Order Code RL31764
Spectrum Management: Auctions
Updated July 19, 2007
Linda K. Moore
Analyst in Telecommunications and Technology Policy
Resources, Science, and Industry Division
Spectrum Management: Auctions
Summary
Radio frequency spectrum policy issues before Congress are characterized by
economic, technological and regulatory complexity. Of particular interest to policy
makers are the allocation of spectrum for specific types of use (such as TV
broadcasting, radio, advanced wireless services, or unlicensed) and the assignment
of licenses for exclusive or shared use of specific frequencies. Today, most
frequencies allocated for commercial uses are assigned through auctions, with
licenses going to the highest bidder. Another important allocation of spectrum is for
unlicensed use. Both commercial and non-commercial entities use unlicensed
spectrum to meet a wide variety of monitoring and communications needs. Suppliers
of wireless devices must meet requirements for certification to operate on frequency
bands designated for unlicensed use. Examples of unlicensed use include garage
door openers and Wi-Fi communications. The Federal Communications
Commission (FCC) regulates spectrum not allocated for federal use, is responsible
for auctioning spectrum licenses, and can also use its authority to redistribute
licenses.
Proceeds from spectrum license sales are presently attributed to general revenue
in the U.S. Budget. In the 108th Congress, however, a precedent was established
with the creation of a Spectrum Relocation Fund to hold proceeds from the auction
of specified radio frequencies currently allocated to federal use; federal agencies
vacating spectrum to be auctioned for commercial use will be compensated from the
fund for costs of relocation. In the 109th Congress, the Deficit Reduction Act (P.L.
109-171) included provisions that will hold certain auction proceeds in a Digital
Television Transition and Public Safety Fund. The fund mainly would assist the
transition from analog televison broadcasting to digital broadcasting, and would
contribute to programs for public safety. Over $7 billion would go toward deficit
reduction. The funds are to come from the auction of spectrum currently used for
analog television broadcasting, to be vacated by February 17, 2009. The auction is
to begin not later than January 28, 2008.
The FCC is considering the rules it will set for the upcoming auction of the old
TV channels. Issues that have been raised in the discussion over how best to allocate
this spectrum include the creation of national licenses with open access for wireless
devices, the treatment of designated entities — with references to NextWave — blind
bidding, how much spectrum is needed for public safety communications, and
proposals to provide spectrum for shared use between public safety and the private
sector. In particular, proposals put forth by Cyren Call, Frontline, and the FCC have
sparked an ongoing public debate about the “highest and best use” for the spectrum
currently designated for auction by the Deficit Reduction Act.
Contents
Key Policy Issues for the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Spectrum Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Spectrum Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Auction Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Service Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Eligibility and Payment Rules: The Impact of NextWave . . . . . . . . . . . . . . . 8
Changes in Auction Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Spectrum Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Unlicensed Spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Recent Congressional Actions Regarding Spectrum Auctions . . . . . . . . . . 10
The Balanced Budget Act of 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Auctions of Spectrum Used for Television Broadcasting . . . . . . . . . . 11
Auction Reform Act of 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Commercial Spectrum Enhancement Act . . . . . . . . . . . . . . . . . . . . . . 11
Deficit Reduction Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Intelligence Reform and Terrorism Prevention Act . . . . . . . . . . . . . . . 13
Auction of Frequencies at 700 MHz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Rebanding and Relocating Spectrum for Public Safety . . . . . . . . . . . . . . . . 14
700 MHz: Public Safety and Commercial Operations . . . . . . . . . . . . . 14
800 MHz: Public Safety and Sprint Nextel . . . . . . . . . . . . . . . . . . . . . 15
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Spectrum Management: Auctions
Radio frequency spectrum is used for all forms of wireless communications,
including cellular telephony, paging, personal communications service, radio and
television broadcast, telephone radio relay, aeronautical and maritime radio
navigation, and satellite command and control. Spectrum policy covers both satellite
and terrestrial transmissions. The issues discussed here refer principally to spectrum
management for terrestrial technologies.
Key Policy Issues for the 110th Congress
Radio frequency spectrum is managed primarily by regulations that set rules, for
example, for permissible uses, certification of devices, requirements for public safety,
and the acquisition of licenses. Spectrum is assigned primarily through licenses
while some spectrum remains unlicensed and accessible to any user who meets
specific requirements. The Federal Communications Commission (FCC) is
responsible for overseeing licensed and unlicensed spectrum used for commercial
purposes and by state and local agencies, including first responders, as well as most
other radio frequencies not assigned for federal use. Although Congress has a
legislative role in spectrum management, the FCC routinely takes on the
responsibility of making decisions about the assignment of spectrum for different
uses and sets the rules for auctions of spectrum licenses. The most recent major
auction of spectrum for Advanced Wireless Services (AWS), designated Auction 66
or AWS-1, was completed on September 18, 2006.1 The AWS-1 auction attracted
nearly $13.9 billion in completed bids. The next major auction, perhaps the last
competitive auction for a substantial amount of spectrum for decades to come, is for
licenses at 700 MHz,2 for channels that are or will be available because of the
planned switch from analog to digital television broadcasting.3 The Deficit
1 “FCC’s Advanced Wireless Services (AWS) Spectrum Auction Concludes,” FCC News,
September 18, 2006.
2 Spectrum allocations are assigned within bands that are divided into bandwidths or
channels based on assigned frequencies. Electromagnetic radio waves are usually identified
by frequency, measured in cycles per second, or hertz. Standard abbreviations for
measuring frequencies include kHz — kilohertz or thousands of hertz; MHz — megahertz,
or millions of hertz; and GHz — gigahertz, or billions of hertz. The 700 MHz band plan
(698 MHz to 806 MHz) refers to those channels that are assigned to technologies that
transmit signals at speeds within or near 700 million cycles per second.
3 For a more detailed discussion of the auction, see CRS Report RL33838, Emergency
Communications: Policy Options at a Crossroads, by Linda K. Moore.
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Reduction Act requires that bidding in this auction commence no later than January
28, 2008.4
As the FCC moves forward with plans for the 700 MHz auction, its actions are
being closely observed by Congress.5 Among the decisions that the FCC must make
that are of interest to Congress are geographical coverage of licenses; auction rules
that assure fair access for small business; rules governing designated entities;
requirements for network build out; support for public safety communications; and
band plans that could favor one technology over another.
Background
Spectrum is considered to be a natural resource6 with a combination of
characteristics that differentiate it from other resources. For example, spectrum is:
! Finite. Today’s technology can only operate on certain frequencies;
commercially viable frequencies are a valuable commodity.
! Renewable. Airwaves used to broadcast any transmission can be
reused after the broadcast is completed.
! Technology dependent. Most natural resources can be harvested
manually, albeit inefficiently. Spectrum is in the atmosphere and is
usable because technology has been developed to exploit the
properties of electromagnetic waves for sound, data and video
transmission.
! A national asset with international rules and regulations. For
example, most domestic uses of spectrum are assigned bands of
operation through the International Telecommunications Union, an
agency of the United Nations; satellites for broadcasting are
governed by international treaty.
! Administered. To avoid interference from competing broadcast
transmissions, frequency assignments are managed by recognized
authorities. Administrative decisions as to how to allocate spectrum
4 P.L. 109-171, Sec. 3003 (a) (2).
5 For example, hearings in both the Senate and House, such as “The Present and Future of
Public Safety Communications,” February 8, 2007, Senate, Committee on Commerce,
Science, and Transportation; “Digital Future of the United States: Part III: Spectrum
Opportunities and the Future of Wireless,” April 19, 2007, and “Wireless Innovation and
Consumer protection,” July 11, 2007, both held by House of Representatives, Committee
on Energy and Commerce, Subcommittee on Telecommunications and the Internet.
6 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 CFR 990, Section 990.30).
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(for example, the number of channels to assign with a license)
influence its commercial potential and the supply of spectrum for
commercial and public use.
The development and implementation of better wireless communications
technologies are critical to maximizing the efficiency of spectrum resources.
Spectrum management policies ideally should take into account the impact of new
technology, or — since it is difficult to predict the development paths of new
technologies — allow for flexibility and accommodation in spectrum allocation.
Although flexibility may be desirable in policy-making, most existing wireless
technologies are inflexibly constructed to work on a limited range of specific
frequencies. Relocation from one part of the spectrum to another can require costly
equipment changes. Therefore, reallocation of spectrum to new uses is often
expensive as well as technically and administratively difficult. Additionally, some
uses of spectrum are governed by international regulations.
Spectrum Administration
The Federal Communications Commission manages all non-federal spectrum,
including that used by state and local governments. Among other responsibilities,
the FCC supervises spectrum auctions. The National Telecommunications and
Information Administration (NTIA) manages all spectrum used by the federal
government, including the Department of Defense (DOD). The NTIA — part of the
Department of Commerce — also serves as the principal adviser to the executive
branch on domestic and international telecommunications issues. The Department
of State represents the United States at international meetings to negotiate treaties for
spectrum use. The NTIA and the FCC work together to coordinate spectrum policy.
Beginning in 2003, President George W. Bush has issued several memoranda
to establish and guide a national Spectrum Policy Initiative, lead by the Secretary of
the Department of Commerce. As required by the President, the Secretary submitted
a plan to implement recommendations previously provided by the Federal
Government Spectrum Task Force. The planning process is being guided by the
NTIA, which has established seven projects dealing with aspects of spectrum policy.7
One of the projects has as its goal to “Improve Long-term Planning and Promote Use
of Market-based Economic Mechanisms in Spectrum;” this group is examining
auctions and other means of deriving revenue from spectrum resources as part of its
broader analysis of effective spectrum management.
Some have suggested that the commercial policies followed by the FCC to
conduct auctions are not compatible with the management of spectrum for non-
commercial use. It has been proposed that the NTIA take over the management of
frequencies used by public safety agencies, critical infrastructure industries, and other
non-federal entities where the use of wireless communications is essential to
7 Spectrum Management for the 21st Century; plan to implement recommendations of the
President’s policy initiative, U.S. Department of Commerce, posted March 14, 2006, at
[http://www.ntia.doc.gov/osmhome/reports/ImplementationPlan2006.pdf]. Viewed April
26, 2007.
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protecting life and property. This action, it is argued, would enable the NTIA to
work more closely with the Department of Defense, federal departments such as
Homeland Security, and local and state agencies to develop band plans for emergency
communications. Although this does not change the role of congressional
jurisdiction, many believe such a move could streamline the coordination of public
policy for interoperable communications and other goals Congress has set for
improving emergency preparedness and response.
Spectrum Auctions
Spectrum policy to manage frequency allocation and license assignments has
evolved over the years in response to changes in technology and market demand,
among other factors. Auctions are a market-driven solution to assigning licenses to
use specific frequencies and are a recent innovation in spectrum management and
policy. The auction process assigns a monetary value to spectrum through
competitive bidding.
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) is judged
by many to be the most commercially desirable and is widely sought after at auction
by competing interests.8 Several lucrative auctions have added billions to the federal
treasury, applied to general revenue.
Because two or more signal transmissions over the same frequency in the same
location at the same time could cause interference (a distortion of the signals), the
FCC, over many years, has developed and refined a system of exclusive licenses for
users of specific frequencies.9 In the recent past, the FCC has granted licenses using
a process known as “comparative hearings”(also known as “beauty contests”), and
has used lotteries to distribute spectrum licenses. After years of debate over the idea
of using competitive bidding (i.e., auctions) to assign spectrum licenses, the Omnibus
Budget Reconciliation Act of 1993 (47 U.S.C. 927) added Section 309(j) to the
Communications Act, authorizing the FCC to organize auctions to award spectrum
licenses for certain wireless communications services. Additional provisions
concerning auctions were included in the Balanced Budget Act of 1997, the Auction
Reform Act of 2002, the Commercial Spectrum Enhancement Act, and the Deficit
Reduction Act of 2005 — all discussed below. The main category of services for
which licenses may be auctioned are called Commercial Mobile Radio Services
(CMRS), which include Advanced Wireless Services (AWS), Personal
Communications Service (PCS), cellular, and most Specialized Mobile Radio (SMR)
and Mobile Satellite Services (MSS). With some exceptions, CMRS providers are
8 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].
Viewed April 26, 2007.
9 Two signals can interfere with each other even if they are not at the same exact frequency,
but are close in frequency. To avoid harmful interference, the frequencies must have
frequencies that are sufficiently different, known as a “minimum separation.”
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regulated as common carriers to ensure regulatory parity among similar services that
will compete against one another for subscribers.
The FCC has the authority to conduct auctions only when applications are
mutually exclusive (i.e., two licensees in the same frequency band would be unable
to operate without causing interference with each other), and when services are
primarily subscription-based. The FCC does not have authority to reclaim licenses
awarded prior to the decision to permit auctions. In accordance with the Budget
Enforcement Act of 1990, and provisions in the Communications Act of 1934, as
amended, auction proceeds cannot be used for funding other programs.10 Creation
of two important trust funds — the Spectrum Relocation Fund and the Digital
Television and Public Safety Fund — required new language and amendments to
existing law to permit auction revenues to be applied directly to specific programs
through trusts.
Auction Rules. The Communications Act of 1934, as amended, directs the
FCC to develop a competitive bidding methodology.11 The FCC initially developed
rules for each auction separately (with some common elements), but after several
years of trial and error it has developed a set of general auction rules and procedures.
While there may be special requirements for specific auctions, the following rules
generally apply. As a screening mechanism, all auctions require bidders to submit
applications and up-front payments prior to the auction. Most auctions are conducted
in simultaneous multiple-round bidding in which the FCC accepts bids on a large set
of related licenses simultaneously, using electronic communications. Bidders can bid
in consecutive rounds until all bidding has stopped on all licenses. The rules the
FCC sets for each auction cover many activities, such as evaluating and qualifying
bidders, the bidding process, and final payment. Recent FCC decisions about auction
rules that are currently controversial include setting new requirements for designated
entities and rejecting blind bidding.
Designated Entities and Entrepreneur Bidders. In some auctions, the
FCC has given concessions to small businesses that include bidding credits and set-
asides of licenses. These small companies are typically classed as entrepreneurs or
small businesses. Entrepreneurs are defined as having annual gross revenues of less
than $125 million and total assets of less than $500 million. Qualification as a small
business includes annual revenues of no more than $40 million, averaged over three
years. The FCC originally also gave special provisions to women-owned, minority-
owned, and rural telephone companies, referred to as designated entities. After a
1995 Supreme Court decision determined that government affirmative action policies
must pass a “strict scrutiny” test to demonstrate past discrimination, the FCC
removed minority-owned and women-owned groups from its list of businesses
qualifying for bidding credits as designated entities.12 Many industry observers have
expressed concern that some of the small businesses participating in auctions actually
10 47 U.S.C. 309 (j) (8).
11 Communications Act of 1934, 47 U.S.C. 309 (j) (3).
12 Adarand Constructors Inc., petitioner v. Federico Pena, Secretary of Transportation, et al.
Docket No. 93-1841, decided June 1995.
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represent larger companies.13 By contracting with a larger company to lease or sell
to it spectrum access successfully acquired through bidding as a designated entity or
entrepreneur, some companies are alleged to have benefitted from bidding credits and
other considerations granted to smaller companies while tapping the financial
resources of a major wireless telecommunications company. Furthermore, a study
by the Congressional Budget Office (CBO) found that a significant number of small
companies that acquired spectrum licenses through preferential programs later
transferred the licenses to larger companies.14
To avoid providing an undue advantage to designated entities, the FCC modified
auction rules for the Advanced Wireless Services auction, held in 2006, that is
funding the Spectrum Relocation Fund.15 Notably, the FCC adopted rules to limit
the transfer of designated entity benefits to any applicant or licensee with an
“impermissible material relationship.” The FCC also sought to curtail “unjust
enrichment payments,” by requiring that designated entities hold spectrum acquired
in the AWS-1 auction for at least ten years; the rule previously set a time period of
five years. The FCC found that rule modifications such as these were “necessary to
ensure that every recipient of the FCC’s designated entity benefits is an entity that
uses its licenses to directly provide facilities-based telecommunications services for
the benefit of the public.”16 Although the FCC s awarded bidding credits to some of
the 128 bidders authorized to participate in the AWS-1 auction, it did not in this
auction set aside a block of licenses exclusively for bids from entrepreneurs or
designated entities. The FCC’s change in the treatment of designated entities is being
challenged in court.17
Blind Bidding. Prospective bidders must meet eligibility requirements that
include identifying the licenses they seek to acquire through the auction. These
bidders are identified by name throughout the bidding process. Some experts in
structuring spectrum auctions have proposed blind bidding so that opponents for
contested licenses will not be able to identify the competitor. They argue that blind
bidding would prevent collusion, for example between incumbents to keep out a new
entrant, retaliatory bidding, and other practices that may skew auction results. Blind
bidding was proposed during the comments period leading up to the AWS-1 auction
13 The issue is summarized in “Appeals Court Cautioned Not to Throw Out Auction 66,” by
Jeffrey Silva, RCR Wireless News, October 23, 2006.
14 Small Businesses in License Auctions for Wireless Personal Communications Services,
A CBO Paper, Congressional Budget Office, October 2005.
15 FCC, Second Report and Order and Second Further Notice of Proposed Rule Making,
April 25, 2006, WT Docket 05-211.
16 “FCC Clarifies Certain Aspects of Its ‘Designated Entity’ Eligibility Rules Adopted in
April 2006,” FCC News, June 2, 2006 at [http://www.fcc.gov].
17 Wireless News, Communications Daily, April 13, 200. Excerpt: “The 3rd U.S. Appeals
Court, Philadelphia, is expected to hold long-delayed oral arguments in late May in a case
filed by Council Tree, Bethel Native Corp. and the Minority Media & Telecom Council
against the FCC, seeking to overturn the 2006 advanced wireless services auction.”
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but met resistance from the wireless industry, on the grounds that there were
sufficient prospective bidders to assure competition.18
Media Access Project has published two studies on the AWS-1 auction alleging
evidence of collusive bidding and other practices that enabled incumbent wireless
companies to exclude new entrants and possibly manipulate the process so that final
bids were lower than might have been the case if the auction had been truly
competitive.19 In a news report, the author of the Media Access Project papers, Dr.
Gregory Rose, was quoted as saying that, under current auction rules, “I do not think
it is illegal for bidders to discuss who they may want to keep out of an auction and
to make arrangements to intervene . . . . If they did it while an auction was going on,
that would be an explicit violation of the rules.” The same news article includes a
strong denial from one of the successful auction bidders cited in the report, T-Mobile,
which was widely reported in the industry press as anxious to acquire the spectrum
as part of its international strategy for 3G.20
From a policy perspective, the allegations, whether or not they are supported by
documentation, raise some new questions about the role of auction rules in shaping
the final outcome of an auction, and whether the FCC has a tendency to give more
weight to the comments of the incumbents it regulates than to potential new entrants.
Service Rules. The FCC also develops service rules for each new service for
which a license will be used. Licenses are granted according to the amount of
spectrum and the geographic area of coverage, known as the “band plan.” The
FCC’s plan for the amount of spectrum per license, the number of licenses, and the
conditions for use of the designated spectrum is developed for each new wireless
service. Licenses can cover small areas, large regions, or the entire nation. Terms
used for coverage areas include basic trading areas (BTAs) which correspond roughly
to metropolitan areas; major trading areas (MTAs), which are combinations of BTAs
dividing the United States into 51 geographic regions of similar levels of commercial
activity; and regions, which are combinations of MTAs. Metropolitan statistical
areas (MSAs), rural service areas (RSAs), economic areas (EAs), and major
economic areas (MEAs) — defined by the Department of Commerce for economic
forecasts — are also used by the FCC to describe areas of coverage for some
spectrum auctions. Even though licenses must be renewed periodically, it is
18 Public Notice, DA-06-238, January 31, 2006; comments under FCC Docket No. 6-30.
19 “Tacit Collusion in the AWS-1 Auction: The Signaling Problem” and “How Incumbents
Blocked New Entrants in the AWS-1 Auction: Lessons for the Future,” by Gregory Rose,
Economic Research Services, for Media Access Project, April 20, 2007. Press release at
[http://www.mediaaccess.org/press/MAP%20Press%20Release%204-23-07.pdf]; reports
at [http://www.mediaaccess.org/filings/Rose_How_Incumbents_Blocked.pdf] and at
[http://www.mediaaccess.org/filings/Rose_Tacit_Collusion.pdf]. Viewed April 26, 2007.
20 MAP Study Claims to See Collusion by AWS Auction Bidders,” Communications Daily,
April 26, 2007.
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generally understood that license winners will be able to keep the license perpetually,
as long as they comply with FCC service rules.21
Eligibility and Payment Rules: The Impact of NextWave
In 1995, rules intended to favor entrepreneurs were set for Auction 5, called the
PCS C-block auction, for one of the blocks of spectrum allocated for Personal
Communications Service (PCS). The FCC gave bidding credits to small businesses
to help them compete. Winning bidders only had to pay 10% down and the
remainder could be paid over ten years at below-market interest rates. At auction in
1996, broadband C block licenses were sold for bids totaling $13 billion. By mid-
1997, however, many of the license winners (most notably NextWave Telecom Inc.)
had defaulted and declared bankruptcy. The licenses were then seized by a court in
bankruptcy litigation. In September 1997, the FCC offered a set of options for C-
block licensees to restructure their debt (that offer was modified in March 1998).
The licensees opted to maintain their bankrupt status, however, preventing the C-
block spectrum from being re-auctioned. Based on its interpretation of a series of
decisions in 1999 and 2000 by a U.S. Court of Appeals, the FCC cancelled the
licenses that had not been paid for and re-auctioned that spectrum. The auction
(Auction 35) for the defaulted licenses was completed January 26, 2001, and booked
$16.86 billion in projected revenue for the general treasury.22
On June 22, 2001, the United States Court of Appeals for the District of
Columbia found that the FCC did not have the legal right to take back NextWave’s
licenses for re-auction, and that 216 of the licenses (worth $15.85 billion) still
belonged to NextWave rather than re-auction winners such as Verizon Wireless.23
The U.S. Supreme Court agreed to hear the case, essentially weighing NextWave’s
right to protection under bankruptcy laws against the FCC’s right to allocate
spectrum. On January 27, 2003 the Supreme Court ruled in favor of NextWave,
agreeing with the earlier Court of Appeals decision that the FCC did not have the
authority to recover the licenses. 24 Subsequently, NextWave agreed to return some
of the disputed spectrum to the FCC for re-auction in January 2005.25
Changes in Auction Rules. To avoid future problems similar to those
experienced in the auction where NextWave successfully bid on large amounts of
spectrum and then defaulted, the FCC adopted streamlined auction rules for all
services to be auctioned in the future.26 The rule changes were intended to ensure
21 The FCC provides information on auctions at [http://wireless.fcc.gov/auctions/].
22 Summarized in Associated Press Online, “Feds Ordered to Return Wireless Licenses,”
January 28, 2003.
23 254 Federal Report, 3d Series, p 130.
24 U.S. Supreme Court, Docket No. 01-653 at [http:www.supremecourtus.gov/docket/01-
653.htm]. Viewed April 26, 2007.
25 See FCC Report No. AUC-03-58 (Auction No. 58) at [http:wireless.fcc.gov/auctions/].
26 FCC 97-413, WT Docket 97-82, ET Docket 94-32, Third Report and Order and Second
(continued...)
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uniform procedures involving the application, payment, and certain concerns
regarding designated entities (i.e., small businesses and rural telephone companies).
For example, in many cases the FCC specifies a minimum opening bid prior to an
auction, and provides more time prior to the auction for potential bidders to develop
business plans, assess market conditions, and evaluate the availability of equipment.
The FCC has also modified some wireless service rules to help new spectrum
licensees maximize the value from their licenses. Changes include allowing
licensees to partition licenses for greater efficiency, sharing regions among licensees,
and expediting the relocation of incumbent microwave licensees from the spectrum
purchased in the PCS auctions.
Spectrum Value
Spectrum value depends on many factors, such as the amount of spectrum, its
frequencies (since signal transmission characteristics vary along different parts of the
spectrum), the geographic area covered, the services permitted by FCC rules, the
availability of equipment that can operate at those frequencies, the demand for
services that do not interfere with other bands, the amount of alternative spectrum
already available for similar services, the number of incumbents presently occupying
the spectrum, and whether incumbents will remain in that spectrum or be relocated
to other spectrum. Spectrum value may be greater if adjacent bands can be
aggregated to form larger blocks and if the given spectrum is not encumbered by
other licensees using the same frequencies.
CBO annually scores the anticipated receipts from planned spectrum auctions,
and includes the revenue estimate in its annual report, The Budget and Economic
Outlook. CBO projects auction receipts of $28 billion in the period 2007-2011.27
Unlicensed Spectrum
Unlicensed spectrum is not sold to the highest bidder and used for the services
chosen by the license-holder but is instead accessible to anyone using wireless
equipment certified by the FCC for those frequencies. Among the advantages of
unlicensed spectrum is the opportunity to test new technology directly with
consumers instead of going through spectrum license-holders. One of the
disadvantages of unlicensed spectrum is the possibility of interference among the
transmissions of the various users, both within the assigned bandwidth and with other
bandwidths.
Some advocates for unlicensed spectrum would like to see spectrum set aside
in the 700 MHz band, where channels will be released by television broadcasters as
they move from analog to digital transmission. An alternative proposal for providing
26 (...continued)
Further NPRM on Streamlining Auction Rules, released December 31, 1997.
27 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008-
2017, p. 82, January 2007.
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unlicensed spectrum as part of the DTV transition is to designate so-called “white
spaces” among the new digital TV channels. Beginning in May 2004, the FCC
requested comment on proposals for considering the use of spectrum in television
broadcast bands (Docket No. 04-186). On September 11, 2006 the FCC announced
that it would move forward with the docket and laid out a timetable for completing
the process so that devices could be developed and ready for retail sales by February
2009.28 As part of its review for further rule making, the FCC is seeking comment
on the possibility of designating all or some of the spectrum in the white spaces for
licensed use,29 which would be auctioned. Rules regarding interference differ
between licensed and unlicensed spectrum.
Recent Congressional Actions Regarding Spectrum Auctions
Congress uses its oversight authority of the FCC to correct the agency’s course
or to steer it in new directions. Notable laws that deal with spectrum policy and
auctions are the Balanced Budget Act of 1997, the Auction Reform Act of 2002, the
Commercial Spectrum Enhancement Act of 2004, and the Deficit Reduction Act of
2005. The Balanced Budget Act also directs FCC actions concerning the transition
to digital televison, an event with significant impact on spectrum management.
The Balanced Budget Act of 1997. The Balanced Budget Act of 1997 (47
U.S.C. 153) contained several spectrum management provisions. It amended Section
309(j) of the Communications Act to expand and broaden the FCC’s auction
authority and to modify other aspects of spectrum management. Whereas previous
statutes gave the FCC the authority to conduct auctions, the Balanced Budget Act
required the FCC to use auctions to award ownership in mutually exclusive
applications for most types of spectrum licenses. It directed the FCC to experiment
with combinatorial bidding (i.e., allowing bidders to place single bids on groups of
licenses simultaneously), and to establish minimum opening bids and reasonable
reserve prices in future auctions unless the FCC determined that it was not in the
public interest. This amendment also gave the FCC auction authority until
September 30, 2007. (Extended to September 30, 2011 by Deficit Reduction Act.30)
Furthermore, the act directed the FCC to allocate spectrum for “flexible use,” which
means defining new services broadly so that services can change as
telecommunications technology evolves.
Exempted from auctions are licenses or construction permits for
(A) public safety radio services, including private internal radio services used by
state and local governments and non-government entities and including
emergency road services provided by not-for-profit organizations, that —
(i) are used to protect the safety of life, health , or property; and
(ii) are not made commercially available to the public;
28 FCC, First Report and Order and Further Notice of Proposed Rule Making, ET Docket
No. 04-186, released October 18, 2006.
29 Ibid., paragraphs 3, 24, 26 and others.
30 P.L. 109-171, Title III, Section 3003 (b).
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(B) digital television service given to existing terrestrial broadcast licensees to
replace their analog television service licenses; or
(C) noncommercial educational broadcast stations and public broadcast stations.
Examples of services exempted from auctions include utilities, railroads,
metropolitan transit systems, pipelines, private ambulances, volunteer fire
departments, and not-for-profit emergency road services.
The act directed the FCC to auction 120 MHz of spectrum, most of which had
already been transferred by NTIA from federal to non-federal assignment and to
allocate another 55 MHz located below 3 GHz for auction not later than September
2002. These deadlines were subsequently eliminated by the Auction Reform Act.
Auctions of Spectrum Used for Television Broadcasting. The
Balanced Budget Act of 1997 required the FCC to conduct auctions for 78 MHz of
the analog television spectrum planned to be reclaimed from television broadcasters
at the completion of the transition to digital television and to allocate 24 MHz for
public safety services. For administrative purpose, the FCC divided the spectrum
into “Upper 700 MHz” and “Lower 700 MHz”bands. Congress instructed the FCC
to hold auctions for the 700 MHz frequencies not later than 2002. The spectrum was
to have been auctioned in 2002 but not reclaimed from broadcasters until 2006 or
later. The act directed the FCC to grant extensions to stations with broad conditions
that effectively nullified the 2006 deadline.31
Auction Reform Act of 2002. Concerns about spectrum management,
including spectrum used for public safety, prompted the introduction of the Auction
Reform Act of 2002 (P.L. 107-195). Among the purposes of the act is the
elimination of deadlines for auctions of Upper and Lower 700 MHz frequencies
originally scheduled by the FCC for 2002. Specifically, the law stopped auctions in
the Upper 700 MHz band that might have impacted efforts to increase the amount of
spectrum available for public safety use, while requiring that some auctions in the
Lower 700 MHz band take place. The law gives the FCC discretion in setting
auction dates for all auctionable spectrum by eliminating deadlines established by the
Balanced Budget Act of 1997.
Commercial Spectrum Enhancement Act. This act created the Spectrum
Relocation Fund to provide a mechanism whereby federal agencies can 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
31 For details, see CRS Report RL31260, Digital Television: An Overview, by Lennard G.
Kruger.
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high-speed mobile services (3G).32 After much study, the NTIA and the FCC, aided
by an Intra-Government 3G Planning Group, announced plans to provide for the
transfer of 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. In mid-2002, the Department of
Commerce proposed the creation of a Spectrum Relocation Fund. This fund could
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 goals, the Communications
Act of 1934 would need to be modified to permit the agencies direct access to
auction funds. This was accomplished with the passage of the Commercial Spectrum
Enhancement Act, Title II of P.L. 108-494. Following the requirements of the act,
the FCC scheduled auctions for 1122 licenses at 1710 - 1755 MHz and 2110 - 2155
MHz. The auction (Auction 66) was concluded on September 18, 2006, with a gross
total value of winning bids of nearly $13.9 billion.33
Congress also required the Comptroller General of the Government
Accountability Office (GAO) to examine “national commercial spectrum policy as
implemented by the Federal Communications Commission” and to report to
Congress on its finding.34 The study35 concluded that auctions were generally
perceived as a desirable way to allocate spectrum and recommended the extension
of the FCC’s auction authority past the current expiration date of September 30,
2007. The GAO could not find evidence that market participants that had bought
spectrum were at a disadvantage in competing with service providers who had been
assigned spectrum. It found that the high cost of developing infrastructure was a
barrier to market entry and that this cost was more significant in shaping competition
and pricing decisions than the cost of spectrum. Many findings were inconclusive
and the GAO recalled that in an earlier study it had recommended the creation of an
independent commission to examine spectrum management.36
Deficit Reduction Act. The Deficit Reduction Act of 2005 (P.L. 109-171)
covers aspects of spectrum auctions for 700 MHz. The act set a definite date of
February 17, 2009 for the release of spectrum at 700 MHz currently held by
broadcasters. Auctions by the FCC of the freed spectrum are required to begin not
later than January 28, 2008 with funds deposited not later than June 30, 2008. The
32 Discussed in CRS Report RS20993, Wireless Technology and Spectrum Demand:
Advanced Wireless Services, by Linda K. Moore.
33 “FCC’s Advanced Wireless Services (AWS) Spectrum Auction Concludes,” FCC News,
September 18, 2006.
34 P.L. 108-494, Title II, Sec. 209 (a).
35 Strong Support for Extending FCC’s Auction Authority Exists, but Little Agreement on
Other Options to Improve Efficient Use of Spectrum, December 2005, GAO-06-236.
36 Comprehensive Review of U.S. Spectrum Management with Broad Stakeholder
Involvement is Needed, January 2003, GAO-03-277.
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FCC’s authority to hold auctions, which would have expired in 2007, was extended
until September 30, 2011. A fund, the Digital Television Transition and Public
Safety Fund, was created to receive spectrum auction proceeds and disburse
designated sums to the Treasury and for other purposes. The fund and disbursements
are to be administered by the National Telecommunications and Information
Administration (NTIA). The NTIA has selectively been given the power to borrow
some of the authorized funds from the Treasury, secured by the expected proceeds
of the auction required by the bill. These funds can be used to implement transition
programs for digital television and for some public safety projects.37
Intelligence Reform and Terrorism Prevention Act. Several passages
of the act (P.L. 108-458) deal with spectrum policy. For example, Title VII, Subtitle
E — Public Safety Spectrum recognized the merits of arguments for increasing the
amount of spectrum at 700 MHz available for public safety and homeland security.
It required the FCC, in consultation with the Secretary of Homeland Security and the
NTIA, to conduct a study on the spectrum needs for public safety, including the
possibility of increasing the amount of spectrum at 700 MHz.38 The study was
submitted to Congress in late 2005.39 In it, the FCC did not make a specific
recommendation for additional spectrum allocations in the short-term although it
stated that it agreed that public safety “could make use of such an allocation in the
long-term to provide broadband services.”40 The FCC then initiated a rule making
soliciting comments on how to take best advantage of the 24 MHz of spectrum
already designated for public safety.41
Broadband Trust Proposal by Cyren Call.
With over 1000 responses by
December 2006, the FCC request drew many comments from the public safety
community and commercial wireless interests. One petition that attracted attention
was from a company called Cyren Call Communications Corporation requesting the
reallocation of 30 MHz (half of the 60MHz currently designated for auction for
commercial use by the Deficit Reduction Act)42 to a “Public Safety Broadband
37 Availability of funds for digital transition, P.L. 109-171, Sec. 3005 (b); availability of
funds for public safety communications, P.L. 109-459, Sec. 4; availability of funds for
emergency alerts, P.L. 109-347, Sec. 606 (c); bill to make funds available for 911, S. 93
(Sen. Stevens).
38 P.L. 108-458, Title VII, Subtitle E, Sec. 7502 (a).
39 Report to Congress on the Study to Assess Short-term and Long-term Needs for
Allocations of Additional Portions of the Electromagnetic Spectrum for Federal, State and
Local Emergency Response Providers, Federal Communications Commission, December
19, 2005, at [http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-262865A1.pdf].
Viewed April 26, 2007.
40 op. cit. FCC, Report to Congress paragraph 99.
41 FCC, Eighth Notice of Proposed Rule Making, WT Docket No. 96-86, released March 17,
2006.
42 P.L. 109-171, Sec. 3003.
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Trust.”43 According to the proposal, the trust would lease capacity not used by public
safety to commercial operators that would provide the network infrastructure. The
FCC denied Cyren Call’s petition, citing, among other reasons, the Congressional
mandate to auction the spectrum Cyren Call proposed to use.44 There continues to be
pressure from the public safety community and others for the assignment of
additional spectrum at 700 MHz for public safety use.45
Auction of Frequencies at 700 MHz
Rules for the 700 MHz auction that will decide the coverage of the licenses are
being actively debated. Among rules under consideration are: rebanding the 700 MHz
licenses held by public safety to increase capacity for broadband; the geographic
areas covered by licenses; creating licenses for rural areas; requirements for building
out networks; the number of years a license must be held by its winning bidder before
it can be leased or sold to another party; the role of designated entities and other
preferential bidding categories; the possibility of sharing some spectrum at 700 MHz
between public safety and commercial users; and the creation of an open access
license. The debate about open access is many-faceted. Advocates of open access
insist that this means “open devices, open applications, open services, and open
networks.”46 An open network would allow customers to choose their own wireless
devices without committing to a service plan from a single provider.
Rebanding and Relocating Spectrum for Public Safety
In considering a rebanding of the 24MHz at 700 MHz for public safety, the FCC
is recognizing the shift in wireless technology that has occurred since the band plan
was first studied a decade ago. Advances in technology have made it possible to
transmit data-rich communications to radios and cell phones with applications that
were not imagined when the 700 MHz band plan was originally developed. The FCC
also recently initiated a program to protect public safety users from interference that
required a rebanding of their channels at 800 MHz. Public safety and commercial
users are in the process of relocating under this plan. In both cases, the FCC made
or proposes to make spectrum available to commercial users without going through
the auction process.
700 MHz: Public Safety and Commercial Operations. In December
2006, the FCC issued a new Notice of Proposed Rulemaking (NPRM) that proposed
to turn over management of the 24MHz of spectrum designated for public safety to
a not-for-profit group that would, among other responsibilities, hold a national
43 For links to a summary of the proposal, filings with the FCC, and other information, see
[http://www.cyrencall.com]. Viewed April 26, 2007.
44 FCC, Order, RM No. 11348 released November 3, 2006.
45 For example, statement of Association for Public-Safety Communications Officials, at
[http://www.apcointl.com/government/positions/APCO_position_statements.htm#Additi
onal700]. Viewed April 26, 2007.
46 Ex Parte, Joint Filing of Technology Sector Organizations and Public Interest
Organizations Concerning Open Access, July 18, 2007.WT Docket # 96-86 et al.
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license that would support public safety with a broadband wireless backbone.47 In
the NPRM, the FCC states that it is responding to “an opportunity to put in place a
regulatory framework that would ensure the availability of effective spectrum in the
700 MHz band for interoperable, public safety use.”48 To achieve this, the FCC is
presenting a “plan that we believe may best promote the rapid deployment of a
nationwide, interoperable broadband public safety network . . .[with] a centralized
and national approach to maximize public safety access. . . .”49
In the NPRM, the FCC states its case for how the proposal meets objectives for
“public safety communications in the twenty-first century”50 and provides some
information about the selection of a national licensee and the license-holder’s
obligations. The FCC proposes that the licensee should meet criteria such as not-for-
profit status, experience with public safety frequency coordination, and the ability to
directly represent all public safety interests. Responsibilities would include the
design and implementation, build-out, and maintenance of a national network, the
coordination of eligibility for access for public safety, and the leasing of capacity to
commercial users.51 The licensee would be able to charge fees for the use of its
services, such as access to the network, to both public safety and commercial users.52
The NPRM also seeks comments on secondary operations by commercial users
on the remaining 12 MHz of spectrum assigned by Congress for public safety use.
Currently the FCC permits public safety licensees to lease spectrum assigned to them
only for use by other public safety entities. The FCC uses the NPRM to propose
exempting the new, national public safety licensee from limitations it imposes on
existing public safety entities.53
Public safety’s demand for spectrum fluctuates from modest during routine
operations to high during times of crisis. Many would agree that sharing frequencies
and access to networks with commercial operations makes sense. The FCC is
proposing to share spectrum by halving public safety’s allotment of exclusive
spectrum from 24MHz to 12MHz in the 700 MHz band. Alternative solutions for
spectrum sharing could be achieved through relocation in other bands or by
designating other 700 MHz frequencies for shared use.
800 MHz: Public Safety and Sprint Nextel. In mid-2005, wireless
communications managers commenced the process of moving selected public safety
radio channels to new frequencies, part of a three-year plan to mitigate persistent
problems with interference to their radio communications. The interference usually
47 FCC, Ninth Notice of Proposed Rulemaking, Docket No. WT 96-86, released December
20, 2006.
48 Ibid., paragraph 2.
49 Ibid., paragraph 3.
50 Ibid., paragraph 11.
51 Ibid., paragraph 27.
52 Ibid., paragraphs 28 - 30.
53 Ibid., paragraph 45.
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takes the form of dropped calls or dead spaces with radio transmissions — primarily
to or from first responders — in some frequencies in the 800 MHz band. The
majority of documented incidents of interference were attributed to the network
operated by Nextel Communications, Inc. (now Sprint Nextel). As part of an
agreement originally made between Nextel and the Federal Communications
Commission, some public safety wireless users will be moved to new frequencies,
with the wireless company paying all or part of the cost. In return for these
expenditures, and reflecting the value of spectrum that Sprint Nextel will be
relinquishing, the FCC assigned 10 MHz of new spectrum to the wireless company.
The FCC announced on July 8, 2004 that it had agreed upon a rebanding plan
to consolidate public safety frequencies and those used by some other operators, such
as utilities, in the lower part of the 800 MHz band, while moving some of the 800
MHz channels acquired by Nextel, and some other commercial users, to the higher
end of the band. This rebanding is expected to eliminate interference caused by the
close proximity and interleaving of commercial and public safety channels. The
decision reached by the FCC in general supports a rebanding plan first proposed by
Nextel in 2001. After months of negotiations, clarifications and technical corrections,
a modified plan was accepted on February 7, 2005.54 The conversion process is
scheduled to be completed by June 26, 2008, within three years of the official start
date set by the FCC.
Key points of the plan are
! Move channels designated for interoperability to the lower end of
the band, close to the planned public safety band at 700 MHz.
! Require public safety systems to relocate to channels at 809-815
MHz and 854-860 MHz.
! Require certain business and industrial users to relocate to channels
at 809-815 MHz and 854-860 MHz.
! Require Enhanced Specialized Mobile Radio users, “ESMR,” to
relocate to 817-824 MHz and 862-869 MHz.
! Require Nextel to give up some of its licenses at 800 MHz and all of
its licenses at 700 MHz.
! Modify Nextel’s licenses to provide the right to operate at 1910-
1915 MHz and 1990-1995 MHz, “conditioned on Nextel fulfilling
certain obligations specified in the Commission’s decision.”
! Value the 1.9 GHz spectrum rights to be assigned to Nextel at
almost $4.9 billion, less the cost of relocating incumbent users in
those channels.
! Credit Nextel the value of the spectrum rights it is relinquishing at
700 MHz and 800 MHz plus the “actual costs” to Nextel in
relocating “all incumbents in the 800 MHz band.”
! Require Nextel to make an “anti-windfall payment” to the Treasury
at the conclusion of the relocation process that will equal the
54 “Nextel Accepts FCC 800 MHz Interference Solution,” FCC News, February 7, 2005 at
[http://www.fcc.com].
CRS-17
difference between the $4.9 billion valuation and the cumulative
credits.
! Require Nextel to provide public safety users at 800 MHz and
incumbent users at 1.9 GHz with “comparable facilities.”
! Require Nextel to establish escrow accounts and a letter of credit in
the amount of $2.5 billion, to “ensure that the band reconfiguration
process will be completed.”
! Provide an independent “Transition Administrator” to authorize
disbursements, “subject to de novo Commission review.”55
As delays mount for the three-year program, there are many critics of the
rebanding effort, especially as regards progress in working with public safety users
and the reimbursement of costs.56
Conclusion
Spectrum, a valuable resource governed by available technology, is regulated
by the federal government with the primary objectives of maximizing its usefulness
and efficiency, and to prevent interference among spectrum users. A key component
of spectrum policy is the allocation of bands for specific uses and the assignment of
frequencies within those bands. Auctions, a fairly recent innovation in frequency
assignment, are regarded as a market-based mechanism for allocating spectrum.
Other market-driven policies include licensing fees based on fair-market valuations
of spectrum and flexibility in spectrum usage within assigned bandwidths. Today,
spectrum for commercial applications is typically auctioned to the highest bidder, but
many commercial users have spectrum acquired before the present-day auction
process was implemented.
Auctions as a means of allocating spectrum are considered a success by many
observers because of the federal revenue generated, as well as for the speed with
which licenses auctioned have gone to the companies that value them the most and
are most likely to put them to use. Moreover, many prefer letting businesses
determine whether to invest in a new service rather than relying on the government
to decide who receives a spectrum license. The FCC has concluded that auctioning
of spectrum licenses has contributed to the rapid deployment of new wireless
technologies, increased competition in the marketplace, and encouraged participation
by small businesses.57 However, many have questioned whether auction policy
should be supplemented more aggressively with other market-driven solutions, and
whether the existing auction process and administration can be improved.
55 FCC order at [http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-04-168A1.pdf].
Viewed April 26, 2007.
56 See CRS Report RL32408, Spectrum Policy: Public Safety and Wireless Communications,
by Linda K. Moore.
57 FCC 97-353, FCC Report to Congress on Spectrum Auctions, WT Docket No. 97-150,
released October 9, 1997.
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Spectrum management is an exercise in reconciling divergent interests. Over
time, developments in technology may significantly increase the amount of useable
spectrum and consequently the ease with which a policy of equitable allocation and
use can be crafted. For the immediate future, Congress may choose to debate and act
on questions such as reforming spectrum management and allocation mechanisms.
Some observers argue that a fully-developed policy should take into account issues
such as international competitiveness, the communications needs of public safety
agencies and the military, the role of wireless technology in economic growth, and
the encouragement of new technologies that make spectrum use more efficient and
more beneficial to society as a whole. The stated objective of many policy reformers
is a coherent national policy that provides the proper balance for existing applications
while at the same time providing opportunities for future growth and development.
Given the number of objectives in the allocation and use of spectrum, and the
differing solutions for achieving them, choices made for 700 MHz could be far-
reaching in setting the direction for future policy decisions.