methods; 

* transparent; 

* effective in assigning licenses to entities that value them the most; 
and: 

* effective in recovering for the public a portion of the value of a 
national resource used for commercial purposes. 

Many stakeholders we contacted believe auctions are more efficient than 
previous mechanisms. In addition, 11 of 17 panelists reported no 
panelists reported that comparative hearings or lotteries provided 25 
the most efficient method. 

Impact of Auctions: 

In addition, auctions appear to have little or no negative impact on 
end-user prices, investment, and competition; evidence on the impact on 
entry and participation of small businesses is less clear. 

* End-User Prices: Economic theory suggests that auction payments do 
not impact end-user prices, since these are a sunk cost; competition 
ultimately affects end-user prices. In addition, using data on cellular 
prices from 1985 to 1998, one author empirically found that auctions 
had no effect on prices. Finally, ten members of our expert panel said 
that auctions do not impact end-user prices, while five said that 
auctions increase prices and three said that uctions decrease prices. 

* Investment: Economic theory suggests that auction payments do not 
impact investment, since these are a sunk cost. In addition, some 
stakeholders mentioned that auctions may stimulate investment, as 
companies seek a return on their investment. Eight expert panelists 
said that auctions increase investment, while five said that auctions 
had no effect and seven said that auctions decrease investment. 

* Competition: Many stakeholders believe that auctions generally do not 
place companies at a competitive or financial disadvantage compared 
with companies that acquired licenses through other means. The reasons 
cited include: 1 companies acquired nonauctioned licenses many years 
ago, 2 many nonauctioned licenses have subsequently been paid for, and 
(3) companies that acquired nonauctioned licenses have subsequently 
acquired additional licenses via auction. Eleven panelists sad that 
auctions increase the degree of competition, while three said that 
auctions had no effect on competitin, ANfour said that auctions 
decreased competition. 

* Entry and Participation of Small Businesses: A number of stake-
holders told us that auctions hinder the participation of small 
businesses because of the financial resources needed to win spectrum 
rights at auction; therefore, auctions limit wireless markets to I~ar e 
businesses that have extensive financial resources. However, some 
stakeholders noted that large companies tended to dominate the 
comparative hearing process as well. Expert opinion diverged on this 
issue: eight panelists said that auctions increase entry while another 
eight said that auctions decrease entry; three panelists said that 
uctions had no effect on entry. 

Secondary Markets: 

Secondary markets provide an additional mechanism for entities to 
acquire licenses after the initial assignment. 

* Secondary markets incorporate the sale and lease of licenses. In some 
instances, companies acquire licenses through the purchase of an entire 
company (e.g., Cingular's purchase of AT&T Wireless). 

* Secondary markets can provide several benefits, including (1) the 
more efficient use of spectrum and (2) the facilitation of new 
technologies and participation of small businesses. 

* Potential hindrances to an effective secondary market include the 
lack of flexibility in use of the spectrum. 

Recent FCC rulemakings facilitate secondary-market transactions. 

* FCC created two mechanisms for spectrum leasing: 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 authorized leasing for most wireless radio licenses with 
exclusive rights. 

* FCC streamlined the leasing approval process, including no prior 
approval for Spectrum Manager Leases and immediate approval for De 
Facto Transfer Leases that do not raise potential public interest 
concerns. 

Objective 3: Panelists' and Stakeholders' Suggestions for Improvement: 

Concerns about Spectrum Management: 

Panelists, stakeholders, and previous GAO reports identified several 
concerns about current spectrum management policy. These concerns 
include: 

* The government-wide structure for spectrum management. 

* The process of allocating spectrum. 

* The process of assigning spectrum for commercial purposes. 

Government-wide structure: The bifurcated responsibility for spectrum 
management can hinder efforts at fundamental reform of spectrum 
management. 

* Neither FCC nor NTIA has ultimate decisionmaking authority over 
spectrum management or the authority to impose fundamental reform. 

* The current structure can lead to protracted spectrum decisions. 

* Because of the lack of a single decisionmaking point for spectrum 
reform, in 2003, GAO recommended the establishment of an independent 
commission that would conduct a comprehensive examination of current 
U.S. spectrum management. The commission would involve all relevant 
stakeholders, including commercial interests, government agencies, 
regulators, and others, to ensure a diversity of views. 

Allocation: Many panelists and stakeholders believe the spectrum 
allocation process is less effective than it could be. In criticizing 
the current process, 

* Panelists most frequently identified the slowness of the allocation 
process as one of its weakness (10 panelists). 

* Some stakeholders note that the current allocation process leads to 
underutilization of the spectrum. For example, a recent report noted 
that during a 4-day period in New York City, only 13 percent of 
spectrum between 30MHz and 2.9GHz was occupied at one time or another. 

* Some stakeholders assert that spectrum is not allocated to the 
highest value uses. 

* Some entities, including those in public safety and critical 
infrastructure, express concern about the limited amount of spectrum 
alloated for noncommercial use. 

Assignment: Some panelists and stakeholders believe the incentive 
programs for small business are flawed. For example, some stakeholders 
noted that large companies ultimately acquire licenses initially 
assigned with small business incentives. 

Suggested Improvements: 

Panelists and stakeholders made a variety of suggestions to improve 
spectrum management. The most frequently suggested improvements include 
the following. 

* Reexamine the distribution of spectrum to enhance the efficient and 
effective use of spectrum. 

* Ensure clearly defined rights and flexibility in licensed spectrum 
bands to promote efficiency. 

* Extend and modify FCC's auction authority. 

There was no consensus on these suggested improvements among 
stakeholders and our panelists, except for extending FCC's auction 
authority. 

Reexamine the distribution of spectrum to enhance the efficient and 
effective use of spectrum. 

* To encourage greater utilization of spectrum, systematically track 
the level of use of spectrum allocations, perhaps through a "spectrum 
census." 

* Evaluate the relative allocation of spectrum for government and 
commercial use. 

* Evaluate the relative allocation of spectrum for licensed and 
unlicensed purposes. 

* Create a balanced approach to spectrum allocation, considering all 
spectrum users. 

Ensure clearly defined rights and flexibility in licensed spectrum 
bands to promote efficiency. 

* Clarify and better define spectrum license rights. 

* Permit more flexible use in licensed bands, especially in terms of 
the types of services offered within licensed bands and the technology 
used within bands. 

* Allow FCC to continue developing and implementing innovative spectrum 
management practices while ensuring a balance between flexibility and 
interference protection. 

Extend and modify FCC's auction authority. 

* Spectrum auctions should promote the efficient use of spectrum, not 
the maximization of revenues for the government. 

* Panelists and stakeholders overwhelmingly supported an extension of 
the auction authority (21 of 22 panelists). 

* Of those panelists who thought the auction authority should be 
extended, some thought there should be some modifications. These 
modifications fall into the following three categories: 

- The nature of license rights for auction winners; 

- Secondary market changes, including greater involvement by FCC; and: 

- Reexamination of the existing small business incentives. 

The nature of license rights for auction winners. 

* Panelists suggested that FCC more clearly define the rights that are 
won by license holders. 

* Some panelists preferred more defined property rights, thereby 
allowing licensees to use the spectrum in any way they see fit, while 
one panelist simply wanted the nature and scope of the rights better 
defined. 

Secondary market changes, including greater involvement by FCC. 

* Some panelists said that FCC needed to be more involved in the 
secondary market, either by overseeing transactions to ensure 
transparency or by promoting use of the secondary market. 

* A few panelists also suggested the development of "two-sided" 
auctions in which FCC offers unassigned spectrum and existing license 
holders offer encumbered spectrum. 

Reexamination of the existing small business incentives. 

* Some stakeholders and panelists do not support incentive programs for 
small businesses. In their view, (1) the wireless industry is not a 
small business industry; (2) while the policy may have been well 
intended, the current program is flawed; and (3) such incentives create 
inefficiencies in the market. 

* Some stakeholders suggested alternative programs or policies that 
would support small and rural business better than the current bidding 
credits mechanism. These suggestions include (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. 

* Still, some stakeholders we spoke with have benefited from the 
bidding credits program and believe that it has been an effective way 
of promoting small business participation. 

Summary: 

Spectrum management is a complex process, for which no single 
government agency is responsible. 

While the current spectrum management process is less effective than 
many stakeholders would like, there is little consensus on how to 
improve the process. 

One aspect of spectrum management that appears very effective is the 
competitive bidding process for assigning licenses for commercial 
entities. Stakeholders overwhelmingly perceive auctions as the most 
effective mechanism for assigning licenses. 

FCC's auction authority expires on September 30, 2007. 

Attachment I: Participants in GAO / National Academies Expert Panel on 
Radiofrequency Spectrum Management: 

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 (moderator): Deputy Director, Stanford Institute for 
Economic 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: 

[End of table] 

Attachment II: Assignment and Current Ownership of Licenses in Key 
Wireless Industries: 

Wireless Services: 

Band or Service: Broadband PCS; 
Assignment Mechanism: Auction; 
Largest License Holder: T-Mobile USA, Inc. 

Band or Service: Cellular; 
Assignment Mechanism: Comparative hearing, lottery, auction; 
Largest License Holder: Alltel Corporation. 

Band or Service: Paging; 
Assignment Mechanism: Auction; 
Largest License Holder: Verizon Wireless Messaging Services. 

Band or Service: Specialized Mobile Radio (SMR) Land Mobile-Commercial 
and Market Based Services; 
Assignment Mechanism: Application; 
Largest License Holder: Nextel Communications. 

Broadcasting: 

Band or Service: AM Radio Service; 
Assignment Mechanism: Application, auction; 
Largest License Holder: Clear Channel Broadcasting. 

Band or Service: FM Radio Service; 
Assignment Mechanism: Application, auction; 
Largest License Holder: Clear Channel Broadcasting. 

Band or Service: Television; 
Assignment Mechanism: Application, auction; 
Largest License Holder: Gray Television Licensee, Inc. 

Satellite: 

Band or Service: Direct Broadcast Satellite (DBS); 
Assignment Mechanism: Application, auction; 
Largest License Holder: EchoStar Satellite LLC. 

Band or Service: Digital Audio Radio Service (DARS); 
Assignment Mechanism: Auction; 
Largest License Holder: XM Radio Inc.; Sirius Satellite Radio, Inc. 

[End of table] 

544115: 

[End of slide presentation] 

[End of section] 

(544115): 

FOOTNOTES 

[1] In addition to allocation, FCC also specifies service rules which 
include, among other things, the technical and operating 
characteristics of equipment. 

[2] The Omnibus Budget Reconciliation Act of 1993 (Pub. L. No. 103-66, 
§ 6002, 107 Stat. 312, 387-392) added Section 309(j) to the 
Communications Act, as amended. Section 309(j) authorizes FCC to use 
competitive bidding to assign licenses for certain services. 

[3] Pub. L. 108-494,118 Stat. 3986, tit. II (2004). 

[4] Sunk costs are costs that have been incurred and cannot be 
reversed, for example, paying for spectrum rights at an auction. 

[5] At the end of each expert panel session, we asked the panelists to 
individually answer a short series of questions about the topics 
discussed in order to more systematically capture individual panelist 
views on key dimensions. Twenty-two of the 23 panelists responded to 
the questions we posed at the end of each session.