This is the accessible text file for GAO report number GAO-06-236 
entitled 'Telecommunications: Strong Support for Extending FCC's 
Auction Authority Exists, but Little Agreement on Other Options to 
Improve Efficient Use of Spectrum' which was released on December 21, 
2005. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to Congressional Committees: 

December 2005: 

Telecommunications: 

Strong Support for Extending FCC's Auction Authority Exists, but Little 
Agreement on Other Options to Improve Efficient Use of Spectrum: 

GAO-06-236: 

GAO Highlights: 

Highlights of GAO-06-236, a report to congressional committees: 

Why GAO Did This Study: 

The radio-frequency spectrum is a natural resource used to provide an 
array of wireless communications services, such as television 
broadcasting, which are critical to the U.S. economy and national 
security. In 1993, the Congress gave the Federal Communications 
Commission (FCC) authority to use competitive bidding, or auctions, to 
assign spectrum licenses to commercial users. 

The Commercial Spectrum Enhancement Act required GAO to examine FCC’s 
commercial spectrum licensing process. Specifically, GAO examined the 
(1) characteristics of the current spectrum allocation process for 
commercial uses; (2) impact of the assignment process—specifically the 
adoption of auctions to assign spectrum licenses—on end-user prices, 
infrastructure deployment, competition, and entry and participation of 
small businesses; and (3) options for improving spectrum management. 

What GAO Found: 

The current spectrum allocation process is largely characterized as a 
“command-and-control” process, in which the government largely dictates 
how the spectrum is used. Many stakeholders we spoke with, along with 
panelists on our expert panel, identified a number of weaknesses of the 
existing spectrum allocation process, including that the current 
process is slow and leads to underutilization of the spectrum. FCC 
staff have identified two alternative allocation models: the 
“exclusive, flexible rights” model—which would extend the existing 
process by providing greater flexibility to spectrum license 
holders—and the “open-access” (or “commons”) model—which would allow an 
unlimited number of unlicensed users to share spectrum. While little 
consensus exists about fully adopting either alternative model, FCC 
staff, as well as many stakeholders and panelists on our expert panel, 
recommend a balanced approach that would combine elements of the 
current process and the two alternative models. 

FCC’s use of auctions to assign spectrum appears to have little to no 
negative impact on end-user prices, infrastructure deployment, and 
competition; evidence on how auctions impact the entry and 
participation of small businesses is less clear. Additionally, FCC’s 
implementation of auctions has mitigated problems associated with 
comparative hearings and lotteries, which FCC previously used to assign 
licenses. In particular, auctions are quicker, less costly, and more 
transparent. Finally, secondary markets provide an additional mechanism 
for companies to acquire licenses and gain access to spectrum, and FCC 
has undertaken actions to facilitate secondary-market transactions, 
such as streamlining the approval process for leases. 

Industry stakeholders and panelists on our expert panel offered a 
number of options for improving spectrum management. The most 
frequently cited options include (1) extending FCC’s auction authority, 
(2) reexamining the use and distribution of spectrum—such as between 
commercial and governmental use—to enhance the efficient and effective 
use of this important resource, and (3) ensuring flexibility in 
commercially licensed spectrum bands. Stakeholders and panelists on our 
expert panel overwhelmingly supported extending FCC’s auction 
authority; however, there was little consensus on the other identified 
options for improvement. 

Images Depicting Common Uses of Spectrum: 

[See PDF for image] 

[End of figure] 

What GAO Recommends: 

In 2003, GAO recommended that an independent commission examine 
spectrum management. In this report, GAO recommends that the Congress 
consider extending FCC’s auction authority beyond the current 
expiration date of September 30, 2007. FCC provided technical comments 
on this report and OMB generally agreed with the report. 

www.gao.gov/cgi-bin/getrpt?GAO-06-236. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact JayEtta Z. Hecker at 
(202) 512-2834 or heckerj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Spectrum Allocation Remains Largely a Command-and-Control Process, But 
Alternatives Exist: 

Auctions Have Little to No Negative Impact on the Wireless Industry and 
Are More Efficient than Previous Assignment Mechanisms: 

Industry Stakeholders and Panelists Suggested Several Options to 
Improve Spectrum Management: 

Conclusions: 

Matter for Congressional Consideration: 

Agency Comments: 

Appendix: 

Appendix I: Scope and Methodology: 

Tables: 

Table 1: List of non-government interviewees: 

Table 2: Panelists on GAO/National Academies expert panel: 

Figures: 

Figure 1: Distribution of Spectrum Between Federal and Nonfederal 
Users: 

Figure 2: Percent of Licenses Auctioned: 

Figure 3: Panelists' Views on the Allocation of Spectrum between 
Commercial and Government Use: 

Figure 4: Panelists' Views on the Allocation of Spectrum between 
Licensed and Unlicensed Use: 

Abbreviations: 

CMRS: Commercial Mobile Radio Service: 

CSIS: Center for Strategic and International Studies: 

CTIA: Cellular Telecommunications and Internet Association: 

DARS: Digital Audio Radio Service: 

FCC: Federal Communications Commission: 

GAO: Government Accountability Office: 

GHz: Gigahertz: 

ITU: International Telecommunication Union: 

MHz: Megahertz: 

NTIA: National Telecommunications and Information Administration: 

OMB: Office of Management and Budget: 

PCS: Personal Communications Services: 

SMR: Specialized Mobile Radio: 

Letter December 20, 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: 

The radio-frequency spectrum is a natural resource used to provide an 
array of wireless communications services that are critical to the U.S. 
economy and national security, such as mobile voice and data services, 
radio and television broadcasting, radar, and satellite-based services. 
Historically, concern about interference among users has been a driving 
force in the management of spectrum. The Federal Communications 
Commission (FCC)--an independent agency that regulates spectrum use for 
nonfederal users, including commercial users--and the National 
Telecommunications and Information Administration (NTIA)--an agency 
within the Department of Commerce that regulates spectrum for federal 
government users--have worked to minimize interference through the 
"allocation" and "assignment" of spectrum. Allocation involves 
designating "bands" of spectrum for specific types of services or 
classes of users, such as designating certain bands for commercial or 
government use. Assignment provides an authorization or license to use 
a specific portion of spectrum to entities, such as wireless companies; 
this is referred to as "licensed spectrum." In contrast, some bands of 
spectrum are allocated to "unlicensed" use, where an unlimited number 
of users without licenses share the band of spectrum.[Footnote 1] 

Demand for radio-frequency spectrum has exploded over the past several 
decades as new technologies and services have been--and continue to be-
-brought to the market in the private sector and new mission needs 
unfold among government users of spectrum, including wireless 
communications critical for public safety officials responding to 
natural and man-made disasters. As a result, nearly all parties are 
becoming increasingly concerned about the availability of spectrum for 
future needs, because most of the usable spectrum in the United States 
has already been allocated to existing services and users. These 
concerns are compounded by evidence that some of the spectrum is 
currently underutilized. Therefore, to promote a more efficient use of 
this resource and meet future needs, FCC has increasingly adopted more 
market-oriented approaches to spectrum management in recent years, 
including using a competitive bidding process, or auctions, to assign 
spectrum licenses to commercial users. Prior to auctions, FCC used 
comparative hearings, which were quasi-judicial forums, and lotteries 
as assignment mechanisms. As of November 30, 2005, FCC has held 59 
auctions for over 56,000 licenses to select between competing 
applications for the same license, and generated over $14.5 billion for 
the U.S. Treasury.[Footnote 2] 

The Commercial Spectrum Enhancement Act required GAO to examine FCC's 
commercial spectrum licensing process.[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, infrastructure 
deployment, competition, and entry and participation of small 
businesses; and (3) options for improving spectrum management. To 
address these issues, we reviewed and synthesized relevant economic, 
legal, and policy-oriented literature, such as the Spectrum Policy Task 
Force report, a document produced by FCC staff. In addition, we hosted, 
in conjunction with the National Academies, two balanced and diverse 
expert panels with 23 experts representing academia, government, and 
industry. The experts discussed policy issues related to spectrum 
allocation and assignment, as well as options for improving spectrum 
management in the future. We also conducted semi-structured interviews 
with representatives of academia, government, and industry. Finally, we 
interviewed officials at FCC and analyzed data from FCC's three primary 
spectrum license databases: the Universal Licensing System, the 
Consolidated Database System, and the International Bureau Filing 
System. We conducted our work from March through August 2005 in 
accordance with generally accepted government auditing standards. (See 
app. I for additional information on our scope and methodology.) 

Results in Brief: 

FCC's current spectrum allocation process is largely characterized as a 
"command-and-control" process--that is, the government largely dictates 
how spectrum is used. In particular, FCC, based on regulatory 
judgments, determines and limits what types of services--such as 
broadcast, satellite, or mobile radio--will be offered in different 
frequency bands by geographic area. In addition, FCC issues service 
rules to define the terms and conditions for spectrum use within given 
bands. These rules typically specify eligibility standards as well as 
limitations on the services that may be offered in different frequency 
bands and the equipment and power levels that may be used. Many 
stakeholders we spoke to and panelists on our expert panel identified a 
number of weaknesses with the command-and-control process. For example, 
panelists and stakeholders noted that the current process is slow and 
leads to underutilization of the spectrum, among other things. In its 
2002 Spectrum Policy Task Force Report, FCC staff identified two 
alternative spectrum management models to the command-and-control 
model: the "exclusive, flexible rights" model and the "open-access" (or 
"commons") model.[Footnote 4] The exclusive, flexible rights model 
provides licensees with exclusive, flexible use of spectrum, and 
transferable rights within defined geographic areas; in contrast, the 
open-access model allows an unlimited number of unlicensed users to 
share frequencies. Both models are more market-oriented than the 
command-and-control model--that is, supply and demand for spectrum- 
based services play a greater role in determining how spectrum is used, 
or allocated. FCC is currently using elements of each model. For 
example, in recent years, FCC has provided significant operational and 
technical flexibility for many commercial radio services, such as 
Personal Communications Services (PCS). However, there is limited 
consensus about fully adopting either alternative model in the future. 
Many stakeholders and members of our expert panel, as well as the 
Spectrum Policy Task Force, support approaches that would combine 
elements of all three models. But, the relative mix of these approaches 
remains an area of little agreement. 

Available evidence indicates that FCC's use of auctions as an 
assignment mechanism for licensed spectrum has had little to no 
negative impact on end-user prices, infrastructure deployment, and 
competition; evidence on how auctions impact the entry and 
participation of small businesses is less clear. According to economic 
research and many of the industry stakeholders we spoke to, auctions 
have little to no effect on end-user prices because the auction 
payments represent a sunk cost,[Footnote 5] which does not affect 
future-oriented decisions, such as pricing decisions. Similar arguments 
were made for the impact of auctions on infrastructure deployment. In 
addition, some industry stakeholders told us that companies' drive for 
a return-on-investment (i.e., they need to earn a return on the auction 
payment) and competition induces companies to invest and innovate. 
Thus, rather than diverting resources from investment and innovation, 
auctions encourage these actions. Many industry stakeholders also told 
us that auctions generally do not place companies at a competitive or 
financial disadvantage compared to companies that acquired licenses 
through means other than auctions. The evidence is less certain 
regarding the effect of auctions on entry and participation of small 
businesses. For instance, many industry stakeholders we interviewed 
stated that auctions limit participation to large companies with 
extensive financial resources. However, others noted that large 
companies tended to also dominate the comparative hearing process and 
that auctions at least make the process transparent; some stakeholders 
also commented that the capital-intensive nature of the wireless 
communications industry makes it difficult for small businesses to 
compete, regardless of the assignment mechanism used. In addition, 
FCC's implementation of auctions mitigates a number of problems 
associated with comparative hearings and lotteries. For example, 
auctions are faster, less costly, and more transparent than these 
previous assignment mechanisms. Finally, in addition to auctions, 
companies can obtain access to the spectrum resource on the secondary 
market, which involves the sale of licenses or the leasing of spectrum 
usage rights among private entities. FCC has recently taken steps to 
facilitate secondary-market transactions, including streamlining the 
license transfer approval process as well as the procedures by which 
parties may enter into spectrum leasing arrangements. 

Industry stakeholders and panelists on our expert panel suggested a 
number of options for improving spectrum management. The most 
frequently cited options include (1) extending FCC's auction authority, 
(2) reexamining the use and distribution of spectrum, and (3) ensuring 
clearly defined rights and flexibility in commercially licensed 
spectrum bands. Panelists and stakeholders overwhelmingly supported 
extending FCC's auction authority. For example, 21 of 22 panelists 
supported extending FCC's auction authority, which is scheduled to 
expire in 2007.[Footnote 6] To gain a good understanding of how much 
spectrum is currently being used, a few panelists suggested perhaps 
adopting a "spectrum census" to systematically track usage. A number of 
panelists also suggested that the government evaluate the relative 
allocation of spectrum for government and commercial use as well as the 
allocation of spectrum for licensed and unlicensed purposes, although 
there was little consensus on the relative allocations between these 
uses. Some panelists suggested that government better define spectrum 
users' rights, which would clarify understanding of the rights awarded 
with a license. Others also thought that government should provide 
licensees with greater flexibility to determine the type of technology 
used and services offered, although this flexibility could lead to 
greater interference and thus greater flexibility would need to be 
balanced with interference protection. There was no consensus on these 
options for improvements among stakeholders and panelists on our expert 
panel, except for extending FCC's auction authority. 

To achieve greater consensus for reform of the spectrum management 
process, we previously suggested that the Congress consider 
establishing an independent commission that would conduct a 
comprehensive examination of spectrum management.[Footnote 7] To date, 
such a commission has not been established. In this report, we 
recommend that the Congress consider extending FCC's auction authority 
beyond the current expiration date of September 30, 2007. We provided a 
draft of this report to FCC, NTIA, and the Office of Management and 
Budget. FCC provided technical comments that we incorporated where 
appropriate. NTIA had no comments on the draft. The Office of 
Management and Budget (OMB) concurred with our finding that auctions 
have mitigated problems associated with comparative hearings and 
lotteries and noted that the Administration supports the permanent 
extension of FCC's auction authority. OMB also noted that the 
Administration has proposed to give FCC authority to use economic 
mechanisms to promote efficient spectrum use. 

Background: 

The radio-frequency spectrum is the part of the natural spectrum of 
electromagnetic radiation lying between the frequency limits of 9 
kilohertz and 300 gigahertz.[Footnote 8] It is the medium that makes 
possible wireless communications and supports a vast array of 
commercial and governmental services. Commercial entities use spectrum 
to provide a variety of wireless services, including mobile voice and 
data, paging, broadcast television and radio, and satellite services. 
Additionally, some companies use spectrum for private tasks, such as 
communicating with remote vehicles. Federal, state, and local agencies 
also use spectrum to fulfill a variety of government missions. For 
example, state and local police departments, fire departments, and 
other emergency services agencies use spectrum to transmit and receive 
critical voice and data communications, and federal agencies use 
spectrum for varied mission needs such as national defense, law 
enforcement, weather services, and aviation communication. 

Spectrum is managed at the international and national levels. The 
International Telecommunication Union (ITU), a specialized agency of 
the United Nations, coordinates spectrum management decisions among 
nations. Spectrum management decisions generally require international 
coordination, since radio waves can cross national borders. Once 
spectrum management decisions are made at the ITU, regulators within 
each nation, to varying degrees, will follow the ITU decisions. In the 
United States, responsibility for spectrum management is divided 
between two agencies: FCC and NTIA. FCC manages spectrum use for 
nonfederal users, including commercial, private, and state and local 
government users under authority provided in the Communications Act. 
NTIA manages spectrum for federal government users and acts for the 
President with respect to spectrum management issues.[Footnote 9] FCC 
and NTIA, with direction from the Congress, jointly determine the 
amount of spectrum allocated to federal and nonfederal users, including 
the amount allocated to shared use. Figure 1 shows the current 
allocation of spectrum between federal and nonfederal users. 

Figure 1: Distribution of Spectrum Between Federal and Nonfederal 
Users: 

[See PDF for image] 

Note: Not all spectrum frequencies are equivalent. For example, at 
higher frequencies, more bandwidth is required to provide 
communications services. Additionally, licenses can vary considerably 
in terms of bandwidth, as well as the geographic area and population 
covered. 

[End of figure] 

Historically, concern about interference or crowding among users has 
been a driving force in the management of spectrum.[Footnote 10] FCC 
and NTIA work to minimize interference through two primary spectrum 
management functions--the "allocation" and the "assignment" of radio 
spectrum. Specifically: 

* Allocation involves segmenting the radio spectrum into bands of 
frequencies that are designated for use by particular types of radio 
services or classes of users. For example, the frequency bands between 
88 and 108 megahertz (MHz) are allocated to FM radio broadcasting in 
the United States. In addition to allocation, spectrum managers also 
specify service rules, which include the technical and operating 
characteristics of equipment. 

* 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.[Footnote 11] 

In some frequency bands, FCC authorizes unlicensed use of spectrum-- 
that is, users do not need to obtain a license to use the 
spectrum.[Footnote 12] Rather, an unlimited number of unlicensed users 
can share frequencies on a non-interference basis. Thus, the assignment 
process does not apply to the use of unlicensed devices. However, 
manufacturers of unlicensed equipment must receive authorization from 
FCC before operating or marketing an unlicensed device. 

When FCC assigns a portion of spectrum to a single entity, the license 
is considered exclusive. When two or more entities apply for the same 
exclusive license, FCC classifies these as mutually exclusive 
applications--that is, the grant of a license to one entity would 
preclude the grant to one or more other entities. For mutually 
exclusive applications, FCC has primarily used the following three 
assignment mechanisms. 

* Comparative hearings were quasi-judicial forums in which competing 
applicants argued why they should be awarded a license, and FCC awarded 
licenses based on pre-established comparative criteria. FCC principally 
used comparative hearings from 1934 to 1984. Critics asserted that 
comparative hearings were time consuming and resource intensive, lacked 
transparency, and often led to protracted litigation. 

* Lotteries entailed FCC randomly selecting licensees from a pool of 
qualified applicants. Congress authorized FCC to use lotteries to 
assign mutually exclusive licenses in 1981, partially in response to 
the administrative burden associated with comparative hearings. FCC 
used lotteries from 1984 to 1993.[Footnote 13] Critics contended that 
lottery winners were not always the best suited to provide services; 
thus, several years could pass before the licenses were transferred in 
the secondary market to entities capable of deploying a system and 
effectively using the spectrum. 

* Auctions are a market-based mechanism in which FCC assigns a license 
to the entity that submits the highest bid for specific bands of 
spectrum. The Congress provided FCC with authority to use auctions to 
assign mutually exclusive licenses for certain subscriber-based 
wireless: 

services in the Omnibus Budget Reconciliation Act of 1993.[Footnote 14] 
In subsequent years, the Congress has modified and extended FCC's 
auction authority, including exempting some licenses from competitive 
bidding, such as licenses for public safety radio services and 
noncommercial educational broadcast services. Critics of auctions have 
suggested that auctions raise consumer prices for wireless services, 
slow the deployment of wireless systems, and are a barrier for small 
businesses. 

As of November 30, 2005, FCC has conducted 59 auctions to select 
between competing applications for the same license, which have 
generated over $14.5 billion for the U.S. Treasury. However, only a 
very small portion of total licenses has been auctioned. In particular, 
FCC has auctioned approximately 56,100 licenses--about 2 percent of 
total licenses. (See fig. 2.) The other 98 percent of licenses have 
been assigned through other means.[Footnote 15] 

Figure 2: Percent of Licenses Auctioned: 

[See PDF for image] 

Notes: 

To calculate the percentage of licenses that have been auctioned, we 
divided the number of auctioned licenses by the number of licenses 
included in FCC's three spectrum license databases. 

Not all spectrum frequencies are equivalent. For example, at higher 
frequencies, more bandwidth is required to provide communications 
services. 

[End of figure] 

In recent years, two government-led task forces have examined spectrum 
policy in the U.S. FCC established the Spectrum Policy Task Force, 
comprised of FCC staff, to assist the Commission in identifying and 
evaluating changes in spectrum policy that would increase the public 
benefits derived from the use of spectrum. In November 2002, the task 
force released a report that contained a number of recommendations, 
including promoting more market-based mechanisms to allocate 
spectrum.[Footnote 16] The Commission subsequently implemented several 
of the task force's recommendations, including developing rules for 
leasing spectrum. The Federal Government Spectrum Task Force,[Footnote 
17] comprised of the heads of executive branch departments, agencies, 
and offices, examined spectrum policy for government use, including 
homeland security, public safety, scientific research, federal 
transportation infrastructure, and law enforcement. In June 2004, the 
Department of Commerce released two reports based on the task force's 
findings, which contained a number of recommendations for reforms to 
federal agencies' use of spectrum. For example, the Department of 
Commerce recommended adopting incentives for more efficient use of 
spectrum by government agencies. However, as we noted in 2003, the 
bifurcated responsibility between FCC and NTIA for spectrum management 
can hinder reform.[Footnote 18] Specifically, neither FCC nor NTIA has 
ultimate decision making authority over spectrum management or the 
authority to impose fundamental reform. Because of the lack of a single 
decision making point for spectrum reform, we recommended that the 
Congress consider establishing an independent commission that would 
conduct a comprehensive examination of spectrum management. To date, 
such a commission has not been established. 

Spectrum Allocation Remains Largely a Command-and-Control Process, But 
Alternatives Exist: 

Spectrum allocation remains largely a command-and-control process, 
although FCC is providing greater flexibility in some instances, 
particularly as it licenses newly available spectrum. Many stakeholders 
with whom we spoke and panelists on our expert panel identified a 
number of weaknesses with the command-and-control process. FCC staff 
identified two alternative spectrum management models: the exclusive, 
flexible rights model and the open-access, or commons, model. Under 
these models, users of spectrum, rather than FCC, would exert a greater 
influence on the use of spectrum. Although there is limited consensus 
about fully adopting either alternative model in the future, many 
stakeholders and members of our expert panel, as well as the Spectrum 
Policy Task Force, support balanced approaches that would combine 
elements of all three models. 

Spectrum Allocation Is Largely a Command-and-Control Process: 

FCC currently employs largely a command-and-control process for 
spectrum allocation.[Footnote 19] That is, FCC applies regulatory 
judgments to determine and limit what types of services--such as 
broadcast, satellite, or mobile radio--will be offered in different 
frequency bands by geographic area. In addition, for most frequency 
bands FCC allocates, the agency issues service rules to define the 
terms and conditions for spectrum use within the given bands. These 
rules typically specify eligibility standards as well as limitations on 
the services that relevant entities may offer and the technologies and 
power levels they may use. These decisions can constrain users' ability 
to offer services and equipment of their choosing. 

FCC has provided greater operational and technical flexibility within 
certain frequency bands. For example, FCC's rules for Commercial Mobile 
Radio Service (CMRS), which include cellular and PCS services, are 
considered less restrictive. Under these rules, wireless telephony 
operators are free to select technologies, services, and business 
models of their choosing. In contrast, spectrum users have relatively 
little latitude for making such choices in frequency bands allocated 
for broadcast television services. 

Despite these efforts, many industry stakeholders and experts with whom 
we spoke cited a number of weaknesses in the command-and-control 
process for spectrum allocation. The most frequently cited weakness by 
our expert panel was the slowness of the allocation process. Because of 
the regulatory nature of the command-and-control process, arriving at 
allocation decisions can be a protracted process. The slow moving 
allocation process delays consumers' access to new technologies. In 
addition, some panelists noted that the current allocation process 
leads to underutilization of spectrum. For example, a recent study 
found that during a four-day period in New York City, only 13 percent 
of spectrum between 30 MHz and 2.9 GHz was occupied at one time or 
another.[Footnote 20] Another weakness cited by a number of 
stakeholders was that the command-and-control process does not 
systematically allocate spectrum to its highest value uses. As a 
result, highly valued services may not be fully deployed. 

FCC's Spectrum Policy Task Force Identified Two Alternatives to the 
Command-and-Control Allocation Process but Recommends a Balanced 
Approach: 

The Spectrum Policy Task Force Report, a document produced by FCC 
staff, identified two alternative spectrum management models to the 
command-and-control model: the exclusive, flexible rights model, and 
the open-access model. The exclusive, flexible rights model extends the 
existing license-based allocation process by providing greater 
flexibility to license holders. The open-access model allows an 
unlimited number of unlicensed users to share frequencies, with usage 
rights governed by technical standards. Both models allow flexible use 
of spectrum, so that users of spectrum, rather than FCC, play a larger 
role in determining how spectrum is ultimately used. FCC's Spectrum 
Policy Task Force recommended a balanced approach to allocation-- 
utilizing aspects of the command-and-control; exclusive, flexible 
rights; and open-access models. 

The Exclusive, Flexible Rights Model Is a License-Based Approach to 
Spectrum Allocation: 

The exclusive, flexible rights model provides licensees with exclusive, 
flexible use of the spectrum and transferable rights within defined 
geographic areas. This is a licensed-based approach to spectrum 
management that extends the existing allocation process by providing 
greater flexibility regarding the use of spectrum and the ability to 
transfer licenses or to lease spectrum usage rights. Licensees with 
exclusive licenses can exclude others from using the spectrum they have 
been assigned, and with flexible rights they enjoy flexibility to 
provide the services they wish with their licenses, provided they 
comply with applicable FCC rules and policies. To a certain extent, the 
model treats spectrum like real estate, and some have suggested moving 
far in this direction by turning spectrum licenses into full property 
rights--an option that existing legislation currently 
prohibits.[Footnote 21] FCC's broadband PCS rules closely resemble this 
model, in that they provide substantial flexibility to licensees in 
terms of technology and use of spectrum. 

Proponents cite several advantages with the exclusive, flexible rights 
model. First, proponents argue that this model would promote the 
economically efficient use of spectrum. For example, advocates 
typically point to CMRS to support this argument, as CMRS licenses are 
exclusive and governed by relatively flexible rules; in addition, the 
market for CMRS services is highly valuable, innovative, and fast- 
growing. Second, proponents suggest that the model provides certainty 
for licensees. The model provides a reliable means of protecting 
commercial users from interference, allowing them to guarantee quality 
of service on a wide scale. Third, proponents argue that greater 
certainty will encourage investment in technology and infrastructure. 

Opponents cite several problems with the exclusive, flexible rights 
model. For example, opponents assert that the model might not promote 
technically efficient, or intensive, use of spectrum. According to some 
critics, exclusivity might reduce licensees' incentives to invest in 
developing more technically efficient technologies as users have 
guaranteed access to spectrum, thereby deterring innovation. In 
addition, some opponents assert that the model could encourage 
"hoarding" of spectrum, as licensees could benefit from blocking access 
to spectrum by potential competitors. In other words, companies may buy 
rights to spectrum--with no intention of using the spectrum--to prevent 
a competitor from acquiring rights to the same spectrum. 

The Open-Access Model Is a Non-Licensed Approach to Spectrum 
Allocation: 

The open-access model allows a potentially unlimited number of 
unlicensed users to share frequency bands, with usage rights governed 
by technical standards, but with no rights to interference protection. 
This approach does not require licenses, and as such is similar to the 
current FCC Part 15 rules (which govern unlicensed use in the 900 MHz, 
2.4 GHz, and 5.8 GHz bands)--where cordless phones and Wi-Fi 
technologies operate. As with exclusive, flexible rights, users would 
have greater latitude in determining how they use spectrum. However, in 
this case, markets for end-user equipment, rather than for licenses, 
would determine how different frequency bands are used or allocated. 
Under this model, commercial spectrum-based service providers would not 
seek to maximize their return on spectrum licenses, but rather, on the 
sale of equipment that, once purchased, would allow consumers to enjoy 
wireless services. 

Proponents of the open-access model cite several advantages with this 
approach to spectrum allocation. For example, proponents assert that 
the open-access model will promote the technically efficient use of 
spectrum. In order to avoid interference, users have an incentive to 
develop smarter equipment that will use the spectrum intelligently. An 
example of technically efficient equipment is agile radio. Agile radios 
can determine if a specific frequency is currently in use, emit in that 
band if it is not, and switch to another band in microseconds if 
another user begins to emit in: 

that band.[Footnote 22] In fact, supporters of the open-access model 
believe that open access to spectrum will foster the development of 
technologies that will reduce spectrum scarcity, and therefore 
interference problems, as a new type of wireless architecture becomes 
possible. According to proponents, the open-access model for spectrum 
allocation also limits the ability for companies to "hoard" spectrum-- 
that is, since there would be no exclusive use of spectrum in this 
model, companies could no longer block their competitors from acquiring 
spectrum by simply acquiring or holding on to spectrum themselves. In 
addition, since users would no longer need to buy spectrum rights, the 
open-access model reduces barriers to entry into spectrum-based 
markets, according to proponents. 

Opponents cite several problems with the open-access model. One cited 
problem is that an open-access approach could lead to the overuse of 
spectrum. Specifically, opponents believe that the technologies that 
could end spectrum scarcity are years away from realization. Without 
such technologies, an unlimited number of unlicensed users would result 
in the overuse of spectrum and interference. Moreover, opponents argue 
that the uncertainty about interference would inhibit investment. 
Another cited problem is the potential irreversibility of this model-- 
that is, once consumers have the equipment, it would be difficult to 
prevent them from accessing the spectrum if the spectrum were needed 
for some other purpose in the future. One only need to imagine the 
difficulties involved with trying to prevent people from using their 
garage door openers--which operate in some bands under Part 15 rules-- 
to understand this potential challenge. 

FCC's Spectrum Policy Task Force Advocated a Balanced Approach: 

The Spectrum Policy Task Force report recommended a balanced approach 
to spectrum allocation--utilizing aspects of the command-and-control; 
exclusive, flexible rights; and open-access models. In particular, 
FCC's task force recommended the following: 

* moving away from the command-and-control model, except for limited 
exceptions such as public safety or to conform to treaty requirements; 

* using the exclusive, flexible rights model 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 relatively high. 

Little Consensus Exists about the Future Management of Spectrum: 

We found little consensus on the future management of spectrum. As 
noted above, there is disagreement about the merits of the exclusive, 
flexible rights and open-access models. However, many industry 
stakeholders we spoke with and panelists on our expert panel support a 
mixed approach, which incorporates spectrum use under an exclusive, 
flexible rights licensed model and an open-access model. For example, 
those who favor open access do not all believe that licensing should 
suddenly be done away with, but that different approaches ought to be 
tested and compared before any policy decision is made. Similarly, a 
number of industry stakeholders we spoke with who favor providing 
spectrum users with flexible rights in licensed bands also believe that 
unlicensed spectrum is, at the minimum, appropriate for use by certain 
devices within certain bands. 

Auctions Have Little to No Negative Impact on the Wireless Industry and 
Are More Efficient than Previous Assignment Mechanisms: 

Auctions have little to no negative effect on end-user prices, 
infrastructure deployment, or competition, although the effect on entry 
and participation of small businesses is less certain. FCC's 
implementation of auctions has also mitigated problems arising with 
comparative hearings and lotteries. In addition to auctions, secondary 
markets provide another means for entities to acquire licenses or lease 
spectrum in order to gain access to spectrum. 

Auctions Have No Negative Impact on the Wireless Industry: 

Some critics of spectrum auctions have suggested that auctions 
negatively impact the wireless industry. Since auctions require 
licensees to pay for licenses, and in some instances the payments can 
represent a significant outlay, these critics believe that auctions (1) 
raise consumer prices as entities seek to recoup their auction 
payments, (2) slow infrastructure deployment by diverting financial 
resources to the government, (3) distort competition by creating an 
environment where some entities that acquired licenses via auction 
compete with other entities that previously acquired licenses via other 
means, and (4) deter entry and hinder small business participation in 
the wireless industry by necessitating large payments prior to the 
issuance of licenses. 

We found that FCC's implementation of auctions has no negative impact 
on end-user prices, infrastructure deployment, and competition; the 
evidence on the impact on entry and participation of small businesses 
is less clear. In particular: 

* End-user prices. We found that auctions have little to no impact on 
end-user prices. Economic research suggests that auction payments do 
not affect end-user prices, since these payments represent a sunk cost, 
which do not affect future-oriented decisions. For example, using data 
on cellular prices from 1985 to 1998, one author empirically found that 
auctions had no effect on prices.[Footnote 23] Additionally, industry 
stakeholders we spoke to and panelists on our expert panel noted that 
competition ultimately affects end-user prices. Thus, regardless of a 
company's desire to recoup its auction payment, the company will select 
prices that maximize future profits based on competition in the market. 
Among the panelists on our expert panel, a majority said that auctions 
do not affect end-user prices. Specifically, 10 panelists said that 
auctions do not affect end-user prices, 3 said that auctions decrease 
prices, and 5 said that auctions increase prices.[Footnote 24] 

* Infrastructure Deployment. We found that auctions have little to no 
impact on infrastructure deployment. Similar to the argument for end- 
user prices, economic research suggests that auction payments do not 
deter infrastructure deployment; companies will make decisions about 
infrastructure deployment based on the future profit potential of those 
investments. Some industry stakeholders with whom we spoke, and 
panelists on our expert panel, mentioned that auction payments may in 
fact stimulate infrastructure deployment. In particular, since an 
auction payment represents an investment, the company will seek a 
return on that investment. To earn that return, a wireless company will 
sell subscriber services, which are made possible through the 
deployment of wireless networks. Among panelists on our expert panel, 
eight said that auctions increase investment, five said that auctions 
had no effect on investment, and seven said that auctions decrease 
investment. 

* Competition. We found little evidence that auctions affect the 
competitive environment. Many stakeholders told us that auctions 
generally do not place companies at a competitive or financial 
disadvantage compared to companies that acquired licenses through 
other, non-auctioned, means that might not have involved payment for 
the licenses, such as lotteries. These stakeholders noted that (1) 
companies acquired non-auctioned licenses many years ago, (2) many non- 
auctioned licenses have subsequently been sold and paid for, and (3) 
companies that acquired non-auctioned licenses have subsequently 
acquired additional licenses via auction. Therefore, any competitive 
advantage these companies gained by obtaining licenses through means 
other than auctions has dissipated. Among our panelists, 11 said that 
auctions increase the degree of competition, while 3 said that auctions 
had no effect on competition, and 4 said that auctions decrease 
competition. 

* Entry and participation of small businesses. Some industry 
stakeholders we interviewed stated that auctions limit participation to 
large companies with extensive financial resources.[Footnote 25] These 
stakeholders assert that small companies are unable to acquire the 
financial resources necessary to successfully compete in FCC's auction 
process. However, others noted that large companies also tended to 
dominate the comparative hearing process. In addition, some 
stakeholders noted that the capital intensive nature of the wireless 
industry--not the assignment mechanism--makes it difficult for small 
businesses to participate. Expert opinion diverged on this issue: among 
our expert panelists, eight said that auctions increase entry while 
another eight said that auctions decrease entry, and three panelists 
said that auctions had no effect on entry. 

Auctions Mitigate Many Problems Associated with Previous Assignment 
Mechanisms: 

As mentioned earlier, comparative hearings and lotteries--the two 
primary assignment mechanisms employed until 1993--suffered from 
several problems. Comparative hearings were generally time consuming 
and resource intensive, as entities employed engineers and lawyers to 
prepare applications and FCC dedicated staff to evaluating applications 
based on pre-established comparative criteria. Further, decisions 
arising from comparative hearings lacked transparency and often led to 
protracted litigation. While lotteries were less time consuming and 
resource intensive, they did not necessarily assign licenses to the 
entities that were best suited to provide services. Thus, several years 
could pass before the licenses were transferred in the secondary market 
to entities capable of deploying a wireless system and effectively 
using the spectrum. Further, neither comparative hearings nor lotteries 
provided a mechanism for the public to financially benefit from 
commercial entities using a valuable national resource.[Footnote 26] 

FCC's implementation of auctions mitigates a number of problems 
associated with comparative hearings and lotteries. For example: 

* Auctions are a relatively quick assignment mechanism. With auctions, 
FCC reduced the average time for granting a license to less than one 
year from the initial application date, compared to an average time of 
over 18 months with comparative hearings. 

* 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. 

* 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. 

* Auctions are effective in assigning licenses to entities that value 
them the most. Alternatively, with lotteries, FCC awarded licenses to 
randomly-selected entities. 

* Auctions are an effective mechanism for the public to realize a 
portion of the value of a national resource used for commercial 
purposes. Entities submitting winning bids must remit the amount of 
their winning bid to the government, which represents a portion of the 
value that the bidder believes will arise from using the spectrum. As 
mentioned earlier, auctions have generated over $14.5 billion for the 
U.S. Treasury. 

Many industry stakeholders we contacted, and panelists on our expert 
panel, stated that auctions are more efficient than previous mechanisms 
used to assign spectrum licenses. For example, among our panelists, 11 
of 17 reported that auctions provide the most efficient method of 
assigning licenses; no panelist reported that comparative hearings or 
lotteries provided the most efficient method. Of the remaining 
panelists, several suggested that the most efficient mechanism depended 
on the service that would be permitted with the spectrum.[Footnote 27] 

Secondary Markets Provide an Additional Mechanism for Companies to 
Acquire Licenses and Gain Access to Spectrum: 

While FCC's initial assignment mechanisms provide one means for 
companies to acquire licenses, companies can also acquire licenses or 
access to spectrum through secondary market transactions. Through 
secondary markets, companies can engage in transactions whereby a 
license or use of spectrum is transferred from one company to another. 
These transactions can incorporate the sale or trading of licenses. In 
some instances, companies acquire licenses through the purchase of an 
entire company, such as Cingular's purchase of AT&T Wireless. 
Ultimately, FCC must approve transactions that result in the transfer 
of licenses from one company to another. 

In recent years, FCC has undertaken actions to facilitate secondary- 
market transactions. FCC authorized spectrum leasing for most wireless 
radio licenses with exclusive rights and created two categories of 
spectrum leases: Spectrum Manager Leasing--where the licensee retains 
legal and working control of the spectrum--and de Facto Transfer 
Leasing--where the licensee retains legal control but the lessee 
assumes working control of the spectrum. FCC also streamlined the 
procedures that pertain to spectrum leasing. For instance, the Spectrum 
Manager Leases do not require prior FCC approval and de Facto Transfer 
Leases can receive immediate approval if the arrangement does not raise 
potential public interest concerns.[Footnote 28] While FCC has taken 
steps to facilitate secondary market transactions, some hindrances 
remain. For example, some industry stakeholders told us that the lack 
of flexibility in the use of spectrum can hinder secondary market 
transactions. 

Secondary markets can provide several benefits. First, secondary 
markets can promote more efficient use of spectrum. If existing 
licensees are not fully utilizing the spectrum, secondary markets 
provide a mechanism whereby these licensees can transfer use of the 
spectrum to other companies that would utilize the spectrum, thereby 
increasing the amount of available spectrum and reducing the perceived 
scarcity of spectrum.[Footnote 29] Second, secondary markets can 
facilitate the participation of small businesses and introduction of 
new technologies. For example, a company might have a greater incentive 
to deploy new technologies that require less spectrum if the company 
can profitably transfer the unused portion of the spectrum to another 
company through the secondary market. Also, several stakeholders we 
spoke to noted that secondary markets provide a mechanism whereby a 
small business can acquire spectrum for a geographic area that best 
meets the needs of the company. 

Industry Stakeholders and Panelists Suggested Several Options to 
Improve Spectrum Management: 

Industry stakeholders and panelists on our expert panel offered a 
number of options for improving spectrum management. The most 
frequently cited options include (1) extending FCC's auction authority, 
(2) reexamining the distribution of spectrum--such as between 
commercial and government use--to enhance the efficient and effective 
use of this important resource, and (3) ensuring clearly defined rights 
and flexibility in commercially licensed spectrum bands. There was no 
consensus on these options for improvements among stakeholders we 
interviewed and panelists on our expert panel, except for extending 
FCC's auction authority. 

Extend FCC's Auction Authority: 

Panelists on our expert panel and industry stakeholders with whom we 
spoke overwhelmingly supported extending FCC's auction authority. For 
example, 21 of 22 of panelists on our expert panel indicated that the 
Congress should extend FCC's auction authority beyond the September 30, 
2007 expiration date. As mentioned earlier, panelists and stakeholders 
believe that auctions are more efficient than previous mechanisms used 
to assign spectrum licenses; moreover, auctions are viewed as being 
faster, less costly, and more transparent than the previous mechanisms. 
Additionally, extending FCC's auction authority could generate 
significant revenues for the government.[Footnote 30] However, 
panelists and stakeholders also noted that the government should use 
spectrum auctions to promote the efficient use of spectrum, not 
necessarily to maximize revenues for the government. 

While panelists on our expert panel overwhelmingly supported extending 
FCC's auction authority, a majority also suggested modifications to 
enhance the use of auctions.[Footnote 31] However, there was little 
consensus on the suggested modifications. The suggested modifications 
fall into the following three categories: 

* Better define license rights. Some industry stakeholders and 
panelists indicated that FCC should better define the rights 
accompanying spectrum licenses, as these rights can significantly 
affect the value of a license being auctioned. For example, some 
industry stakeholders express concern with FCC assigning overlay and 
underlay rights to frequency bands when a company holds a license for 
the same frequency bands.[Footnote 32] 

* Enhance secondary markets. Industry stakeholders we contacted and 
panelists on our expert panel generally believe that modifying the 
rules governing secondary markets could lead to more efficient use of 
spectrum. For example, some panelists on our expert panel said that FCC 
should increase its involvement in the secondary market. These 
panelists thought that increased oversight could help to both ensure 
transparency in the secondary market and also promote the use of the 
secondary market. Additionally, a few panelists said that adoption of a 
"two-sided" auction would support the efficient use of spectrum. With a 
two-sided auction, FCC would offer unassigned spectrum and existing 
licensees could make available the spectrum usage rights they currently 
hold. 

* 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,[Footnote 33] and believe that these 
incentives have been an effective means to promote small business 
participation in wireless markets. 

Reexamine the Use and Distribution of Spectrum: 

Panelists on our expert panel suggested a reexamination of the use and 
distribution of spectrum to ensure the most efficient and effective use 
of this important resource. One panelist noted that the government 
should have a good understanding of how much of the spectrum is being 
used. To gain a better understanding, a few panelists suggested that 
the government systematically track usage, perhaps through a "spectrum 
census." This information would allow the government to determine if 
some portions of spectrum were underutilized, and if so, to make 
appropriate allocation changes and adjustments. 

A number of panelists on our expert panel also suggested that the 
government evaluate the relative allocation of spectrum for government 
and commercial use as well as the allocation of spectrum for licensed 
and unlicensed purposes. While panelists thought the relative 
allocation between these categories should be examined, there was 
little consensus among the panelists on the appropriate allocation. For 
instance, as shown in figure 3, 13 panelists indicated that more 
spectrum should be dedicated to commercial use, while 7 thought the 
current distribution was appropriate. No panelists thought that more 
spectrum should be dedicated to government use. Similarly, as shown in 
figure 4, nine panelists believed that more spectrum should be 
dedicated to licensed uses, six believed more should be dedicated to 
unlicensed uses, and five thought the current balance was appropriate. 

Figure 3: Panelists' Views on the Allocation of Spectrum between 
Commercial and Government Use: 

[See PDF for image] 

[End of figure] 

Figure 4: Panelists' Views on the Allocation of Spectrum between 
Licensed and Unlicensed Use: 

[See PDF for image] 

[End of figure] 

Ensure Clearly Defined Rights and Flexibility: 

Similar to a suggested modification of FCC's use of auctions, some 
panelists on our expert panel suggested better defining users' rights 
and increasing flexibility in the allocation of spectrum. Better 
defining users' rights would clarify the understanding of the rights 
awarded with any type of license, whether the licensees acquired the 
license through an auction or other means. In addition, some panelists 
stated that greater flexibility in the type of technology used--and 
service offered--within frequency bands would help promote the 
efficient use of spectrum. In particular, greater flexibility would 
allow the licensee to determine the efficient and highly valued use, 
rather than relying on FCC-based allocation and service rules. However, 
some panelists on our expert panel and industry stakeholders with whom 
we spoke noted that greater flexibility can lead to interference, as 
different licensees provide potentially incompatible services in close 
proximity.[Footnote 34] Thus, panelists on our expert panel stressed 
the importance of balancing flexibility with interference protection. 

Conclusions: 

As commercial enterprises and government agencies increasingly utilize 
spectrum to provide consumer services and fulfill important missions, 
the management of spectrum to ensure its efficient use takes on greater 
importance. Many industry stakeholders and panelists on our expert 
panel told us that the current command-and-control process for 
allocating spectrum is less effective than other approaches. As a 
result, they stated that spectrum is not being fully utilized at all 
times and perhaps not being used for its highest-value purposes. Yet, 
few stakeholders or experts agree on how to improve the process. To 
achieve greater consensus for reform of the spectrum management 
process, we previously suggested that the Congress consider 
establishing an independent commission that would conduct a 
comprehensive examination of spectrum management.[Footnote 35] 

One aspect of spectrum management that appears very effective is the 
use of auctions for assigning licenses for commercial entities. As 
implemented by FCC, spectrum auctions resolve problems associated with 
previous assignment mechanisms, while giving rise to little or no 
problems. Most stakeholders and experts with whom we spoke support 
extending FCC's auction authority beyond the current expiration date of 
September 30, 2007. 

Matter for Congressional Consideration: 

Given the success of FCC's use of auctions and the overwhelming support 
among industry stakeholders and experts for extending FCC's auction 
authority, the Congress should consider extending FCC's auction 
authority beyond the current expiration date of September 30, 2007. 

Agency Comments: 

We provided a draft of this report to FCC, NTIA, and the Office of 
Management and Budget for their review and comment. FCC provided 
technical comments that we incorporated where appropriate. NTIA had no 
comments on the draft. OMB concurred with our finding that auctions 
have mitigated problems associated with comparative hearings and 
lotteries and noted that the Administration supports the permanent 
extension of FCC's auction authority. OMB also noted that the 
Administration has proposed to give FCC authority to use economic 
mechanisms to promote efficient spectrum use. 

We are sending copies of this report to the appropriate congressional 
committees. We are also sending this report to the Secretary of 
Commerce, Chairman of the Federal Communications Commission, and the 
Director of the Office of Management and Budget. We will also make 
copies available to others upon request. In addition, the report will 
be available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov].  

Should you have any questions about this report, please contact me at 
202-512-2834 or [Hyperlink, 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: 

[End of section] 

Appendixes: 

Appendix I: Scope and Methodology: 

The Commercial Spectrum Enhancement Act required us to review the 
Federal Communications Commission's (FCC) commercial spectrum licensing 
process. The objectives of our study included examining the (1) 
characteristics of the current spectrum allocation process for 
commercial uses; (2) impact of the assignment process--specifically the 
adoption of auctions to assign spectrum licenses--on end-user prices, 
infrastructure deployment, competition, and entry and participation of 
small businesses; and (3) options for improving spectrum management. 

To address all three objectives, we conducted a comprehensive, 
structured literature review of economic, legal, and public policy 
material relevant to spectrum issues. Our literature review included 
domestic studies on spectrum management that were published in the last 
25 years. To identify articles for our literature review, we searched a 
number of databases, including LexisNexis, Hein Online, Westlaw, and 
ProQuest, using key terms such as "spectrum," "assignment," and 
"license." We eliminated articles and studies from our literature 
review that did not directly relate to our objectives or did not 
provide original analysis. We also considered the methodological 
soundness of the articles and studies included in our literature 
review; we determined that the findings of these studies were 
sufficiently reliable for our purposes. 

We also extracted data from FCC's license databases (Universal 
Licensing System, Consolidated Database System, and International 
Bureau Filing System) to determine the distribution of active licenses 
among different segments of the wireless industry and to identify the 
largest holders of licenses. To assess the reliability of the 
information from these databases, we interviewed FCC officials 
responsible for the databases about their data collection and 
verification policies, and procedures for license information. We also 
electronically tested the databases. We concluded that information from 
FCC's license databases was sufficiently reliable for the purposes of 
this report. In addition, we interviewed FCC, National 
Telecommunications and Information Administration, and Office of 
Management and Budget officials and conducted semi-structured 
interviews with representatives from academia and the wireless industry 
to obtain a broad range of perspectives on spectrum allocation and 
assignment issues. We selected representatives from academia and the 
wireless industry based on their organization's vested interest in 
spectrum policy, or their expertise in spectrum policy as represented 
by presentations or publications. (Table 1 lists the companies, 
academic institutions, or other entities of the representatives we 
interviewed.) 

Table 1: List of non-government interviewees: 

Alaska Native Broadband 1 License, LLC. 

Arraycomm. 

Bear Stearns. 

Brattle Group. 

Cingular. 

Consumers Energy Company. 

CSIS. 

CTIA. 

Dobson. 

Enterprise Wireless Allocation. 

Hogan and Hartson LLP. 

Information Technology Industry Council. 

Intel. 

Lockheed Martin. 

Lucent Technologies. 

Manhattan Institute. 

Metro PCS. 

Mobile Relay Associates. 

Motorola. 

National Association of Broadcasters. 

New America Foundation. 

New Skies Satellites. 

Nextel. 

Prudential Financial. 

Stanford University. 

Sprint PCS. 

T-Mobile. 

United Telecom Council. 

University of California, Berkley. 

University of Maryland. 

University of Pennsylvania. 

Verizon Wireless. 

Yale Law School. 

Source: GAO. 

[End of table] 

We also contracted with the National Academies to convene a balanced, 
diverse panel of experts to discuss spectrum allocation and assignment 
issues and options to improve spectrum management in the future. We 
worked closely with the National Academies to identify and select 23 
panelists who could adequately respond to our general and specific 
questions about spectrum allocation, assignment processes, and options 
for improvement. In keeping with National Academies policy, the 
panelists were invited to provide their individual views, and the panel 
was not designed to reach a consensus on any of the issues that we 
asked them to discuss. The panelists convened at the National Academies 
in Washington, D.C., on August 9 and 10, 2005. Twelve panelists 
participated on the panel on August 9, 2005; eleven panelists 
participated on the panel on August 10, 2005. (See table 2 for the list 
of panelists on each day.) The agendas and questions were identical for 
both days. To start each day, the panel moderators provided an overview 
of the issues to be discussed; during the remainder of the day, the 
panelists addressed the questions we had provided for their 
consideration. At the end of the each session, we asked the panelists 
to individually answer a short series of questions about the topics 
discussed in order to more systematically capture individual panelists' 
views on key dimensions. We did not verify the panelists' statements, 
although we did ask the panelists, in some instances, to clarify 
certain details. The views expressed by the panelists do not 
necessarily represent the views of GAO or the National Academies. 

Table 2: Panelists on GAO/National Academies expert panel: 

August 9, 2005: 

Name: Dale Hatfield (moderator); 
Affiliation: August 9, 2005: Independent consultant and Adjunct 
Professor, University of Colorado, Boulder. 

Name: Peter Cramton; 
Affiliation: August 9, 2005: Professor, University of Maryland, College 
Park. 

Name: David Donovan; 
Affiliation: August 9, 2005: President, Association for Maximum Service 
Television, Inc.. 

Name: Gerald Faulhaber; 
Affiliation: August 9, 2005: Professor, The Wharton School, University 
of Pennsylvania. 

Name: Bruce Franca; 
Affiliation: August 9, 2005: Deputy Chief, Office of Engineering and 
Technology, Federal Communications Commission. 

Name: Ellen Goodman; 
Affiliation: August 9, 2005: Associate Professor, Rutgers School of 
Law, Camden. 

Name: Mark McHenry; 
Affiliation: August 9, 2005: President, Shared Spectrum. 

Name: William Moroney; 
Affiliation: August 9, 2005: President and CEO, United Telecom Council. 

Name: Charla Rath; 
Affiliation: August 9, 2005: Executive Director, Spectrum and Public 
Policy, Verizon Wireless. 

Name: David Reed; 
Affiliation: August 9, 2005: Fellow, HP Labs and Adjunct Professor, 
Massachusetts Institute of Technology. 

Name: Steve Sharkey; 
Affiliation: August 9, 2005: Director, Spectrum and Standards Strategy, 
Motorola, Inc.. 

Name: Badri Younes; 
Affiliation: August 9, 2005: Director, Spectrum Management, Department 
of Defense. 

August 10, 2005. 

Name: Gregory Rosston (moderator); 
Affiliation: August 9, 2005: Deputy Director, Stanford Institute for 
Economic Policy Research, Stanford University. 

Name: Paul Besozzi; 
Affiliation: August 9, 2005: Attorney, Patton Boggs, LLP. 

Name: Diane J. Cornell; 
Affiliation: August 9, 2005: Vice President, Regulatory Policy, 
Cellular Telecommunications and Internet Association. 

Name: Joe Gattuso; 
Affiliation: August 9, 2005: Senior Policy Advisor, Office of the 
Assistant Secretary, National Telecommunications and Information 
Administration. 

Name: Kalpak Gude; 
Affiliation: August 9, 2005: Vice President, Government Regulatory 
Affairs and Associate General Counsel, PanAmSat. 

Name: Thomas W. Hazlett; 
Affiliation: August 9, 2005: Professor of Law and Economics, George 
Mason University. 

Name: Dewayne Hendricks; 
Affiliation: August 9, 2005: CEO, The Dandin Group. 

Name: Kevin Kahn; 
Affiliation: August 9, 2005: Intel Senior Fellow, Communications 
Technology Lab, Intel Corporation. 

Name: David Sidall; 
Affiliation: August 9, 2005: Attorney, Paul, Hastings, Janofsky & 
Walker, LLP. 

Name: Jennifer Warren; 
Affiliation: August 9, 2005: Senior Director, Trade & Regulatory 
Affairs, Lockheed Martin. 

Name: Jimmy R. "Rusty" Williams; 
Affiliation: August 9, 2005: Infrastructure Services Manager, Planning 
& Engineering, Southern Company Services. 

Source: GAO. 

[End of table] 

After the expert panel was conducted, we analyzed a transcript of the 
panel's discussion and survey responses in order to identify principal 
themes and panelists' views. The results of the expert panel should be 
interpreted in the context of two key limitations and qualifications. 
First, although we were able to secure the participation of a balanced, 
highly qualified group of experts, there are other experts in this 
field who could not be included because of the need to limit the size 
of the panel. Although many points of view were represented, the panel 
was not representative of all potential views. Second, even though we 
conducted preliminary research, in cooperation with The National 
Academies, and heard from national experts in their fields, two panels 
cannot represent the current practice in this vast arena. More thought, 
discussion, and research must be done to develop greater agreement on 
what is really known, what needs to be done, and how to do it. These 
two key limitations and qualifications provide contextual boundaries. 
Nevertheless, the panel provided a rich dialogue on spectrum allocation 
and assignment issues, as well as options for improving spectrum 
management in the future; the panelists also provided insightful 
comments in responding to the questions posed to the panel. 

(544100): 

FOOTNOTES 

[1] Mobile telephones and garage door openers are examples of 
technologies deployed, respectively, in licensed bands of spectrum and 
in bands that permit unlicensed uses. 

[2] The Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, 
§6002, 107 Stat. 312, 387-392 (the 1993 Budget Act), added section 
309(j) to the Communications Act of 1934, 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). The Act required 
us to report findings to the committees of jurisdiction by September 
19, 2005. In September and October 2005, we briefed the Senate Commerce 
Committee staffs and provided copies of the briefing material to the 
House Commerce Committee staffs, respectively. Also, as requested, we 
issued a report in November that summarized and transmitted the 
briefing materials to the committees of jurisdiction. See GAO, 
Telecommunications: Preliminary Information on the Federal 
Communications Commission's Spectrum Allocation and Assignment Process, 
GAO-06-212R (Washington, D.C.: Nov. 10, 2005). 

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

[5] "Sunk costs" are costs that have been incurred and cannot be 
reversed, such as paying for spectrum rights at an auction. 

[6] At the end of each 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 twenty-three panelists 
responded to the questions we posed at the end of each session. 

[7] See GAO, Telecommunications: Comprehensive Review of U.S. Spectrum 
Management with Broad Stakeholder Involvement Is Needed, GAO-03-277 
(Washington, D.C.: January 31, 2003). 

[8] Radio 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. 

[9] The 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. 

[10] Interference occurs when two or more radio signals interact in a 
manner that disrupts the transmission and reception of messages. 

[11] Additionally, some licenses are assigned through a frequency 
coordination process. Licenses for geostationary satellite orbit 
systems are assigned using a first-come, first-served approach. 

[12] Traditional unlicensed devises are low-powered devices that 
operate in a limited geographic range, such as cordless phones, baby 
monitors, garage door openers, and wireless access to the Internet. 

[13] The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 
260, tit. III, § 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. § 309(i)(5) and 
47 U.S.C. § 397(6). 

[14] The 1993 Budget Act established four policy objectives for FCC's 
use of auctions: (1) the development and rapid deployment of new 
technologies, products, and services; (2) the promotion of economic 
opportunity and competition and the dissemination of licenses among a 
wide variety of applicants, including small businesses; (3) the 
recovery for the public of a portion of the value of the public 
spectrum resource; and (4) the efficient and intensive use of spectrum. 
Additionally, in 1997, the Congress added a fifth objective to ensure 
that in scheduling auctions FCC allows adequate time for notice and 
comment, and for potential participants to develop business plans, 
assess market conditions, and evaluate the availability of equipment. 
See 47 U.S.C. § 309(j)(3). In the Commercial Spectrum Enhancement Act, 
Congress added a sixth objective for auctions requiring the recovery of 
110 percent of estimated costs to relocate federal users from 
frequencies transferred to nonfederal use. See 47 U.S.C. § 
309(j)(3)(F). 

[15] For spectrum that is not auctioned, the Administration proposed in 
its fiscal year 2006 budget to provide FCC authority to use economic 
mechanisms, such as fees, to promote efficient spectrum use. According 
to OMB, this proposal would provide FCC the authority to set user fees 
on unauctioned spectrum licenses based on public-interest and spectrum- 
management principles, and would promote efficient spectrum use by 
internalizing the value of spectrum to license holders. 

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

[17] The President established the Federal Government Spectrum Task 
Force through an Executive Memorandum in May 2003. See Memorandum on 
the Spectrum Policy for the 21st Century, 39 Weekly Comp. Pres. Doc. 
726 (June 9, 2004). 

[18] See GAO-03-277. 

[19] NTIA employs a similar process for federal government spectrum 
users. 

[20] Mark McHenry and Dan McCloskey, New York City Spectrum Occupancy 
Measurements September 2004, Shared Spectrum Company, subcontract with 
University of Kansas Center for Research, Inc. (Vienna, VA: Dec. 2004). 

[21] Section 301 of the Act provides that the government can authorize 
the use--but not the ownership--of the spectrum. See, 47 U.S.C. § 301. 

[22] For more information on these technologies, see Gerald R. 
Faulhaber and David Farber, "Spectrum Management: Property Rights, 
Markets, and the Commons" (Washington, D.C.: 2002). 

[23] See Evan Kwerel, "Spectrum Auctions Do Not Raise the Price of 
Wireless Services: Theory and Evidence," (Washington, D.C.: 2000), 
http://wireless.fcc.gov/auctions/default.htm?job=papers_studies 
(downloaded Dec. 14, 2005). 

[24] At the end of each 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 twenty-three panelists 
responded to the questions we posed at the end of each session. The 
number of panelists responding to particular questions ranged from 17 
to 22. 

[25] In authorizing FCC to use competitive bidding, the Congress 
mandated that FCC "ensure that small businesses, rural telephone 
companies, and businesses owned by members of minority groups and women 
are given the opportunity to participate in the provision of spectrum- 
based services." See 47 U.S.C. § 309(j)(4)(D). In addition, the 
Communications Act requires that in establishing eligibility criteria 
and bidding methodologies, FCC disseminate licenses among a wide 
variety of applicants. See 47 U.S.C. 309(j)(3)(B). 

[26] There are several instances where the public captures some value 
arising from commercial entities using government-controlled resources. 
For example, the federal government auctions offshore oil and gas 
drilling rights, collects royalties for mineral extraction on federal 
lands, and collects grazing fees. 

[27] For example, some panelists do not support using auctions to 
assign spectrum licenses for public safety services. 

[28] The 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). 

[29] FCC has also established rules that allow licenses in many 
wireless services to partition or disaggregate their licenses. 
Partitioning involves subdividing the geographic area a licensee serves 
and disaggregation involves subdividing the spectrum associated with 
the licenses. 

[30] For example, the Congressional Budget Office recently estimated 
that an auction of 60 MHz of spectrum currently used by broadcasters 
would generate auction revenues of $10 billion. See Congressional 
Budget Office, Cost Estimate: Digital Transition and Public Safety Act 
of 2005 (Washington, D.C.: October 24, 2005). 

[31] Fifteen of twenty-two panelists suggested modifications to enhance 
the use of auctions. 

[32] Underlay 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. 

[33] A bidding credit is a percentage discount applied to the high bid 
amount if the bidder meets designated entity criteria established in 
the auction rules. 

[34] With the current allocation process, FCC attempts to keep 
incompatible service separated to avoid interference. With licensees 
exerting greater control, this protection could be reduced. 

[35] GAO-03-277. 

GAO's Mission: 

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

Obtaining Copies of GAO Reports and Testimony: 

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

Each day, GAO issues a list of newly released reports, testimony, and 
correspondence. GAO posts this list, known as "Today's Reports," on its 
Web site daily. The list contains links to the full-text document 
files. To have GAO e-mail this list to you every afternoon, go to 
www.gao.gov and select "Subscribe to e-mail alerts" under the "Order 
GAO Products" heading. 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548: 

To order by Phone: 

Voice: (202) 512-6000: 

TDD: (202) 512-2537: 

Fax: (202) 512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov 

Automated answering system: (800) 424-5454 or (202) 512-7470: 

Public Affairs: 

Jeff Nelligan, managing director, 

NelliganJ@gao.gov 

(202) 512-4800 

U.S. Government Accountability Office, 

441 G Street NW, Room 7149 

Washington, D.C. 20548: