WPCcB 2?BJZECourier3|j#XP\  P6Q9XP#HP LaserJet 4M (PCL) (Add) RM 7002EHL4MPCAD.PRSx  @\&"MnX@ X-#XP\  P6QXP#2,qKXCourierTimes New Roman"i~'^:DPddDDDdp4D48dddddddddd88pppX|pDL|pp||D8D\dDXdXdXDdd88d8ddddDL8ddddX`(`lD4l\DDD4DDDDDDDDd8XXXXXX|X|X|X|XD8D8D8D8ddddddddddXdbdddpdXXXXXlX~|X|X|X|XdddldldD8DdDDDdplld|8|P|D|D|8dvddddDDDpLpLpLpl|T|8|\ddddddl|X|X|Xd|DdpL|Dd~4ddC$CWxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxNHxxH\dDXddddd8@d<@d<DDXXdDDxddzHxxHvppDXd<"dxtldpxxd<?xxx,ax6X@`7X@7jC:,9Xj\  P6G;XP\ @^.$h'j;U7G;A7 ` 6 n  G8 2O^<nK Z3|jTimes New RomanTimes New Roman BoldTimes New Roman Italic"i~'^09CSS999S]+9+/SSSSSSSSSS//]]]Ixnnxg]xx9?xgxx]xn]gxxxxg9/9MS9ISISI9SS//S/SSSS9?/SSxSSIP!PZ9+ZM999+99999999S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""""2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d"" Page  X-X` hp x (#%'0*,.8135@8:ing the ability of any spectrum user to make use of the spectrum. To remedy this situation,  X- xCongress enacted the Radio Act of 1927,8$ yO-ԍ 44 Stat. 1162.8 the substantive provisions of which were later incor X- x.porated into the Communications Act of 1934, {O -ԍ 48 Stat. 1064, 47 U.S.C.  151 et seq. (the "Communications Act" or the "Act"). which established the Commission. Under the  x[Communications Act, the Commission has broad authority, consistent with the public interest,  xiconvenience, and necessity, to license users of radio spectrum, impose conditions on their licens xes, prescribe the nature of the services to be rendered by stations or classes of stations, and  X_-prevent interference with licensees' authorized uses of spectrum. $_F {OV- xԍ See generally 47 U.S.C.  301303. The Commission's authority does not extend to stations owned and  xoperated by the United States, except that it shall prescribe special call letters for such stations and that such stations  xhshall conform to its rules designed to prevent interference when transmitting communications or signals not relating  {O-to Government business. See47 U.S.C.  305.    xIn 1945, the Commission articulated a series of principles that guided its early spectrum  X - xxallocation decisions.Z 2  {O- x<ԍ See Allocation of Frequencies to the Various Classes of NonGovernmental Services in the Radio Spectrum  xfrom 10 Kilocycles to 30,000,000 Kilocycles, Docket No. 6651, Report of Proposed Allocation from 25,000 Kilocy yO-cles to 30,000,000 Kilocycles at 1820 (released Jan. 15, 1945). These principles reflected a paradigm under which the Commission actively  xdetermined the best use for each block of spectrum and assigned spectrum according to specific  xcriteria. Thus, in determining which of several services would be permitted to operate over a  xparticular frequency band, the Commission sought to evaluate whether any service would be  xbetter provided over wireline telecommunications facilities, which services were most important,  xhow many people would benefit from each service, and which services would be most accepted  xxby the public. In addition, the Commission considered the propagation characteristics of different  xfrequencies, as well as the extent to which industry and the public had already invested in equipment to use particular frequencies for specific services.   xAs a result of developments in technology, new services, such as twoway mobile  xswitched voice communications, have become available that were barely imagined in 1945.  xKUnlicensed devices, such as cordless phones and garage door openers, have proliferated. Global  xzsatellite systems that require an unprecedented level of international coordination are being  xoffered. Technology has enabled services to be offered over progressively higher frequencies that  xwere once thought to be unusable. On the one hand, digital and other technologies have made  xit possible to offer some services using ever narrower bandwidths, while at the same time new  xservices are envisioned that require increasingly wide bandwidths. Spread spectrum technology  xhas raised the possibility of several users, or even several services, independently sharing wide"|T 0*((2"  xfrequency bands without interference. Furthermore, technology and the market will continue to  x{develop rapidly for the foreseeable future in ways that cannot reliably be predicted. The  x-Commission's current spectrum policy decisions therefore should incorporate sufficient flexibility so as not to constrain these future developments or favor particular technologies.   NxOver the years, the Commission has recognized that its previously articulated principles  xare no longer adequate to guide spectrum policy, and it has moved away from the philosophy  ximplicit in those principles toward an approach that is more attuned to the operation of market  xforces. In particular, the Commission has relied less on administrative efforts to determine the  xbest uses of spectrum, and instead it has allowed service providers increased flexibility to respond  x[to incentives communicated by the marketplace for the efficient production of diverse services  xthat consumers want and need. The Commission should make clear that it will follow this  xapproach in a consistent manner, and resist pressure from those who urge the Commision to  xrestrict market forces in order to protect their private interests rather than to promote the public  xinterest. The Commission has also sought and obtained the legal authority to award licenses by  xicompetitive bidding, and it has used that authority to assign licenses in an efficient, marketbased  X- x.manner. Additionally, on March 5, 1996, the Commission convened an en banc hearing to ad x<dress spectrum policy issues. At that hearing, four panels of experts offered testimony regarding  Xd- xfuture spectrum demand, technology trends, spectrum allocation, and spectrum assignment. d {O- xԍ See En Banc Hearing on Spectrum Policy, Transcript, Mar. 5, 1996 (Transcript). Written comments and reply comments were also filed ("Comments").  xFinally, we should note that many of the proposals discussed in this paper reflect and extend  X6-ideas developed in prior research by Commission staff. ~6" {O - x-ԍ See D. Webbink, "Frequency Spectrum Deregulation Alternatives," OPP Working Paper No. 2 (1980); E.  x<Kwerel & L. Felker, "Using Auctions to Select FCC Licensees," OPP Working Paper No. 16 (1985) ("Kwerel &  xhFelker"); E. Kwerel & J. Williams, "Changing Channels: Voluntary Reallocation of UHF Television Spectrum," OPP  x,Working Paper No. 27 (1992); D. Reed, "Putting It All Together: The Cost Structure of Personal Communications  x,Services," OPP Working Paper No. 28 (1992); E. Kwerel & J. Williams, "Moving Toward a Market for Spectrum,"  {O- x1993 Regulation No. 2, 53 (1993); R. Hundt & G. Rosston, "Spectrum Flexibility Will Promote Competition and  {O-the Public Interest," IEEE Communications Magazine 40 (Dec. 1995) ("Hundt & Rosston").  X- III. DISCUSSION ă   NxThe radio spectrum is a valuable natural resource with unique characteristics. Spectrum  xmay be used more or less efficiently, but it cannot be created or destroyed. Unlike many natural  xresources, spectrum is inexhaustible over time; the manner or degree to which spectrum is used  xjat one moment has no physical impact on the availability of spectrum at any other moment. At  xany given time and location, however, the amount of usable spectrum is finite. Thus, any use  xof spectrum necessarily precludes or affects, to a greater or lesser degree, some other simulta xneous use of the same spectrum. There is no known means by which spectrum can be made infinitely available to all who may wish to use it.   xPursuant to the Communications Act, the Commission's overriding mandate is to promote" h 0*((="  X- xthe public interest.g  {Oy-ԍ See, e.g., 47 U.S.C.  151, 302(a), 303, 309(a).g In order to achieve this end, Congress has made clear that the United States  xshall maintain control over spectrum within the Nation's jurisdiction, and that a license to use  X- xZspectrum shall not constitute ownership of that spectrum.G Z {O-ԍ See 47 U.S.C.  301.G We believe the public interest is best  xserved by ensuring that the American people receive the maximum benefit from the spectrum  xresource. Therefore, the Commission's spectrum policy should advance the goals of ensuring that  xthe full benefit of the spectrum resource accrues to the public, and of achieving the most beneficial uses of spectrum.   xThe public may benefit from the use of spectrum in a variety of ways. One form of  xybenefit occurs when Government agencies maintain control over spectrum and use it for public  xjpurposes, such as national defense or public safety. The public may also benefit when private  X - xusers of spectrum are required to use that spectrum in ways that serve the public interest.O   {O-ԍ See Section III.C, infra.O While  xthese uses may yield public benefits, these benefits may be lower than the benefits to be achieved  xfrom treating spectrum like other inputs in the provision of public and private services. As dis xcussed below, mandated use in general may ultimately diminish the public welfare by preventing  xymarket forces from operating to yield the most valued services at efficient cost and competitive  X- x[prices.O~ {O-ԍ See Section III.A, infra.O We therefore believe that in most cases, the Commission can best promote the public  xinterest by relying on competitive market forces, and by implementing allocation, assignment, usage, and other policies that permit market forces to operate most effectively.   #X` hp x (#%'0*,.8135@8:reallocate spectrum to private sector use as it continues to receive authority over spectrum  xKformerly reserved for the Federal Government. Moreover, to the extent that the best use for spec xktrum in some circumstances is for it to lie temporarily fallow, we believe that the competitive  xLmarket can reliably identify those situations. Therefore, we believe the best practice ordinarily  x[is for the Commission to allocate and assign spectrum, and to allow sufficient flexibility so that  xspectrum users may hold spectrum in reserve if they determine that to be the highest valued use  Xy- xzof the spectrum.yN  yOx- xԍ Withholding service from a competitive market may be efficient, for example, if the licensee thinks a better  xtechnology may soon be available, just as some real property owners hold a vacant lot for several years before  xdeveloping the property. So long as the licensee realizes the opportunity cost of holding the spectrum and therefore  xZinternalizes the tradeoff between providing service with today's technology and waiting to introduce service with  {O!-future technology, allowing private spectrum users to make this decision is economically efficient. See p. 12, infra. That means that the Commission should refrain from imposing inefficient  xconstruction requirements in order to prevent anticompetitive warehousing or achieve buildout  x\to rural areas. Construction requirements do not necessarily solve these problems because  xKlicensees can typically satisfy such requirements without providing the service at issue, and they"4 0*(("  X-impose inefficiencies in the use of spectrum.rZ yOy- xԍ As discussed below, anticompetitive withholding of service from the market is best addressed by a spectrum  {OA- x=cap. See p. 9, infra. Availability of service to rural areas is probably best achieved through universal service subsidies rather than buildout requirements.r   _xThe Commission can also help promote economically efficient use of spectrum by  xestablishing the initial geographic scope and bandwidth of licenses in a manner that is sensitive  xto the different characteristics of different frequencies, as well as the different spectrum needs of  xvarious services. In general, the Commission should set initial allocations to approximate its  xZestimate of the efficient use of spectrum. Because of transaction costs, sensible initial allocations  x{are important to quickly achieving efficient spectrum use. For example, in order to afford  xxpotential providers wishing to offer services that require large bandwidths an opportunity to com x=pete while minimizing potentially significant transaction costs to acquire contiguous spectrum  x.from multiple parties, the Commission should make large frequency blocks initially available in  xLsome portions of the spectrum, or rely on simultaneous multiple round auctions, combinatorial  xbidding or other mechanisms to facilitate the efficient aggregation of smaller blocks put up for  xMbid at the same time. Furthermore, the Commission should attempt to designate these large  xiblocks in those frequency bands that, because of their propagation characteristics, are most likely  xto be suitable for efficient offering of broadband services. At the same time, the Commission  xmust be aware that its estimate of efficient spectrum use is necessarily imperfect, and it must  xanticipate that technological developments will change the bandwidth necessary for many types  xof services, permit the introduction of new services with different bandwidth requirements, and  xincrease the spectrum range over which services may be efficiently provided. Therefore, the  x Commission should avoid defining the specific services users may offer or the specific fre x]quencies they may utilize for such services, and it should permit aggregation (subject to  xanticompetitive scrutiny) and disaggregation of spectrum into different size blocks. In this way,  xthe Commission can allow the market to correct for the imperfections inherent in the initial  xallocation process, and it can ensure that allocations intended to further competition now do not inadvertently restrict competition in the future.   xThe Commission should also carefully consider the appropriate relationship among exclu xsive licensing, shared licensing, and unlicensed use. In most circumstances, exclusive spectrum  xlicenses best promote efficiency and competition by giving each spectrum user maximum protec x<tion from interference. However, some uses of spectrum, particularly very low power uses, create  x[such small potential for interference, and have so little effect on the availability of the resource  xxto others, that they can be offered most efficiently and most competitively without licensing spec x.trum users. As a result, once the spectrum has been set aside for unlicensed use, the efficient  x.charge for the use is zero. However, setting aside spectrum for unlicensed use does involve a  xcost the spectrum cannot be used for highpower services. Comparing the benefits of low  x.power and high power use is very difficult, but the Commission should endeavor to develop a  xframework for evaluating the benefits of setting aside additional spectrum for unlicensed use.  xThese benefits could then be compared with the benefits of exclusive use, as indicated by the prices paid at auction for the rights to use spectrum with similar characteristics. "# 0*((e""Ԍ  /ԙxThe Commission has authorized unlicensed use of very low power devices on a secondary  X- xbasis in most bands occupied by licensed services;U {Ob-ԍ See 47 C.F.R.  15.20115.214.U has authorized use of higher power  X- xunlicensed communications devices on a secondary basis in some bands;b\Z {O- xԍ See 47 C.F.R.  15.21515.255; Amendment of the Commission's Rules to Provide for Operation of  xyUnlicensed NII Devices in the 5 GHz Frequency Range, ET Docket No. 96102, Report and Order, FCC 975  {Oo-(released Jan. 9, 1997) (UNII Order).b and has designated  X- xcertain blocks of spectrum exclusively for unlicensed personal communications services devices.=$~ {O - x,ԍ See 47 C.F.R.  15.30115.323. See also Amendment of the Commission's Rules to Establish New Personal  xCommunications Services, GEN Docket No. 90314, Second Report and Order, 8 FCC Rcd 7700, 773440 (1993)  {O| - x(PCS Second Report and Order); Amendment of the Commission's Rules to Establish New Personal Communications  yOF -Services, GEN Docket No. 90314, Memorandum Opinion and Order, 9 FCC Rcd 4957, 503449 (1994).=  xThe Commission should continue to consider the circumstances under which unlicensed uses of  xispectrum are appropriate, and in particular whether technologies such as spread spectrum may in xjcrease the potential utility of unlicensed devices. At the same time, the Commission should be  X_- xaware that unlicensed users may have less incentive to use spectrum efficiently..$_j  {Oz- xYԍ See D. Carlton & J. Perloff, Modern Industrial Organization, 12123 (1994); T. Sandler, Collective  yOD- x;Action: Theory and Applications, 11723 (1992) (Sandler); G. Hardin, "The Tragedy of the Commons," 162  {O - xScience 124348 (1968); D. Satapathy & J. Peha, "Spectrum Sharing Without Licenses: Opportunities and Dangers," paper presented at the Telecommunications Policy Research Conference, Solomons, Maryland (Oct. 1996).. To address this  xproblem in unlicensed bands, the Commission has adopted certain protocols, etiquettes, and power  xlimitiations. The Commission should also consider that, with expanded flexibility and relaxation  x<of buildout requirements, licensees may in some circumstances find it profitable to accommodate  xMcertain low power uses within their licensed spectrum through contractual agreements with  xzmanufacturers, thereby leaving the determination of whether spectrum will be used for such  X -purposes more fully to market forces.OX V  yO- xiԍ For example, a licensee or group of licensees with a nationwide footprint might lease authorizations to use  xspectrum to manufacturers for the operation of low power devices, with the cost of spectrum use, like other costs, being added to the price of equipment.O   xAnother alternative to exclusive licensing is licensing two or more parties to share a  xLparticular frequency band. The Commission must keep in mind that licensed spectrum sharing  xtypically requires additional regulatory restrictions on users' operational flexibility in order to  xMkeep them from interfering with each other, especially where more than a very few users are  x?involved, or else sharing is likely to result in lower service quality. Furthermore, as with  xunlicensed spectrum, users under a sharing arrangement generally have less incentive to use  xspectrum efficiently than exclusive licensees. The Commission should carefully consider in each  xcase whether these costs outweigh the gains of opening the spectrum to more licensees. The  xiCommission also should consider whether, in most cases, spectrum sharing can be effectuated by  xZprivate arrangement between the licensee and another party. In general, we believe that spectrum  x/sharing should be mandated only in rare instances where specific conditions, such as high" v0*(("  x transaction costs, would prevent entry into efficient private arrangements. Even with high  xtransaction costs, sharing should be limited to circumstances where the Commission possesses  xvery good information and a high degree of certainty about technology and future trends so that  xthe benefits of reducing transaction costs will outweigh the costs of inflexibility and poor incentives.   NxPromotion of competition should also be a principal consideration motivating the estab xilishment of rules for assigning spectrum to individual users. In particular, the Commission should  xstrive to reduce barriers to entry by eliminating restrictions on eligibility wherever possible. The  xCommission generally should not impose eligibility restrictions unless they are clearly necessary  X - xto prevent a party from developing or retaining market power (i.e., the ability to control or  X - x-significantly influence price)."  {O~ - xhԍ See A. Jacquemin, "Cartels, Collusion, and Horizontal Merger," in The Handbook of Industrial Organi yOH -zation, ed. R. Schmalensee & R. Willig, 45066 (1990) (The Handbook of Industrial Organization)." Furthermore, wherever possible the Commission should consider  x=less restrictive measures than eligibility restrictions to achieve this end. For example, allowing  xservice flexibility across a wide range of spectrum and increasing the supply of spectrum  x!available to the market would reduce barriers to entry and reduce the need for eligibility restrictions.   ]xAt the same time, the Commission should be prepared to intervene directly in the market  x.where necessary to preserve or promote competitive conditions. Market forces do not ensure  x.economic efficiency or maximize consumer welfare in markets that are not competitive because  x.a dominant producer or group of producers has market power. Thus, where market forces and  xantitrust law may be insufficient to prevent any party from developing or retaining market power,  xthe Commission should consider measures such as spectrum caps to ensure at least a minimum  X- xnumber of competitors."" {O- xiԍ See Implementation of Sections 3(n) and 332 of the Communications Act, GN Docket No. 93252, Third  xReport and Order, 9 FCC Rcd 7988, 810017 (1994); Amendment of Parts 20 and 24 of the Commission's Rules  xԩ Broadband PCS Competitive Bidding and the Commercial Mobile Radio Services Spectrum Cap, WT Docket No. 9659, Report and Order, 11 FCC Rcd 7824, 786974 (1996). In applying caps, the Commission should consider the range of spec xtrum available for a service as well as the availability of other technologies that do not use  xspectrum. For the most part, these measures will likely be needed only in service markets that  x=have not yet completed the transition to full competition, as indicated by factors including the  xZdegree of concentration, pricing patterns and trends, the extent of barriers to entry, and the extent  X~- xto which substitutable services can be provided.C~  {O;"- xԍ See, e.g., Implementation of Section 6002(B) of the Omnibus Budget Reconciliation Act of 1993, First Report,  x10 FCC Rcd 8844, 886872 (1995); Implementation of Sections 3(n) and 332 of the Communications Act, GN  {O#- xYDocket No. 93252, Second Report and Order, 9 FCC Rcd 1411, 150405 (1994). See also D. Carlton & J. Perloff,  yO$- xxModern Industrial Organization, 33180 (1994); R. Schmalensee, "InterIndustry Studies of Structure and  yO_%- xPerformance," in The Handbook of Industrial Organization, 9511010; T. Bresnahan, "Empirical Studies of  yO'&-Industries with Market Power," in The Handbook of Industrial Organization, 101158.C Once a market has become fully competitive,  xthe normal operation of market forces, supplemented by enforcement of antitrust laws, should"g 0*(("  xmordinarily suffice to prevent competitors from exercising market power or engaging in  xZanticompetitive activities. The Commission should consider whether additional reporting require xments are needed to help it determine when special measures are necessary to promote competi xtive conditions. In addition, increasing the number and variety of competitors in the market may help to develop and maintain robust competition.  Xv- B. Flexibility   xIn order for competition to bring consumers the highest valued services in the most  xefficient manner, we believe competing users of spectrum need flexibility to respond to market  xforces and demands. This flexibility includes the freedom to determine how they will use  xspectrum, how much spectrum they need, and the geographic area in which they will provide  xservice. Flexibility eliminates artificial market entry barriers by enabling spectrum users to re xspond quickly to changing public demands for new and different services, as well as enabling  xusers to introduce innovative services and technologies rapidly without administrative costs or  x delays. Furthermore, flexibility increases users' incentives to expand spectrum capacity by  xenabling them to profit from investments in more efficient use of spectrum, either by using spec xLtrum for additional purposes or by transferring the authorization to use part of the spectrum to  x.a party that values it more highly. Flexibility also can promote competition by increasing both  xthe diversity of potential service offerings and the number of providers that can offer competing  X4- xservices.BZ4 {O- xԍ See generally W. Baumol et al., Contestable Markets and the Theory of Industry Structure (1982);  yOw- xJR. Gilbert, "Mobility Barriers and the Value of Incumbency," in The Handbook of Industrial Organization, 475536.B In general, flexibility endows a spectrum license with certain attributes resembling  xprivate property rights, including the ability to transfer control with Commission approval,  xkfreedom to determine how the property will be used (subject to applicable technical require xments), and freedom to profit from use of the resource. As discussed above, the Commission  X- xKlegally cannot award perpetual or absolute ownership rights to spectrum.E {Os-ԍ See p. 4, supra.E However, substantial  xreplication in the spectrum context of the freedoms inherent in property rights will allow compe xtition to function more effectively, much as it does in those sectors of the economy where the  X-basic inputs are privately owned.| {O- xZԍ See D. Webbink,"Radio Licenses and Frequency Spectrum Use Property Rights," Communications and the  {O - xLaw 4 (June 1987); R. Coase, "The Federal Communications Commission," 2 Journal of Law and Economics 1 (Oct.  yOT!- xw1959); L. De Alessi, "The Economics of Property Rights: A Review of the Evidence," in 2 Research in Law and  yO"- xEconomics, ed. R. Zerbe, Jr., 312 (1980); J. Minasian, "Property Rights in Radiation: An Alternative Approach  {O"-to Radio Frequency Allocation," 18 Journal of Law and Economics 221 (Apr. 1975).   !xWe therefore believe that the Commission's policies should strive to maximize spectrum  xusers' flexibility in four dimensions. First, users should have substantial service flexibility,  xmeaning the freedom to use spectrum for services of their choosing. In several recent proceed xyings, the Commission has acted to permit licensees extensive service flexibility in new services,"  2 0*((z"  X- x>such as personal communications services and general wireless communications service.{  {Oy- xyԍ See, e.g., PCS Second Report and Order, 8 FCC Rcd at 771013; Allocation of Spectrum Below 5 GHz  xwTransferred from Federal Government Use, ET Docket No. 9432, Second Report and Order, 11 FCC Rcd 624, 627 x38 (1995). The Commission's policy permitting broad service flexibility in PCS was widely praised by many of the  {O- xparticipants in the en banc hearing. See, e.g., Transcript at 3133 (statement of Tom Hazlett), 149 (statement of Charles Jackson, Strategic Policy Research).{  xSimilarly, the Commission has taken action to increase service flexibility in existing services, for  X- xexample by creating additional flexibility for mobile services licensees to offer fixed services.4!Z| {O- xԍ See Amendment of the Commission's Rules To Permit Flexible Service Offerings in the Commercial Mobile  xJRadio Services, WT Docket No. 966, First Report and Order and Further Notice of Proposed Rule Making, 11 FCC Rcd 8965 (1996).4  x/In general, this trend should continue, but some incumbent service providers may urge the  x>Commission to limit flexibility in order to reduce competition for their services. Limiting the  xKpublic benefits from newly available spectrum to protect the private interests of existing licensees  xdoes not promote the public interest. Although the Commission is required by statute to establish  xcertain regulatory classifications, within those classifications the Commission has substantial  xleeway regarding the amount of flexibility it can afford. Maximum service flexibility will enable  xMspectrum users quickly and efficiently to modify their offerings to provide the services that consumers demand and that technology makes possible.   !xSecond, technical flexibility means that users should have broad freedom to choose the  X - xtechnologies and equipment that they will use to provide services.B"&  {O$- xKԍ See, e.g., UNII Order at  61; PCS Second Report and Order, 8 FCC Rcd at 775556; A ReExamination  {O- xof Technical Regulations, GEN Docket No. 83114, Report and Order, 99 FCC2d 903 (1984) (Technical Regulations  {O- xwReport and Order). We note that the Commission should continue, in conjunction with other government agencies,  yO-to ensure that users comply with appropriate health and safety standards.B Technical flexibility gives  xKspectrum users the ability and incentive to develop and implement innovative, spectrumefficient,  xlowcost, and consumerresponsive technologies for delivering their services without unnecessary  xdelay or regulatory interference. In addition, technical flexibility will give different licensees the  xability to try different technologies and to compete on the basis of their technologies. For  x[example, some personal communications services providers believe that code division multiple  xaccess (CDMA) will be the best technology for their service, whereas others favor time division  xmultiple access (TDMA) or the Groupe Speciale Mobile (GSM) standard. The competition  xbetween the different technologies as well as the comeptition between different systems should lead to innovation and new services for consumers.    xThird, users should have flexibility to determine both the amount of spectrum they occupy  xand the geographic area they serve. As discussed above, when the Commission issues an initial  x.license it must define that license, at a minimum, in terms of both spectrum block size and geo X- x-graphic area.F#  {O&-ԍ See p. 7, supra.F Once initial licenses have been assigned, however, licensees should ordinarily be"#0*(("  xfree to disaggregate their spectrum and partition their service areas in order to operate within the  X- xparameters that they determine to be efficient.$ {Ob- x.ԍ See, e.g., Geographic Partitioning and Spectrum Disaggregation by Commercial Mobile Radio Services  xZLicensees, WT Docket No. 96148, Report and Order and Further Notice of Proposed Rulemaking, FCC 96474  {O- xJ(released Dec. 20, 1996). In comments filed in connection with the en banc hearing, AT&T Wireless stated that it  xhad been approached by local companies seeking to build out limited rural areas of AT&T's PCS territories before  x,AT&T was able to reach those areas, but it was unable to accommodate those requests under the Commission's rules then in effect. AT&T Wireless Services, Inc. Comments at 4. Similarly, in those instances where the  xCommission's initial assignments are relatively constrained with respect to bandwidth or geo xgraphic scope, licensees should generally be able to aggregate additional authorizations in order  xkto provide the services demanded by the marketplace. As a general rule, flexibility of scope  xshould be limited only as necessary to promote specific procompetitive goals or to preserve other  xspecific public interest requirements. For example, where limits on aggregation of spectrum may  xappear necessary to prevent a party from developing or maintaining market power, the  xCommission should first consider increasing the supply of spectrum usable for a service, and  ximpose spectrum caps only where it is impossible to create competition through additional spectrum.  X -   xFourth, licensees should have implementation flexibility. To the extent it can legally do  x so, the Commission should generally eliminate requirements for licensees to build out their  xynetworks within a specified period of time. By permitting licensees to allow spectrum to remain  x>unused where it is economically efficient to do so, the Commission can make it possible for  xjmarket forces to govern the rate at which spectrum is developed, and eliminate the need to rely  Xy- xon administrative judgment regarding when spectrum should be released.I%yD {On-ԍ See pp. 67, supra.I Furthermore, spectrum  xflexibility, including the flexibility to transfer authorizations to use spectrum, will cause licensees  xLto bear the full opportunity cost of allowing spectrum to remain idle. In addition, flexibility will  x/allow additional licensees freely to enter any market, and therefore will reduce the ability of licensees that are already in a market to withhold spectrum for anticompetitive purposes.   xIn most instances, service and technical flexibility should be limited only by rules to  X- xprevent interference.& {O_-ԍ But see pp. 1517, infra (discussing appropriate public interest limitations on flexibility). An authorization to use spectrum is of limited value without an expec xtation that one's legitimate use of the spectrum will be free from interference by others. Thus,  xeach user of spectrum, like a user of land or any other resource, must sacrifice some degree of  xZunrestricted use so that every other user can enjoy the benefits of spectrum utilization within that  xuser's own defined bounds. The Commission should continue to define the extent to which each  xspectrum user may expect freedom from interference and enforce rules to protect those expecta"eh &0*(("Ԯ X- xtions.'\ {Oy- xԍ See, e.g., Technical Regulations Report and Order, 99 FCC2d at 90506, 910. We note that under some  xcircumstances, this definition may consist of a determination that particular users will enjoy little or no freedom from  {O -interference. See, e.g., 47 C.F.R.  15.5(b) (unlicensed devices must accept interference). The Commission can and should, however, perform this function in a manner that is  xLminimally intrusive upon users' flexibility. Thus, rules to limit interference should ordinarily be  X- xoutputbased (e.g., limitations on emissions outside the licensed spectrum band and geographic  X- x<area or sharing criteria) rather than inputbased (e.g., specifying permissible services or technolo X- xgies).T(\ {OE - xԍ See Technical Flexibility in the Mobile Communications Services, GEN Docket No. 85171, Notice of Inquiry  {O - xiand Proposed Rule Making, 101 FCC2d 331 (1985); Technical Regulations Report and Order, 99 FCC2d at 906,  yO -910. T So long as a spectrum user's emissions comply with objective numerical standards, it  xshould ordinarily be free to offer whatever services using whatever technologies it wishes. The  xCommission should also consider expanding spectrum users' flexibility to negotiate among them Xc-selves interference limitations that may differ from those specified in the rules.)c {O$- xyԍ See, e.g., 47 C.F.R.  22.912(b) (cellular licensees may negotiate service area boundary extensions with  xwadjacent licensees); 47 C.F.R.  24.237(d) (operational fixed service licensees may agree to accept interference from  {O- xKbroadband PCS licensees greater than that specified in rules). See also Transcript at 18485 (statement of Peter  {O- xxPitsch, Progress and Freedom Foundation), 192 (statement of Charla Rath, Freedom Technologies, Inc.); but see National Association of Broadcasters Comments at 1213.   xAlthough we believe the Commission should generally attempt to minimize limitations on  xtechnical flexibility, it should consider whether, under narrow circumstances, its specification of  x-technical standards may promote the effective operation of the market. In most cases, we believe  xthat if a common standard is economically efficient for a product or service, market forces will  xylead producers to adopt the optimal common standard voluntarily. Under some circumstances,  xhowever, the market may fail to quickly produce a common standard because individual produc X - xiers have interests in particular standards that are different from the public interest.t*J  {O"- xԍ See S. Besen & G. Saloner, "The Economics of Telecommunications Standards," in Changing the Rules:  yO- x Technological Change, International Competition, and Regulation in Communications, ed. R. Crandall  {O- x& K. Flamm, 177220 (1989); M. Katz & C. Shapiro, "Systems Competition and Network Effects," Journal of  {O~- xEconomic Perspectives 93115 (Spring 1994); J. Farrell & G. Saloner, "Installed Base and Compatibility: Innovation,  {OH- x Product Preannouncements, and Predation," American Economic Review 94055 (Dec. 1986); J.Tirole, The Theory  yO- xof Industrial Organization, 40409 (1992); S. Besen & J. Farrell, "Choosing How to Compete: Strategies and  {O- xTactics in Standardization," Journal of Economic Perspectives 11731 (Spring 1994); S. Besen & L. Johnson,  yO -Compatibility Standards, Competition and Innovation in the Broadcasting Industry (1986).t While it may  xLbe appropriate for the Commission to intervene under such limited circumstances, it should do  xso sparingly because prescribed technical standards can have substantial drawbacks. For example,  xthe Commission may have difficulty selecting the most efficient standard, and any standard it  xselects may discourage or even prevent future innovation that would benefit the public. In addi xtion, the process of formulating a single technical standard can seriously delay introduction of a  x[service. Thus, the Commission should evaluate the circumstances in each case carefully so as"!*0*(("  X- x/not unnecessarily to override the market's natural response mechanisms.+~ yOy- xԍ In this regard, it has been proposed that Government intervention to set standards may be appropriate only  {OA- xfor a new service that is worthy of national investment, and not for an extension of an existing service. See SBC  {O - xCommunications, Inc. Comments at 45 (unpaginated); Transcript at 16061, 201 (statement of John Stupka, SBC  {O- xiCommunications, Inc.); see also Technical Regulations Report and Order, 99 FCC2d at 911. Although we reach  x;no conclusion here regarding the extent to which this guideline may be universally applicable, it is illustrative of the  xtype of factors the Commission may wish to consider in deciding whether to intervene in the setting of standards in any particular case. Where a single  xstandard is necessary, the Commission should encourage industry to agree on the standard, and  X- x>it should preserve as much flexibility within the standard as is possible., {O - xiԍ See Advanced Television Systems and Their Impact Upon the Existing Television Broadcast Service, MM Docket No. 87268, Fourth Report and Order, FCC 96493 (released Dec. 27, 1996). Furthermore, the  xCommission should actively explore sunsetting any technical standards once the market has  X-developed to the point where they are no longer necessary.  Xv- C. Public Interest and Market Failure Considerations   ?xAlthough competition ordinarily is the most effective means of ensuring the production  xof a socially optimal mix of goods and services in an economically efficient manner, under some  xcircumstances market forces will fail to produce outputs that maximize social welfare. For  x-example, as discussed above, markets do not function effectively where a dominant producer has  X - xsubstantial market power.F- h  {O-ԍ See p. 9, supra.F Market failure also may occur when the production or consumption  X - xof an output exhibits significant externalities, i.e., costs or benefits that consumers or producers  X -are unable fully to incorporate into their decisionmaking processes..  {Ok- x;ԍ See J. Henderson & R. Quandt, Microeconomic Theory, 296307 (1980); J. Stiglitz, Economics of the  yO5-Public Sector, 17897 (1986) ("Stiglitz").   NxThe market also may fail to yield socially efficient output of public goods. Public goods  xxare products or services that individuals can consume without purchasing (nonexcludability) and  xwithout detracting from other consumers' opportunities to benefit from the same unit of the good  XM- x(nonrivalry in consumption)./MT  {OR -ԍ See S. Call & W. Holahan, Microeconomics, 45556 (1983); Sandler at 56; Stiglitz at 99119. The marketplace typically underproduces public goods because,  x.lacking the power to exclude, producers are unable to collect a charge from every consumer of  X- xZthe good.0 yO#- xԍ Even if producers can exclude some consumers, it may be inefficient for them to do so because each additional user imposes no significant additional cost. Many users of spectrum provide services that exhibit attributes of public goods. For  xexample, national defense, public safety services, and basic scientific research are public goods  xthat are often provided or funded by governmental units for the benefit of the public as a whole.  xIt should be clear, however, that although the services provided in these cases are public goods,">00*(("  xythe inputs to these services are not public goods. Spectrum, like cars and radios, is an input to the provision of public safety.   {xThe public interest is best served when public and private enterprises produce economi x[cally efficient types and quantities of public goods. In the case of some public goods that use  xradio spectrum, such as national defense and some public safety services, the Commission and  xthe executive branch have agreed upon allocations of spectrum for federal government use to  X_- xproduce these outputs.1"_ {O- xԍ See 47 C.F.R.  2.106; see also 47 U.S.C.  305. Other bands are designated exclusively for nonfederal  xgovernment use, and still other bands are shared between federal and other users. We note that where spectrum is  xshared between federal and nonfederal users, that fact may limit the technical flexibility allowable to users who are subject to the Commission's jurisdiction. For other public goods, however, the Commission must consider how  xbest to promote the public interest by ensuring that efficient quantities of the goods are produced.  xSome have argued that the best way to achieve this end is for the public to allocate direct  xfinancial subsidies to producers of public goods, who will use that money to compete for  X - xzspectrum on the open market in the same way they compete for most other inputs.2  {Of- xԍ See Transcript at 34 (statement of Tom Hazlett), 16566 (statement of Peter Pitsch, Progress and Freedom Foundation). Others  xLargue, however, that for historical and political reasons this approach may often be impractical  X - xand that spectrum should be reserved for such entities.3  {O- xKԍ See, e.g., Association for Maximum Service Television, Inc. (AMST) Comments at 1618; Association of  xPublicSafety Communicaitons Officials Comments at 24; Henry Geller Comments at 34; MCI Telecommunicaitons  xComments at 2; National Association of Broadcasters Comments at 89; Transcript at 5456 (statement of Philip  xVerveer, Public Safety Wireless Advisory Committee), 6162 (statement of Peter Murray, UTAM, Inc. and Wireless  x Information Networks Forum), 11516 (statement of John Battin, Motorola Inc.), 189 (statement of Charles Jackson, Strategic Policy Research), 219 (statement of Wayne Perry, AT&T Wireless Services, Inc.). We note in this regard that the Public  x-Safety Wireless Advisory Committee Report identifies access to spectrum as well as funding and  xKincreased access to commercial services as inputs that are needed to maintain and improve public  X- xsafety.4  yO-ԍ Report of the Public Safety Wireless Advisory Committee,  2.32.6 (Sept. 11, 1996). However, to ensure that the public gets the maximum benefit from the spectrum, in  xZconsidering the reservation of spectrum for any service the Commission should balance the value  x-of spectrum in that service against its value for other uses. In general, explicit financial subsidies  xare preferable to setasides because they are more narrowly targeted and their costs can be more  xeasily evaluated. By contrast, it is difficult to determine the cost of reserving spectrum, and set xasides create disincentives for the adoption of possibly efficient tradeoffs between equipment and  xspectrum. Options such as redirecting some portion of auction revenues for public safety might  xMprove to be a more efficient subsidy mechanism than setasides because then public safety  xagencies would realize the opportunity cost of their spectrum usage and make more efficient choices.    xTo the extent the Commission desires to take into consideration other public interest goals  xin allocating or assigning licenses and is unable to use explicit monetary subsidies as discussed"|40*(("  xabove, it should do so by clearly stating the obligations on the license upfront and allowing the  xlicensee flexibility in meeting those obligations. Licensees should be allowed to meet the  xobligations themselves or to contract with others to meet the obligations for them in order to  x[minimize the inefficiency of the obligations. Furthermore, any intervention should be narrowly  x/tailored to the goal it is intended to promote, and the Commission should in every instance  x<balance the public interest in intervention against the costs of interfering with competitive market forces.   xPublic interest concerns also may require some limitations on service or technical flexi xbility. The Communications Act and related statutes, for example, contain provisions that create  xspecific public interest obligations for broadcasters, including the obligation to allow reasonable  X - xaccess to the broadcast airwaves by legally qualified candidates for Federal elective office;C5  yO| -ԍ 47 U.S.C.  312(a)(7).C the  X - xobligation to provide "equal opportunities" to legally qualified candidates for public office;X6 X yO-ԍ 47 U.S.C.  315(a); 47 C.F.R.  73.1941.X the  xprohibition against charging legally qualified candidates for public office more than the "lowest  X - x=unit charge" during a certain period prior to an election;[7  yOW-ԍ 47 U.S.C.  315(b)(1); 47 C.F.R.  73.1942.[ and the obligation to air educational  X - xand informational programs for children.^8 x yO-ԍ 47 U.S.C.  303a303c; 47 C.F.R.  73.671.^ Similarly, providers of direct broadcast satellite  xservice are required to reserve capacity for noncommercial educational and informational  xprogramming and make it available to national educational programming suppliers at reasonable  Xb- xrates.J9b {O-ԍ See 47 U.S.C.  335(b).J The Commission has also proposed similar rules for digital audio radio service.:b {O- xԍ See Establishment of Rules and Policies for the Digital Audio Radio Satellite Service in the 23102360 MHz Frequency Band, IB Docket No. 9591, Notice of Proposed Rulemaking, 11 FCC Rcd 1, 910 (1995). Some  xservice rules may be needed to further the public interest in universal access to telecommunica X4- xtions services at just, reasonable, and affordable rates,;4  {O-ԍ See 47 U.S.C.  254; see also AT&T Wireless Services, Inc. Comments at 5. as well as services that are accessible to  X- x=persons with disabilities.<  {OT!- xԍ See 47 U.S.C.  255; Implementation of Section 255 of the Telecommunications Act of 1996, WT Docket No. 96198, Notice of Inquiry, FCC 96382 (released Sept. 19, 1996). Some technical limitations may also be necessary in the interest of  xzpublic health, safety, and environmental protection, including limitations on radiofrequency  X- xemissions= {O%- xԍ See, e.g., Guidelines for Evaluating the Environmental Effects of Radiofrequency Radiation, ET Docket No. 9362, Report and Order, 11 FCC Rcd 15123 (1996). and rules requiring service providers to offer interoperable emergency services. As":=0*(( "  X- xwith rules intended to prevent interference,K> {Oy-ԍ See pp. 1213, supra.K however, it should be possible to achieve these ends  xMin a manner that is minimally restrictive of users' flexibility, in large part by focusing on out xcomes rather than means. For example, the Commission recently required certain commercial  x>mobile radio service providers to offer enhanced 911 services meeting defined performance  xcriteria by specific dates, but it preserved flexibility by avoiding specification of the technology  X- xthey must use.?\Z {O- xԍ See Revision of the Commission's Rules To Ensure Compatibility with Enhanced 911 Emergency Calling  xSystems, CC Docket No. 94102, Report and Order and Further Notice of Proposed Rulemaking, FCC 96264  {O* -(released July 26, 1996), recon. pending; see also Technical Regulations Report and Order, 99 FCC2d at 910. The Commission's recent Order regarding children's educational television  xsimilarly preserved broadcasters' flexibility in meeting their statutory obligation while providing  X_-clear guidance as to what will be considered satisfactory performance.@_~ {O - xԍ See Policies and Rules Concerning Children's Television Programming, MM Docket No. 9348, Report and Order, 11 FCC Rcd 10660 (1996).  X1- D. Licensing and Fee Policies   xIn order for the public to derive the maximum benefit from spectrum use, authorizations  xto use spectrum should be assigned in a manner that minimizes delay and inefficiency. When  xKthe Commission receives mutually exclusive applications for initial spectrum usage authorizations  xto provide subscriptionbased services, competitive bidding is the most effective means of pro X - xLmoting this end.AZ  yO0- xԍ Indeed, the policy arguments in favor of competitive bidding apply equally regardless of whether subscription  xJservices will be offered. However, the Commission currently has the legal authority to use competitive bidding only  {O-where the expectation is that service will be provided to subscribers. See 47 U.S.C.  309(j)(1),(2). Competitive bidding serves the public interest in several ways. First, a well  xdesigned competitive bidding approach is better able to get spectrum into the hands of those who  xinitially value it most highly and to facilitate efficient spectrum aggregation than fragmented sec xiondary markets. The auction process ensures that an authorization to use spectrum will be initial xly awarded to the party that places the highest value on the spectrum and therefore is willing to  X4- x.pay a market price for it.B4  {O- xԍ See Implementation of Section 309(j) of the Communications Act Competitive Bidding, PP Docket No. 93 yO-253, Second Report and Order, 9 FCC Rcd 2348, 234950, 236061 (1994). Although secondary markets are useful to reassign spectrum as its  xvalue to different parties changes over time, relying on efficient auctions in the first instance  xreduces costs and delay in the initial assignment process. Second, users who are not required to  xZpay market value may have an incentive to acquire licenses on a speculative basis simply to resell  x=these licenses, thereby wasting valuable resources in rent seeking. Indeed, this occurred on a  X- xwidespread basis when the Commission awarded cellular licenses by lottery.?CZT  {O%- xԍ See J. McMillan, "Why Auction the Spectrum?" 19 Telecommunications Policy 19199 (1995); G. Rosston,  x"The Effects of FCC Regulation on Land Mobile Radio," unpublished Ph. D. dissertation, Stanford University (1994); Kwerel & Felker.? Although the"vC0*(("  xZCommission should not attempt to prevent authorized spectrum users from selling their authoriza X- xtions for a profit, it better serves the public interest to require the party that is initially authorized  xto use spectrum to pay the value of that authorization to the public, rather than getting it for free  xsimply because it is lucky enough to win a lottery. Third, auctions vastly reduce the delay in xvolved in resolving mutually exclusive applications for initial licenses, and getting those licenses  xinto the hands of those who value them most highly, as compared with lotteries or comparative  Xv- xihearings.SD\v {O- xԍ See Improving Commission Processes, PP Docket No. 9617, Notice of Inquiry, 11 FCC Rcd 14006, 14010  {O- x;(1996) (Commission Processes NOI); Henry Geller Comments at 23; Progress and Freedom Foundation Comments  yO -at 78.S֬ The Commission's successful experience in conducting auctions confirms our evalua xtion that competitive bidding is ordinarily the preferred means for awarding initial authorizations  XH-from among mutually exclusive applications.MEH yO - x,ԍ Since the Commission received auction authority from Congress in 1993, it has successfully conducted several auctions that have raised more than $ 20 billion for the United States Treasury. As has been noted, however:  XxOne of the greatest myths about the spectrum auctions is that the [amount] raised was the most  ?important aspect of the process. . . . In monetary terms, the most important effect [of the auctions]  to the economy is that . . . PCS license winners are now investing in the infrastructure that will  permit them to offer wireless communications service in competition with each other and other providers such as cable and telephone companies.  Hundt & Rosston at 40.M   MxIn some instances, however, competitive bidding is not an appropriate means for assigning  xspectrum use authorizations. First, auctions are not necessary in the absence of mutually exclu xsive applications because, if there is only one applicant, then there are no opportunity costs  xassociated with granting a license to the sole applicant. Auctions also are not currently authorized  X - xiexcept where spectrum is likely to be used for certain specified purposes.RF  {O-ԍ See 47 U.S.C.  309(j)(1), (2).R Furthermore, auctions  xkmay be problematic for services that have large economies of scope or scale and need to be  x[provided on a transnational basis to realize those economies. In theory there is no reason that  xlicenses for such services could not be awarded by competitive bidding, but there may be  xpractical difficulties involved in conducting competitive bidding for transnational services. For  xLexample, it may be difficult for a single provider to obtain a set of complementary licenses from  x=different countries, even though the licenses are most valuable as a set, if competitive bidding  xioccurs in a sequence of auctions. The licensing process would also be delayed if an international  xorganization would have to be formed or designated to coordinate or conduct a simultaneous auc X- xtion.NG" {O$- xԍ Some have also argued that other services should not be auctioned. See, e.g., Industrial Telecommunications  xAssociation Comments at 45 (arguing that auctions should not be used for private wireless systems); Transcript at  x11213 (statement of Paul Baran) (arguing that auctions should not be used where a large number of small service  xproviders are operating in an unproven market because large upfront payments would discourage innovation). For"'F0*((;'"  xthe reasons discussed above, we believe proponents of such exceptions should bear the burden of overcoming a strong presumption in favor of using competitive bidding where legally authorized.N However, these concerns should not foreclose the possible use of auctions. Rather, they" G0*(("  x>should be considered in comparing auctions to available alternatives, including the current process.   xIf Congress so authorizes, the Commission may collect fees for spectrum use. In general,  X- xjthe Commission should consider assessing fees that approximate the market value of spectrum  xwhere such fees will help to promote the economically efficient use of spectrum. For example,  xuser fees for shared frequencies in the private land mobile radio services may help to alleviate  xa "tragedy of the commons" situation in which use of the spectrum may become congested and  xusers have little incentive to use that resource more efficiently because any privately initiated  xattempt to improve efficiency would confer benefits on all users of the shared spectrum, with  X - xjonly a fraction of these benefits accruing to the party undertaking the effort.}HZ  {O - xxԍ See p. 8, supra. See Replacement of Part 90 by Part 88 to Revise the Private Land Mobile Radio Services  xand Modify the Policies Governing Them, PR Docket No. 92235, Report and Order and Further Notice of Proposed  yO}-Rule Making, 10 FCC Rcd 10076, 1013638 (1995).} Where no such  xcircumstances are present, however, the Commission should not assess user fees in a misguided  X - xeffort to obtain revenue.*I" B yO- xԍ User fees, which are intended to recover from the user the market value of spectrum, are to be distinguished  xfrom application fees, which are fixed by statute, and regulatory fees, which the Commission is mandated to collect  {Oo- xYin order to recover its own costs. See 47 U.S.C.  158, 159. Assessment of appropriate application and regulatory  yO9-fees is generally both economically sensible and legally required.* In general, user fees are appropriate only under limited circumstances  xwhere the spectrum user does not realize the opportunity cost of the use of spectrum. With  xexclusive use, flexibility and the ability to transfer licenses, users do realize the opportunity cost  xof using spectrum, and thus fees should not be charged. Where these conditions do not obtain,  xthe Commission should consider whether restrictions on the license could be relaxed so that the user does realize the opportunity cost, rather than simply imposing fees.   ?xIn addition to using competitive bidding, the Commission should continue to take other  xactions to expedite the assignment of licenses. Thus, the Commission and its staff have reduced  xdelays by automating and otherwise streamlining many licensing processes. For example, the  xyWireless Telecommunications Bureau has implemented "autogranting" and electronic filing of  xauthorizations for many services, and the International Bureau has reduced processing time for  xLunopposed noncontroversial international Section 214 applications to under 30 days after the  X- xpublic notice comment period.WJ,  {O"-ԍ See generally Commission Processes NOI.W Similarly, the Commission has expedited the availability of ser X- xvice by relying on private spectrum coordinators in many cases.wK  {O%-ԍ See, e.g., 47 C.F.R.  90.175; see also 47 U.S.C.  332(b).w The Commission should continue exploring additional initiatives along these lines. "|P K0*(("Ԍ  xThe Commission also should strive to ensure that its licensing and fee policies accommo x<date the needs of all businesses. An increasingly market-based spectrum policy may require new  X- xtools to meet the goal of ensuring that small businesses are given the opportunity to participate  X- xin the provision of spectrum-based services.L {O4- xԍ See 47 U.S.C.  309(j)(4)(D); see also 47 U.S.C.  257 (directing Commission to identify and eliminate market entry barriers for small businesses). Some attributes of a more competitive,  xdemand-driven spectrum market will advance this goal. For example, the availability of larger  xamounts of spectrum and the grant of greater flexibility will reduce the scarcity value of spec x>trum, lowering its price and making it more affordable for small businesses. Eliminating use  x-restrictions will encourage firms to allow others access to their spectrum for non-interfering uses.  xySmall firms, who are often the proponents of new technologies, will not have to go through the  xexpensive, time-consuming, and uncertain process of gaining Commission approval for a proposed use and then securing the allocation of spectrum for this use.   !xFlexibility in the scope of licenses, through rules permitting disaggregation of spectrum  x.and partitioning of geographic area licenses, will make it easier for small businesses to acquire  xlicenses suitable for their business plans and thus will serve as one method of eliminating market  xentry barriers. The availability of spectrum in the secondary market also can work to the compet xitive advantage of small firms since they do not have to reveal their planned technology and  xbusiness plans to their competitors. On the other hand, as the Commission increasingly utilizes  x.more marketbased assignment mechanisms and allows licensees greater flexibility, small busi xnesses may have difficulty obtaining information about and accessing spectrum or otherwise  xsatisfying their communications needs. To mitigate these possible consequences to small busi x/nesses, the Commission should consider taking steps to facilitate small business access to information about available spectrum and spectrumbased services.  X- E. Administrative Certainty   xAn effectively functioning competitive market includes elements of both certainty and  xjuncertainty. The very essence of competition is uncertainty of outcomes; competitive markets  x reward efficiencyenhancing behavior, but success is not guaranteed. In order to function  xeffectively, however, a competitive market needs clear and firm regulations. If spectrum users  x.and their financial supporters are not reasonably certain of the rules that will govern spectrum  x.use, they will be less willing to invest in obtaining and developing the spectrum. For example,  xentrepreneurs likely will bid and invest greater amounts in spectrum if they know in advance that  x\the use will be flexible and are confident that it will remain that way. In the absence of such  xjcertainty, the spectrum may not be used to its full potential and the public may fail to realize its full value.   !xFor this reason, the Commission's spectrum policies should promote administrative cer xtainty. Thus, before a use of spectrum is authorized or a service is initiated, the Commission  xishould establish the rules affecting that use with as much certainty as is reasonable. For example,  x.the Commission should set out in advance the interference rules, the full range of flexibility al"h$"L0*((F#"Ԯ x=lowed, requirements concerning accommodation of preexisting users of the spectrum, and any  xother matters affecting the rights and obligations of licensees. Because of the value of flexibility,  X- xlicensees regularly appeal to the Commission to increase flexibility after the award of their  x<licenses, thereby generating opposition on equity grounds that might not have arisen if flexibility  xhad been granted before the licenses were assigned. In order to avoid such debates, and to  xmaximize efficiency in the initial award of licences, the Commission should award maximum flexibility initially.   xThe principle of administrative certainty also affects many of the Commission's policies  xafter initial authorization of a service. For example, a desire to provide certainty underlies the  xpolicy that licensees ordinarily have an expectancy of renewal when their license terms expire.  x=Although the Commission awards licenses for fixed terms, due to the high renewal expectancy  X - x.these licenses in many ways resemble de facto licenses in perpetuity. This policy encourages  xefficient investment in assets tied to a specific license because license holders retain the benefits  X - xof these investments.kM  yO9-ԍ Other license arrangements may also lead to efficient investment.k Without confidence in their longterm rights, licensees would tend to underinvest in licensespecific assets, especially as the end of the license period approached.   !xFurthermore, the Commission should exercise its jurisdiction to reallocate spectrum and  xychange the rules governing use of spectrum with due regard for the reasonable expectations of  xincumbent licensees. No incumbent has a legitimate expectation of freedom from competition,  xbut incumbents do expect that they will be able to continue using spectrum that they have been  xassigned without additional or unexpected interference, or major new service and technical restric x-tions. Although in some instances the public interest will require the Commission to act notwith xKstanding these expectations, it should do so only where necessary to promote clearly established  xipublic interest goals. Moreover, when it is necessary in the public interest to reallocate spectrum,  xthe Commission should make every effort to ensure efficient and fair compensation for spectrum  x<incumbents who are required to move. In general, the Commission should consider "overlay" as xsignments, with the right to move incumbents if provided with equivalent replacement assets or  xservice, as a method of ensuring that spectrum incumbents will be fairly and efficiently compen Xg- xsated for the value of their investments.NgX yOp- xԍ An "overlay" is a second assignment of already licensed spectrum, pursuant to which the overlay licensee must  xsecure the original licensee's agreement either to vacate the spectrum or to accept interference before it may begin  {O - xoperations. See, e.g., Transcript at 15051 (statement of Peter Pitsch, Progress and Freedom Foundation); but see  {O - xid. at 18688 (statement of Charles Jackson, Strategic Policy Research) (noting potential difficulties with overlay assignments in some circumstances). Such efforts are not only a matter of common equity,  xybut in the long run will encourage efficient investment by promoting certainty among spectrum users regarding the security of their investments.  X - F. The Global Marketplace   xFinally, all of the Commission's spectrum policy decisions should reflect the international" N0*(("  xcontext in which spectrum usage occurs. Radio waves do not stop at national borders. Therefore,  x[domestic policies must take into account the spectrum policies of other nations. United States  xZspectrum policies should, among other things, support global systems and seamless international  xynetworks, both in satellite and in terrestrial operations, where such systems promote the public  xinterest. Consumers benefit from being able to communicate easily with persons in other nations  x-and to move equipment readily between nations. For example, a global satellite system customer,  xKor a customer of a system that is part of a worldwide seamless network, could use one transceiver  xin multiple nations to receive and send voice, video, or data service. At the same time, the effort  xto achieve worldwide seamless networks may exact costs, which the Commission should balance against the benefits.   ]xIt may be particularly important to coordinate the policies of the United States and other  xynations for satellite systems, which may serve multiple nations from the same satellite platform.  xySatellite systems in the future are increasingly likely to be global or regional systems. The new  xnongeostationary systems have constellations of satellites that move relative to the Earth. User  xtransceivers are capable of communicating with these satellites and transferring calls to other  x[satellites as they come into view. Constellations of nongeostationary satellites are capable of  xproviding services anywhere in the world. In order to be profitable, these constellations need  xadequate spectrum in which to operate. Therefore, the Commission should promote measures to  xachieve efficient use of spectrum worldwide, including efforts to revise international administra X4- xtive procedures that may create artificial orbit spectrum scarcity. O4 {O- x#C\  P6QP#э See, e.g., International Telecommunication Union Resolution 18, Kyoto, 1994 (Review of the ITU's Frequency Coordination and Planning Framework for Satellite Networks).  For example, the Commission  xmay need to develop spectrum policies for the entry of foreignowned satellite systems into the  x\United States market. This is likely to require additional exchange of information with other nations to discuss harmonization of policies, including spectrum allocations for such systems.   xUnited States consumers and producers can also potentially benefit from the development  xiof worldwide seamless networks. Roaming agreements that permit customers of personal wireless  xyservices to make and receive phone calls easily while away from their home nations, and agree xments that facilitate free circulation of communications equipment between nations such as mutual  xrecognition agreements for the type approval of terminals, can contribute to the development of  x<such networks. In addition, policies that promote use of the same spectrum for the same services  xaround the world may facilitate the development of global systems and seamless networks by  xyeliminating the need for equipment that can operate on multiple frequency bands, as well as for  xprotocols to convert international communications from one frequency to another. Furthermore,  xconsistency in spectrum allocations among different countries may produce economies of scale  xfor equipment manufacturers, thereby reducing prices for consumers. However, a system of  x-worldwide spectrum block allocations has costs as well as benefits. As discussed above, restric xtions on how licensees may use spectrum may prevent licensees from putting spectrum to its  X"- xhighest valued uses and from quickly introducing innovative services and technologies.KP"" {Oi'-ԍ See pp. 1011, supra.K ""P0*((!"  xMoreover, to the extent that government policy limits uses of spectrum and requires specfic  xtechnologies, the market will be unable to test whether the benefits of worldwide seamless networks exceed the costs.   xWe therefore believe that the Commission should pursue policies that facilitate the devel xopment of worldwide seamless networks without precluding other uses and technologies. This  xend can be achieved by promoting policies that reduce the transaction costs, both in the United  xStates and abroad, of participating in worldwide seamless networks. Specifically, the United  xStates should support spectrum allocations in the International Telecommunication Union, domes xtically, and in other countries that would allow the same equipment to operate worldwide but  xwould allow other uses as well. The Commission should also establish licensing band plans  xKfeaturing spectrum blocks and service areas that are consistent with, or could be made consistent  xxwith, worldwide systems, including by facilitating aggregation of spectrum blocks and geographic  xareas in the licensing process where appropriate and by permitting aggregation and disaggregation  xin the after market. If the Commission determines that the highest value of some frequency band  x=is likely to be for a particular worldwide system, it should optimize the initial band plan for that  xsystem, but it should not foreclose other uses of that spectrum or prevent the market from  xreconfiguring the spectrum. We believe that such policies, which minimize the transaction costs  xzfor the market to configure the spectrum in the most economically efficient manner, will best balance the benefits of worldwide seamless networks and the benefits of flexibility. x   xSpectrum policy in the United States should be part of an international framework that  xjfacilitates the emergence of new technologies. In general, governments cannot reliably predict  x[what innovative uses private companies will develop that require spectrum licenses, and these  xunpredicted, creative uses can contribute greatly to the development of global communications  x and a world economy. In the United States' experience, competition and flexibility promote  xinnovation. Therefore, in addition to promoting competition and flexible spectrum use domesti x\cally, the United States should seek to encourage competitive markets and the creation of a flexible environment for spectrum worldwide.   xFinally, global spectrum policies, like global wireline telecommunications policies, should  xseek to extend connectivity to citizens around the world. Intergovernmental satellite organizations  X - xsuch as intelsat and Inmarsat have been instrumental in bringing communications to the devel xjoping world and ensuring that all nations are interconnected to the global public switched net xwork. As private nongeostationary and geostationary satellite systems are licensed, and the  X- xxnatures of intelsat and Inmarsat change, it is important that United States and global policy support expansion of competitive communications in developing nations.   ^xIn order to accomplish these goals, the United States must continue to take an active  xleadership role in international forums. This requires considerable coordination of domestic and  xjinternational policies and priorities. Effective international spectrum management requires that  xithe United States enter into various commitments with foreign governments, including multilateral  xLagreements governing satellite communications and agreements with our immediate neighbors governing terrestrial spectrum usage."#'P0*((%"Ԍ X-ԙ} IV. CONCLUSION ă   xThis paper proposes a policy framework under which the Commission would generally  xrely on competitive market forces and allow spectrum users maximum flexibility to respond to  xthe market in order to achieve usage of spectrum that is of the greatest value to the public. This  xiframework would continue and expand upon the initiatives that the Commission has already taken  x<in these directions. We believe that the Commission's consideration of these principles as guidelines will help lead it to decisions that best serve the American people.   xThese principles imply a different and less activist role for the Commission than under  xother potential spectrum policy paradigms. Nonetheless, this paper identifies several crucial  xfunctions that the Commission should continue to perform in order for competitive market forces  xto work most effectively. First, the Commission should actively seek out instances in which  xspectrum is currently allocated or its use restricted in a manner that prevents it from being used  xto its full value, and it should remedy those situations. Second, when making spectrum initially  xavailable for a new service or use, the Commission should establish initial geographic areas and  xfrequency blocks that reflect its best estimate of the most efficient uses of spectrum so as to  xreduce the need for immediate secondary market transactions. Third, the Commission should set  xZand enforce minimally restrictive baseline rules governing interference and health effects. Fourth,  xthe Commission should seek to maximize the amount of spectrum available to users. Fifth, the  xCommission should monitor the market and undertake targeted intervention to correct for signifi xcant market failures, where necessary, to ensure competitive conditions or advance important  xpublic interest goals. Sixth, the Commission should act where appropriate to further the efficient  x-use of spectrum in the public interest in the international context. Finally, in determining whether  xto undertake any intervention, the Commission should balance the benefits of intervention against  xthe value of administrative certainty. We recommend that the Commission carefully consider  xwhether, by following these principles, it will further its ultimate goal, the use of spectrum in the public interest.