Spectrum Management: Auctions
Spectrum Management: Auctions
Updated November 18, 2008
Linda K. Moore
Analyst in Telecommunications and Technology Policy
Resources, Science, and Industry Division
Spectrum Management: Auctions
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 licensed and unlicensed 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 revenueth
in the U.S. Budget. In the 108 Congress, however, a precedent was established
with the creation of a Spectrum Relocation Fund to hold proceeds from the auction
of specified radio frequencies allocated to federal use; federal agencies vacating
spectrum to be auctioned for commercial use are being compensated from the fundth
for costs of relocation. In the 109 Congress, the Deficit Reduction Act (P.L. 109-
171) included provisions that placed certain auction proceeds in a Digital Television
Transition and Public Safety Fund. The fund is being mainly used to assist the
transition from analog televison broadcasting to digital broadcasting, and for
contributions to programs for public safety. Over $7 billion of the auction proceeds
were applied to deficit reduction. The funding came from the auction of spectrum
(at 700 MHz) currently used for analog television broadcasting, to be vacated by
February 17, 2009. The auction, Auction 73, concluded on March 18,2008; it
The rules for Auction 73 introduced two new business models for spectrum
management and assignment that represented departures from past policy. One
model designated a block of spectrum licenses for a network that could be managed
to accept any suitable wireless device or software application, referred to as open
access. The other model would require a shared network to accommodate both
public safety and commercial users in a partnership. A national license, referred to
as the D Block, was put up for auction, as part of Auction 73, with a reserve price of
$1.3 billion. The winning bidder would have been required to assume the cost and
responsibility of building the network using D Block spectrum and adjacent spectrum
assigned to public safety. The sole bid for the D Block was below the reserve price
and consequently the D Block will be re-auctioned. The prospects for this new
auction have triggered a debate about the nature of competition in the wireless
industry and the need for a nationwide public safety network that may be resolved by
Congress through legislation.
Eligibility and Payment Rules: The Impact of NextWave...............6
Changes in Auction Rules...................................7
Spectrum License Value........................................7
Recent Congressional Actions Regarding Spectrum Auctions...........8
The Balanced Budget Act of 1997.............................8
Auctions of Spectrum Used for Television Broadcasting...........9
Auction Reform Act of 2002.................................9
Commercial Spectrum Enhancement Act.......................9
Deficit Reduction Act.....................................10
Intelligence Reform and Terrorism Prevention Act...............11
Auction of Frequencies at 700 MHz .............................11
Service Rules: Public Safety................................12
Service Rules: Open Access................................12
Band Plan, Licenses and Build-Out Requirements...............12
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.
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.
Two recent important auctions of spectrum licenses were for the 700 MHz
band,1 Auction 73, and the Advanced Wireless Services (AWS), designated Auction
66 or AWS-1. The auction for licenses at 700 MHz — airwaves that are or will be
available because of the planned switch from analog to digital television broadcasting
— ended March 18, 2008. The bids in this auction totaled over $19.5 billion.
AWS-1 was completed on September 18, 2006, with nearly $13.9 billion in
1 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.
Spectrum is considered to be a natural resource2 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
!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
(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.
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
2 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).
FCC, over many years, has developed and refined a system of exclusive licenses for
users of specific frequencies.3 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 (P.L. 103-66) 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
Services (SMR) With some exceptions, CMRS providers are regulated as common
carriers to ensure regulatory parity among similar services that will compete against
one another for subscribers.
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. 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.4 Several lucrative auctions have added
billions to the federal treasury, applied to general revenue.
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.5 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 some auction revenues to be applied directly to specific
programs through trusts.
3 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.”
4 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,” by
Evan Kwerel and John Williams, November 2002, at [http://hraunfoss.fcc.gov/
edocs_public/attachmatch/DOC-228552A1.pdf]. Viewed January 3, 2008.
5 47 U.S.C. 309 (j) (8).
Auction Rules. The Communications Act of 1934, as amended, directs the
FCC to develop a competitive bidding methodology.6 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 using 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.7 Many industry observers have
expressed concern that some of the small businesses participating in auctions actually
represent larger companies.8 By contracting with a larger company, some companies
that bid as a designated entity or entrepreneur 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.9
To avoid providing an undue advantage to designated entities, the FCC modified
auction rules for the first Advanced Wireless Services auction, held in 2006.10
6 Communications Act of 1934, 47 U.S.C. 309 (j) (3).
7 Adarand Constructors Inc., petitioner v. Federico Pena, Secretary of Transportation, et al.
Docket No. 93-1841, decided June 1995.
8 The issue is summarized in “Appeals Court Cautioned Not to Throw Out Auction 66,” by
Jeffrey Silva, RCR Wireless News, October 23, 2006.
9 Small Businesses in License Auctions for Wireless Personal Communications Services, A
CBO Paper, Congressional Budget Office, October 2005.
10 FCC, Second Report and Order and Second Further Notice of Proposed Rule Making,
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.”11
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
but met resistance from the wireless industry, on the grounds that there were12
sufficient prospective bidders to assure competition.
Media Access Project 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 truly13
competitive. 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 included 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.14
April 25, 2006, WT Docket 05-211.
11 “FCC Clarifies Certain Aspects of Its ‘Designated Entity’ Eligibility Rules Adopted in
April 2006,” FCC News, June 2, 2006 at [http://www.fcc.gov].
12 Public Notice, DA-06-238, January 31, 2006; comments under FCC Docket No. 6-30.
13 “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
at [http://www.mediaaccess.org/filings/Rose_How_Incumbents_Blocked.pdf] and at
[http://www.mediaaccess.org/filings/Rose_Tacit_Collusion.pdf]. Viewed January 3, 2008.
14 MAP Study Claims to See Collusion by AWS Auction Bidders,” Communications Daily,
April 26, 2007.
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.
For the auction of spectrum licenses in the 700 MHz band, the FCC established rules
for blind bidding.15
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), Cellular Market Areas (CMAs), 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 generally understood that license winners will be able to keep the16
license perpetually, as long as they comply with FCC service rules.
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
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 booked17
$16.86 billion in projected revenue for the general treasury.
15 FCC News, “FCC Revises 700 MHz Rules to Advance Interoperable Public Safety
Communications and Promote Wireless Broadband Deployment,” July 31, 2007.
16 The FCC provides information on auctions at [http://wireless.fcc.gov/auctions/].
17 Summarized in Associated Press Online, “Feds Ordered to Return Wireless Licenses,”
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.18
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. 19 Subsequently, NextWave agreed to return some
of the disputed spectrum to the FCC for re-auction.20
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.21 The rule changes were intended to ensure
uniform procedures involving the application, payment, and certain concerns
regarding designated entities (i.e., small businesses and rural telephone companies).
Spectrum License Value
Spectrum value depends on many factors, such as bandwidth, 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 license 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 auctions of spectrum
licenses and includes the revenue estimate in its annual report, The Budget and
Economic Outlook. For fiscal years 2008-2018, CBO projected auction receipts of
January 28, 2003.
18 254 Federal Report, 3d Series, p 130.
19 U.S. Supreme Court, Docket No. 01-653 at [http://www.fcc.gov/ogc/documents/opinions/
20 See FCC Report No. AUC-03-58 (Auction No. 58) at [http://wireless.fcc.gov/auctions/].
21 FCC 97-413, WT Docket 97-82, ET Docket 94-32, Third Report and Order and Second
Further NPRM on Streamlining Auction Rules, released December 31, 1997.
$11 billion in 2008 from the sale of TV airwaves and an additional $2.9 billion in the
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. Rules regarding interference differ between licensed and unlicensed
Recent Congressional Actions Regarding Spectrum Auctions
The Omnibus Budget Reconciliation Act amended the Communications Act
of 1934 with a number of important provisions affecting the availability of spectrum
licenses and authorized the FCC to organize auctions to award spectrum licenses for
certain wireless communications services. Among the subsequent 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 directed FCC actions
concerning the transition to digital televison, an event with significant impact on
The Balanced Budget Act of 1997. The Balanced Budget Act of 1997
(P.L. 105-33) 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.23)
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
22 Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2008-
23 P.L. 109-171, Title III, Section 3003 (b).
(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;
(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
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 conditions24
that effectively nullified the 2006 deadline.
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 gave 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
24 For details, see CRS Report RL34165, The Transition to Digital Television: Is America
Ready?, by Lennard G. Kruger.
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).25 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.26
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.27 The study28 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.29
Deficit Reduction Act. The Deficit Reduction Act of 2005 (P.L. 109-171)
covered 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
25 Discussed in CRS Report RS20993, Wireless Technology and Spectrum Demand:
Advanced Wireless Services, by Linda K. Moore.
26 “FCC’s Advanced Wireless Services (AWS) Spectrum Auction Concludes,” FCC News,
September 18, 2006.
27 P.L. 108-494, Title II, Sec. 209 (a).
28 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.
29 Comprehensive Review of U.S. Spectrum Management with Broad Stakeholder
Involvement is Needed, January 2003, GAO-03-277.
broadcasters. Auctions by the FCC of the freed spectrum were required to begin not
later than January 28, 2008 with funds deposited not later than June 30, 2008. The
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 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.30
Intelligence Reform and Terrorism Prevention Act. Several passages
of the act (P.L. 108-458) dealt 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 the31
possibility of increasing the amount of spectrum at 700 MHz. The study was
submitted to Congress in late 2005.32 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 the33
long-term to provide broadband services.” The FCC then initiated a rule making
soliciting comments on how to take best advantage of the 24 MHz of spectrum34
already designated for public safety.
Auction of Frequencies at 700 MHz
The process of preparing rules for the 700 MHz Band auction attracted more
debate than usual for a number of reasons. One reason for interest in the spectrum
is that the airwaves used for TV have good propagation qualities, able to travel far
and to penetrate building walls easily. The proposals for service rules that provided
the framework for licensee business models dominated the controversy over the
preparations for the auction of the 700 MHz airwaves.
30 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
31 P.L. 108-458, Title VII, Subtitle E, Sec. 7502 (a).
32 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
Viewed January 3, 2008.
33 Op. cit. FCC, Report to Congress paragraph 99.
34 FCC, Eighth Notice of Proposed Rule Making, WT Docket No. 96-86, released March 17,
Service Rules: Public Safety.35 Public safety groups have been assigned
24 MHz of spectrum in the 700 MHz band that will become fully available once
broadcasters have vacated the band. The licenses for this spectrum were assigned for
public safety use by Congressional mandate, in 1997,36 and are not slated for auction.
Provisions in the auction rules, however, provided for a new, interoperable
communications network for public safety users to be shared with commercial users.
A national license for 10 MHz, designated as Upper Block D, was put up for auction
under service rules that required working with a Public Safety Licensee to build and
manage a shared network. The Public Safety Licensee was assigned a single,
national license for part of the 24MHz originally assigned for public safety use at the
behest of Congress. The two licensees were to negotiate a Network Sharing
Agreement, subject to FCC approval. The Public Safety Spectrum Trust, formed by37
a group of associations, was awarded the Public Safety License by the FCC.
A partnership would give some public safety agencies access to private-sector
capital and expertise to build the network; there is currently no federal plan to assist
in building a nationwide, interoperable network. Although public safety users would
be charged for access to the network, proponents of the plan argue that overall costs
in such an arrangement would be less than if the network were purely for public
safety, because of greater economies of scale.
Service Rules: Open Access. Several companies associated with Silicon
Valley and Internet ventures petitioned the FCC to set aside a block of spectrum as
a national license that would be used for open access, which was defined as open
devices, open applications, open services, and open networks.38 The FCC ruled that
it would auction licenses for 22 MHz of spectrum with service rules requiring the
first two criteria: open devices and open applications. These licenses are referred to
as the C Block. These licenses are being issued to winning bidders on the condition
that the licensees adhere to the open access rules, as spelled out in the Code of
Federal Regulations (47 C.F.R. 27.16). With limited exceptions, licensees “shall not
deny, limit, or restrict the ability of their customers to use the devices and
applications of their choice on the licensee’s C Block network....” Network operators
that violate this rule face enforcement action from the FCC, “including but not
limited to a forfeiture penalty....”39
Band Plan, Licenses and Build-Out Requirements. The band plan for
the auction reflected several changes to the plan originally proposed by the FCC. The
changes make it possible to create licenses for 62 MHz of spectrum at 700 MHz
35 Service rules and other FCC requirements for a shared public safety network are discussed
in CRS Report RL34054, Public-Private Partnership for a Public Safety Network:
Governance and Policy, by Linda K. Moore.
36 As required by Title III of the Balanced Budget Act of 1997 (P.L. 105-33).
37 FCC, Order, P.S. Docket No. 06-229, November 19, 2007.
38 FCC filings, WT Docket No. 96-86, by Frontline Wireless, LCC, Google, Inc., the 4G
Coalition, and the Public Interest Spectrum Coalition.
39 FCC, Memorandum Opinion and Order, FCC 08-257, Released November 13, 2008,
instead of 60 MHz. In the Lower 700 MHz band, the FCC allocated 12 MHz for
local area licenses, known as Cellular Market Areas, or CMAs, creating 734 CMA
licenses for auction. There were also 176 licenses offered for broader Economic
Areas, or EAs, also using 12 MHz of the Lower 700 MHz band.
All of the commercial licenses have what the FCC describes as “stringent”
performance requirements, in particular for what are referred to as build-out rules.
Winning bidders will have a short time to provide service, based on geographical or
population parameters, or risk forfeiting licenses. For example, the CMA and EA
licensees in the Lower 700 MHz band must cover at least 35% of the geographic area
within four years and 70% of the area by the end of ten years, the term of the license.
The regional license-holders in the Upper 700 MHz band must have built a network
that will reach 40% of the population in their license area within four years, and 75%
by the end of the license term. Failure to meet these interim guidelines will result
in a reduction of the license term, from ten to eight years, accelerating the build-out
schedule. Licensees that fail to meet the final deadline will forfeit that part of the
license that has not met build-out requirements. The FCC will reclaim the spectrum
and make it available to others.
Auction Rules. Rules for the auction were released on October 5, 2007.40
One decision in the rules was to use “blind bidding.” Recent auctions have had open
bidding, where all participants knew not only the amounts of competing bids but also
the names of their competitors. With anonymity, bidders will not be able to
cooperate to exclude a third-party, which allegedly occurred during the AWS-141
The FCC rules also permitted package bidding, also known as combinatorial
bidding. In a package auction, bidders may make a single bid for a group of licenses,
instead of competing for each license individually. Package bidding is believed to
favor new entrants and larger companies by allowing them to acquire licenses for the
coverage that meets their business needs in a manner that is more efficient and less
risky. In attempting to acquire, for example, national coverage, by winning many
auction licenses, a bidder risks winning some of the licenses, but not enough of the
licenses to support its business plan. A successful package bid eliminates a number
of licenses from the general bidding process, reducing the supply of licenses open for
bids from small players that are seeking only one or two licenses.
Auction Results. The auction grossed $19,592,420,000. All of the licenses
except for the D Block, intended for shared use with public safety, were successfully
auctioned. The D Block received a single bid of $472,042,000, well below the
40 “Auction of 700 MHz Band Licenses Scheduled for January 24, 2008,” October 5, 2007.
DA-074171, AU Docket No. 07-157.
41 “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
at [http://www.mediaaccess.org/filings/Rose_How_Incumbents_Blocked.pdf] and at
[http://www.mediaaccess.org/filings/Rose_Tacit_Collusion.pdf]. Viewed January 3, 2008.
minimum price of $1.3 billion the FCC established for that license. In the rules
established for the auction, the FCC allowed for the possibility of re-auctioning the
D Block with different requirements, but reserved the right to make a decision based
on its determination of public interest.42 In an Order adopted and released on March
20, 2008, the FCC directed the Wireless Telecommunications Bureau not to proceed
with the re-auction of the D Block because it is “in the public interest to provide
additional time to consider all options....”43 The FCC therefore has begun a review
of its rules regarding licensing, structuring a partnership, setting service
requirements, and other rules and obligations established prior to the commencement
of Auction 73. It has prepared a further notice of proposed rule-making that seeks
comments on identified options that might be pursued in disposing of the D Block.44
Some commentators believe that the conditions placed on the licenses in the
Upper 700 MHz Band diverted bidding activity to the lower part of the band, driving
up the prices of these licenses. Some of the smaller companies may have been outbid
in their efforts to obtain CMA licenses because of increased competition and the
effect of package bidding.
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
42 FCC, Second Report and Order, WT Docket No. 96-86, August 10, 2007 release,
43 FCC, Order, AU Docket No. 07-157, March 20, 2008 at [http://hraunfoss.fcc.gov/
edocs_public/attachmatch/FCC-08-91A1.pdf]. Viewed March 20, 2008.
44 FCC, Second Further Notice of Proposed Rulemaking, Released May 14, 2008, PS Docket
No. 06-229 at [http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-128A1.pdf].
by small businesses.45 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.
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.
45 FCC 97-353, FCC Report to Congress on Spectrum Auctions, WT Docket No. 97-150,
released October 9, 1997.