Order Code RS21508
Updated December 9, 2004
CRS Report for Congress
Received through the CRS Web
Spectrum Management: Special Funds
Linda K. Moore
Analyst in Telecommunications and Technology Policy
Resources, Science, and Industry Division
Summary
In the closing days of the 108th Congress, legislation was passed that will facilitate
the clearing of radio frequency spectrum for future wireless telecommunications
services. H.R. 5419 (Representative Upton) replaced a similar bill (H.R. 1320), passed
in the House, and its companion bill in the Senate (S. 865, Senator McCain), after action
stalled in the Senate. The Commercial Spectrum Enhancement Act, Title II of H.R.
5419, establishes a Spectrum Relocation Fund that will hold the proceeds of certain
spectrum auctions for the specific purpose of reimbursing federal entities for the costs
of moving to new frequency assignments, freeing spectrum for commercial use.
In addition to furthering the development of new wireless technologies, passage of
the act represents a new aspect of national policy for spectrum management by linking
spectrum auction proceeds to specific funding programs. The Communications Act of
1934, which the act amends, directs that all auction proceeds be paid to the Treasury for
use as general funds. During the 108th Congress, and in previous Congresses, a number
of bills were introduced that would have created similar funds for specific purposes.
Congressman Markey introduced a bill that would have allocated some funds from
spectrum auction proceeds to reimburse federal users for the cost of moving to other
frequencies, placing the balance in a Digital Dividends Trust Fund for diverse purposes.
Congressman Stupak proposed a Public Safety Communications Trust Fund to fund
the implementation of modernization and interoperability for first responders and others.
Senator Dodd would have created a Digital Opportunity Investment Trust to use some
spectrum revenue through 2020 to foster programs for “innovative telecommunications
and information technologies.”
This report covers some of the issues of spectrum management and special funds.
Background
Radio frequency spectrum allocation policy within the United States is coordinated
primarily through the Federal Communications Commission (FCC) — for private use,
including state and local public safety wireless communications — and the National
Telecommunications and Information Administration (NTIA) — for federal use.
Spectrum management goals include balancing diverse concerns such as technical quality,
economic benefit, fairness, access, security, and global competitiveness. Various
Congressional Research Service ˜ The Library of Congress

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proposals have been introduced in recent years that would use spectrum auction proceeds
for purposes such as funding public safety telecommunications needs; paying to
modernize the military; covering the costs of relocating federal agencies from prime
frequencies; and financing social needs, such as education. Many economic models for
providing the “highest and best use” for spectrum exist and have been tried, both in the
United States and worldwide. Spectrum for what is widely described as “prime”
frequencies (300 MHz - 3000 MHz)1 is judged by many to be the most commercially
desirable and is widely sought after at auction.2 The Congressional Budget Office has
estimated that auctions for fiscal years 2004-2008 will raise $21 billion for the federal
treasury, applied to general revenue.3 Much of this will come from auctions for advanced
wireless telecommunications services, including but not limited to commercial services
known as “third generation,” or 3G. The current authority of the FCC to stage auctions
expires at the end of 2007. The FCC, Congress, and the Administration are reviewing
spectrum allocation policies, including market-driven methods such as auctions.
Spectrum Relocation Fund
The purpose of the Spectrum Relocation Fund would be to create a mechanism
whereby federal agencies could recover the costs of moving from one spectrum band to
another. The interest in relocating federal users — and accelerating the process by
assuring reimbursement for the costs of moving — centers on valuable spectrum (relative
to auction prices for comparable spectrum in the United States and other countries) now
used by federal agencies, especially the Department of Defense. In particular, spectrum
in bands within the 1710-1850 MHz range is sought by wireless telecommunications
companies to facilitate the implementation of next-generation wireless technologies,
including high-speed mobile services (3G).4 After much study, the NTIA and the FCC,
aided by an Intra-Government 3G Planning Group, announced plans that would transfer
spectrum in the 1710-1755 MHz range from federal agencies. Frequencies in this band
would be made available to the private sector through spectrum auctions conducted by the
FCC. As part of the effort, the need was identified for new legislation that would permit
affected federal agencies to recover costs directly from these auction proceeds. To meet
this need, in mid-2002 the Department of Commerce proposed the creation of a Spectrum
Relocation Fund. This fund would provide a means to make it possible for federal
agencies to recover relocation costs directly from auction proceeds when they are required
to vacate spectrum slated for commercial auction. In effect, successful commercial
bidders would be covering the costs of relocation. To accomplish the NTIA and FCC
1 Spectrum is segmented into bands of radio frequencies and typically measured in cycles per
second, or hertz; one million hertz = 1 megahertz (MHZ); 1 billion hertz = 1 gigahertz (GHz).
2 Federal Communications Commission, Office of Plans and Policy, OPP Working Paper Series
No. 38, “A Proposal for a Rapid Transition to Market Allocation of Spectrum,” November 2002
[http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-228552A1.pdf].
3 CBO annually provides an estimate of aggregated revenue from spectrum auctions. The most
recent estimate is provided in The Budget and Economic Outlook: Fiscal Years 2004-2013,
January 2004.
4 Discussed in CRS Report RS20993, Wireless Technology and Spectrum Demand: Third
Generation (3G) and Beyond
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goals, the Communications Act of 1934 would need to be modified to permit the agencies
direct access to auction funds.
Among key provisions of the bill are requirements that the auctions must recoup at
least 110% of the projected costs; that unused funds will revert to the Treasury after eight
years; and that cost overruns of more than 10% will be reported promptly to Congress.
Specific frequencies mentioned include not only the 1710-1755 MHz band but also other
federally-used frequencies scheduled for reallocation and possible auction. The
Communications Act of 1934 would be amended to create a Spectrum Relocation Fund
within the Treasury to hold auction proceeds as designated. The fund would be
administered by the Office of Management and Budget. Proceeds from auctions of
designated spectrum will go into the fund.
Trust Funds for Public Safety
Members of the public safety community are among those calling for the creation of
a trust fund for public safety telecommunications needs. An issue in public safety is the
most efficient use of spectrum in the 700 MHz and 800 MHz ranges. Many of the
frequencies in the 800 MHz band are used by commercial radio services and public safety
in a configuration of frequency allocations that is widely believed to create significant
problems of interference on public safety channels. Operations of the wireless
communications network, Nextel, have been identified as one of the major sources of this
interference. Some of the proposals for alleviating interference include relocation of
public safety users to new frequencies in the 700 MHz and/or 800 MHz band. Several
plans have been sketched that would use funds from auctioned spectrum to pay for public
safety relocation. Nextel proposed a spectrum swap in which it would pay some of public
safety’s cost of relocation and in return receive desirable spectrum in a differeent
frequency band.5 The FCC, after a prolonged public debate, appears to be ready to move
ahead with a modified version of the Nextel proposal. Additional modifications are
expected from the FCC.6 Under provisions established by the FCC,7 Nextel must accept
or reject the terms of the relocation plan by February 7, 2005.
Compared to the plan for reimbursing federal agencies for the cost of relocation,
Nextel has offered limited reimbursement to state, local and tribal public safety agencies
who will be obliged to move to new radio frequencies. For example, the description of
costs that can be attributed to relocation for federal entities includes engineering studies
and consultant fees.8 Relocation cost reimbursements for public safety are limited
primarily to equipment exchanges and upgrades. Also, the structure of the Spectrum
Allocation Fund is such that federal users can expect to draw against their budgeted share
5 The Nextel proposal and related issues are discussed in detail in CRS Report RL32408,
Spectrum Policy: Public Safety and Wireless Communications Interference
6 “Nextel Notice Attracts Mostly Technical Comments,” Communications Daily, December 6,
2004, page 10.
7 The Report and Order with the terms for the proposed spectrum swap is available on the FCC
website [http://www.fcc.gov] under”E-Filing” at Electronic Document Management System
(EDOCS). Under advanced search, insert “02-55" as the Docket Number.
8 H.R. 5419, Title II, Sec. 203, ‘(3).

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of the Fund as costs are incurred.9 The Nextel proposal, as it currently stands, would
reimburse public safety agencies for their costs of rebanding after documentation of
expenses is submitted and approved. Opponents to this provision of the Nextel Proposal
have argued that this places undue financial strain on public agencies and budgets.
Spectrum Management and Auction Proceeds
Current broadcast and wireless communications technology requires the assignment
of specific frequencies to prevent interference among transmissions. Preventing
interference while fostering spectrum policies that promote public benefits and economic
growth have been key bulwarks of spectrum policy and management for the FCC since
its creation. Using auctions as a market-driven approach to spectrum allocation is a fairly
recent innovation. The Communications Act of 1934, as modified by the
Telecommunications Act of 1996, and the Balanced Budget Act of 1997 are the main
pieces of legislation directing spectrum allocation and auction requirements in the United
States. Both laws direct the FCC to hold auctions and to deposit the proceeds in the
general fund of the Treasury. Spectrum policy that designates auction proceeds for
specific uses is a departure from existing — albeit recent — practice.10
The Commercial Spectrum Enhancement Act could establish the precedent of
linking spectrum revenues to specific expenditures and the needs of certain users.
Whenever spectrum reallocation is desirable or necessary because of changes in
technology, spectrum value, or other factors, some mechanism — such as a trust fund —
might be considered a necessary component of spectrum management and policy in order
to compensate organizations that cannot recover costs through pricing. On the
assumption that spectrum reallocation is an integral part of spectrum management, and
recognizing that relocation costs can climb to billions of dollars in some sectors, the need
to create reimbursement programs could be considered part of spectrum policy.
The 109th Congress might decide to examine broader policy changes in spectrum
management, auction policies, the use of trust funds, and the application of revenues
generated by spectrum licensing. For example, Congress might consider the issue of
whether the goal of the federal government to manage spectrum for the benefit of all is
at odds with other federal goals to maximize general funds in the Treasury. Spectrum is
categorized by most as a natural resource.11 Several of the bills introduced during the
108th Congress and mentioned in this report raise the possibility that spectrum should be
managed more closely as a publicly-owned resource, specifically linked to public benefits.
Such an approach would represent a departure from current FCC policy that seems to
prefer spectrum allocation through a combination of market-driven decision-making and
9 H.R. 5419, Title II, ‘Sec. 118, ‘(c).
10 In supporting the creation of the Spectrum Relocation Fund for federal users, Representative
Tauzin, House Energy and Commerce Committee chairman, noted that it “does not reflect normal
Congressional process,” in that it encroaches on the authority of the Appropriations Committees,
as reported by Communications Daily, April 10, 2003.
11 The Code of Federal Regulations defines natural resources as “land, fish, wildlife, biota, air,
water, ground water, drinking water supplies and other such resources belonging to, managed by,
held in trust by, appertaining to, or otherwise controlled by the United States...” (15 CFR990,
Section 990.30.)

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command-and-control regulation. FCC policy-making in the assignment of spectrum is
considered by some to show a trend toward transferring the benefits of spectrum use to
the private sector with a level of control that, under current rules, is similar to ownership.
Bills Creating Special Funds: 108th Congress
Spectrum Commons and Digital Dividends Act of 2003, H.R. 1396, Representative
Markey.
The Public Safety Interoperability Implementation Act, H.R. 3370, Representative Stupak.
The Digital Opportunity Investment Trust Act, S. 1854, Senator Dodd.