SPECTRUM EFFICIENCY and NEW TECHNOLOGY

Tuesday, December 9, 2003

United States Department of Commerce

Herbert C. Hoover Building, Room 4830

1401 Constitution Avenue, NW

Washington, D.C. 20230

Reported by: Rita Hemphill

PROCEEDINGS

(9:21 a.m.)

                     MR. GALLAGHER: Welcome and thank you for coming to the Department of Commerce today for our Spectrum Efficiency and New Technology Forum.

                     The reason we are here is straightforward. President George W. Bush signed a Presidential Memorandum directing the Department of Commerce to work with our fellow agencies, the FCC and the private sector to develop policy improvements leaving us with a spectrum policy for the 21st Century. In June 2002, President Bush stated, “The role of government is not to create wealth. The role of government is to create an environment in which the entrepreneur can flourish, in which minds can expand, and in which technologies can reach new frontiers.

                     Here at the Department of Commerce, the Secretary has made his direction clear as well. On multiple occasions he has instructed us when faced with policy choices that achieve either national security or economic security, do both.

                     We are privileged to have with us this morning the Chief Operating Officer of the Department of Commerce, Dr. Sam Bodman. He, singlehandedly, creates the environment for forward-looking, well-grounded policy. He also charts the course invisible to others that actually delivers on the instruction of the Secretary to satisfy both seemingly competing objectives of strong national security and unrivaled economic security. He is our leading engineer by constantly seeking the technical support for any recommended policy action.

                     He is our most challenging professor, asking the difficult question, why are you here? He is our conscious, constantly pressing us to do more for the American people with the fewest possible tax dollars taken from American working families. He also is the designated Chairman of the Department’s effort to fulfill the mandate of delivering a policy action plan for the 21st Century.

                     Ladies and gentlemen, please welcome my good friend and mentor, Dr. Sam Bodman.

                     DR. BODMAN: Thank you. Thanks, Mike. Ladies and gentlemen, I’m very happy to be here. I’m also happy to note that the seating arrangements seem to emulate those in churches and synagogues and other religious buildings throughout the country in that the front row is almost empty. I congratulate those who were brave enough to sit up in the front row, all four of you, and we’re pleased, at least, that we have that kind of consistency.

                     I do want to welcome all of you to the Commerce Department. This is a forum on Spectrum Efficiency and New Technology, as Mike has said. We have, in this room today, representatives of the wireless industry; we have representatives of the Federal Government; and other experts from across the country.

                     The goal of today’s session -- and it’s an important one both to Secretary Evans, as well as myself, the goal here is to discuss ideas for improving the efficiency and the quality of spectrum allocation and management across the Federal Government. We’re not here to talk about how important the spectrum is. That’s a given. We’re here to solicit specific recommendations and thoughts from the experts that are represented in this room.

                     Now, we’re fortunate to have with us today representatives of the FCC, our partner in spectrum management, as well as several Federal Agency members of the Interagency Spectrum Policy Task Force, which is an organization that I have the privilege to chair. We’ll actually be meeting later on this week in the third such session that the task force has had and this meeting today is a part of this overall program to develop a final report that is, at least at this point in time, geared to be delivered to the President next summer.

                     Today’s event is the first of what will be several public meetings that are called for in the President’s May 29 Executive Memorandum. With that directive, the President began an initiative to develop an effective and efficient radio spectrum policy for the century that is just beginning.

                     The objectives of this initiative are to, as Mike has said, to foster economic growth. We’ve spent a lot of time in this department worrying about that. It is to enhance homeland and national security, and to maintain this country’s high-tech leadership, and finally to address other important needs, such as public safety, scientific research and transportation effectiveness.

                     It is absolutely true, again, as Mike has said, that our national security and our economic security are linked. You can’t have one, in our judgment, without the other. So, as we review and improve our policies with respect to managing the spectrum, we must consider both the implications to commercial activity and economic growth, as well as to our national security.

                     We here at Commerce, I might say, often find ourselves in the middle where we have other agencies, frankly, that are much larger than we are, that have a very specific mission -- and well-founded mission oriented policies and programs that are in conflict. And so part of Mike’s job and the job of NTIA and others here at Commerce is to try to develop a middle ground that satisfies both economics, as well as national security.

                     We are all familiar with the explosion in wireless voice and data communication systems and the growing demand for spectrum based technology. Last year, for example, the wireless industry grew to having nearly 150 million cell phone subscribers in the United States.

                     WiFi Technology, unknown only a few years ago. It now provides wireless internet connections to about 28 million people in this country alone. This tremendous growth in WiFi deployment would not have been possible had frequencies not been available for its operation.

                     Recently we witnessed the success of the U.S. Delegation at the 2003 World Radio Conference in achieving a consensus regarding the use of the five gigahertz band, which could double the amount of spectrum available to the services. In fact, we just had a wonderful ceremony here in the Department yesterday recognizing Charles Glass of NTIA. He and one of his private sector partners were given an award and we were able to participate in that. It was a very moving experience.

                     As new technology, such as WiFi, offer new features and services, their introduction also puts pressure on our scarce spectrum resources. And so our policy and legal environment must keep up with the dramatic changes in technology. By modernizing our nation’s spectrum management system we will continue this administration’s accomplishment in promoting wireless communications through collaboration and specifically through collaboration between the public and the private sectors of our society.

                     Our commitment to this goal is evident in the great results that have already been achieved. Many of you know of the strides that we made in authorizing ultra wide band technology. The introduction of this technology was widely considered to be an impossible task. Longstanding and very bitter disputes among industry and government spectrum users concerned about -- concerned themselves with interference, with global positioning systems, among others that -- there was an enormous conflict and very strongly held views that threatened to doom this technology before it was even out of the starting gate.

                     Its potential to support homeland defense and law enforcement, however, required that we find a solution and we did find a solution. But it was only after a lot of work by a number of people and organizations represented in this room.

                     The FCC proposed amendments to its rules to accommodate ultra wide band devices and NTIA analyzed interference potential and worked closely with affected agencies to resolve this challenge. Now this technology is starting to bring tangible results to the citizens of this country and the world. These include improved vehicular radar to help avoid automobile accidents and ground penetrating radar to aid in disaster recovery. So, we’re quite -- frankly, quite proud and pleased with the results that are starting to be achieved because of some of the efforts of, again, people who are represented in this room.

                     The same cooperation among government and industry users will help to spur continued growth of the mobile communications industry. NTIA, the Department of Defense and the wireless -- all wireless providers cooperated in such a way that resulted in the 90 megahertz of -- resulted in 90 megahertz of additional spectrum for 3G wireless products. And just recently, the FCC adopted service rules for the commercial use of 70, 80 and 90 gigahertz spectrum for the deployment of new broadband technology.

                     So, it’s clear that we have a firm foundation of cooperation both within the government, as well as with industry, all of this focusing on a more effective use of spectrum and we are trying mightily to build on that foundation to enable future successes to be accomplished.

                     Our economy is on the rebound. Those of you who follow these matters will know that the GDP grew at an extraordinary rate of 8.2 percent in the third quarter. It was the largest quarterly advance in nearly 20 years. Productivity is remarkably strong. We’re beginning to see a turnaround in labor markets and have successfully seen the creation of 330,000 new jobs since the summer.

                     These are all the positive things that are going on. But we are going to do our very best not to be complacent. We are led very strongly by the President in that regard. Every time I see him he has questions about what we’re doing and how we’re doing it, and he continues to exemplify, in his discussions with us, his views that

efforts such as this one in this room today can help stimulate American innovation, and that will mean even greater economic growth, greater job growth in the future.

                     He has directed the Secretary of Commerce to chair the Administration’s spectrum policy initiative and within Washington, when the Secretary is asked to chair it, usually it ends up in my -- through the door and in my office, which is why I’m here. The Secretary has directed me to work with Mike and the folks at NTIA to see to it that we accomplish this goal.

                     Through an interagency group, the Commerce Department and our Federal partners, with input from the private sector, we’ll make the legislative and other policy recommendations that come out of this initiative directly to the President. These recommendations will focus on improving the current spectrum management system, creating incentives for more efficient and beneficial use of spectrum and increasing predictability and certainty for incumbent spectrum users. It will also address ways to streamline deployment of new services and technologies without jeopardizing national security and public safety.

                     Today’s forum is the first of several outreach events. These events will assist us in formulating our recommendations on these questions. We will be working with the Department -- the new Department of Homeland Security to convene a meeting in February for State and local members of the public safety community.

                     In addition, the National Academy of Sciences will conduct a workshop for NTIA, also, in February that will focus on obtaining views from the public at large. And finally, we will soon publish a Federal register notice requesting written comments and will post this notice on NTIA’s website.

                     Our discussions today will cover two very important and interrelated issues. The first panel will focus on incentives for more efficient and beneficial spectrum use, and it has been said that efficiency in the spectrum area can be measured in different ways. Some measure efficiency based on economics -- that is to say, looking at costs and value achieved. Others apply a technical definition based on the amount of spectrum, the amount of power, the amount of time required to accomplish a given task, and still others measure it by the quality and/or the functionality of the available resource.

                     The very definition of what we mean by efficiency and the application of that word to policy discussions is something that I hope this panel will examine very closely. As an amateur in this area, I found in discussing the matter with experts that there is -- that confusion seems to reign because different people hold in their minds different definitions of what efficiency means and I think it’s going to be very important to be as clear as possible as to just exactly what the definition of efficiency is and then to move on from there.

                     The second panel will focus on new technology. This discussion will examine the seeming paradox of technology. That is to say, new spectrum technologies often put pressure on our scarce spectrum resources, yet those very technologies, in many cases, may provide a means for more efficient spectrum use without disrupting existing services.

                     We are here to learn from our panelists and from our audience. We need and very much value your involvement. Your participation is vital to accomplishing our charge under the President’s spectrum policy initiative. Throughout today’s discussions I would encourage all of the participants to offer recommendations that are as specific as possible for improvement that can be incorporated into an action plan.

                     By helping us modernize spectrum management, to reflect the communication needs of this new century, we will all contribute to the robust expansion of the nation’s technological sector, the growth of our economy and to the creation of new high quality U.S. jobs.

                     I appreciate the participation of all the panelists and of all of you who have come here to join in this effort today, and I thank you for being a part of what we hope will be a very important event in this program. Thanks very much.

                     (Applause.)

                     MR. GALLAGHER: Now, at this time we would ask that the first panel come forward and we’ll excuse Dr. Bodman. Thank you for giving us our marching orders here this morning. And while the panel is assembling, I will go through a few matters of housekeeping.

                     First, there will hopefully be plenty of time for questions and answers for the panelists. So, please, hold your questions until we get towards the end of the segment. It should be about half an hour on each panel to take those.

                     Second, we would ask that you please approach the microphone to ask any questions and we would ask the panels to please use the microphones in front of them so the people that are listening on the internet will be able to hear the question and the answer, or suggested answers, and then, also, that you identify yourself as you ask the question, who you are and on whose behalf you’re speaking.

                     Restrooms are located on the hallway just past the elevators right here. For those of you that had a visitor’s pass, if you leave the building for lunch you’ll be signed in again and issued another pass when you return, and you may be asked to be escorted once again.

                     Lunch. We have a cafeteria in the basement -- down to the basement level on the elevator right outside the door here, and there’s also a tunnel that goes over to the Ronald Reagan Food Court. Lunch will be from 11:30 to 1:00 p.m.

                     Before we get started with the first panel I would also want to welcome Grace Washburn, who is here from the House Committee on Government Reform, and John Hunter, who is Counsel on the Committee. Thank you for joining us here.

                     And, also -- is Paul Martino here? This afternoon? Okay. He’ll be here this afternoon. From the Senate Commerce Committee and we look forward to working with Paul on a number of issues.

                     Before I come and sit down here with the rest of the panelists, all of you should have an agenda for today’s session, and as the Deputy Secretary said, we have a lot of work to do today. Before we get to the first question, I just thought the first panel is broader -- it’s meant to be focused on broader policies that will allow us as a country to get the most out of the spectrum on behalf of our people.

                     Time permitting, we will tackle the definition of efficiency, the role of spectrum fees, the place in our policy regimen for unlicensed spectrum, the transition to digital television, and the aspects of the FCC Spectrum Policy Task Force that drive us toward the goal of efficiency.

                     In the second panel, that focused on new services and technologies, that panel will draw at what’s next in spectrum technology and ask the question, what policies need to be in place for us to lead the world in deploying these technologies?

                     We are honored to have leaders from our partners in spectrum policy from FCC with us today.

                     Co-moderating the first panel with me is John Muleta, Chief of the FCC's Wireless Telecommunications Bureau. Welcome, John. This afternoon’s panel also promises to be lively. Our co-moderator on that panel will be the Chief of the FCC’s Office of Engineering and Technology, Ed Thomas.

                     Before I introduce the panelists and start with the first question, I want to underscore the purpose of our event today. Following the lead of the Deputy Secretary, we are focused on specific policy recommendations. The goal is to have -- at the end of this exercise, my personal goal is a tear-out card that policymakers can carry around with them that, if they do the tasks that are on the card, they’re improving policy for the 21st century with a time frame of deliverable objectives over a five or 10-year period.

                     And I would also like to just hold up here, and I’m happy to pass around a copy of Business Week’s cover and on it it says Airwave Wars, the Communications Spectrum is too crowded, so how do we make room for these new technologies? So, we can see this has been the subject of some attention. The interesting component of this particular cover is it’s from July 23rd, 1990. Okay. So, I’ll start that around the room just so we can frame our discussion.

                     And the purpose of using that is we know spectrum is important. We know it’s valuable. There’s been much written. There are many commentors that have guided our thinking over a long period of time. The questions are being asked. They’re asked every so often. There are times in history when spectrum comes to the floor. We’re in one of those times. Our task is to answer the question as best as we know how and position ourselves for the future as a country.

                     I would also ask the panelists to feel free to respond to the submissions of others and if you find something you agree with or disagree with, we appreciate hearing your thoughts on that. But, again, keep it very closely tightly focused on specific recommendations that we can take away from this event and start working on for, perhaps, inclusion in the initiative itself.

                     So -- let’s see. I’ll sit down before we get to the introductions. John, did you have anything you wanted to add at the outset?

                     MR. MULETA: No, other than thank you for having me and I look forward to that little card at the end of the day.

                     MR. GALLAGHER: Oh, no. That’s supposed to be at the end of the summer. Hopefully, we’ll have it in the summertime.

                     MR. MULETA: I thought it was today.

                     MR. GALLAGHER: With us here today, starting at my far right we have Rick Burke, who is the Director of Operations from Pegasus Telecommunications. Rick, thanks for coming.

                     MR. BURKE: Thank you.

                     MR. GALLAGHER: To his left is Michael Calabrese, a well-known face to those of us in spectrum policy. He is the Vice President of the New America Foundation. Welcome.

                     To his left is Bill Hogg, who is Vice President for Standards and network for Singular Wireless. Bill, thank you.

                     To his left and my right is John Lawson, President and CEO of the Association of Public Television Stations. Thanks for coming.

                     John -- we’ve already covered John. And to his left is Jim Miller, who is the Deputy Director of the Office of Navigation and Spectrum Policy for the U.S. Department of Transportation. Thanks for being here, Jim. A fellow -- a very, very dedicated participate in our interagency process.

                     And to his left is Adele Morris, another equally dedicated public servant from the Department of the Treasury, who is an economist at the Department of the Treasury. Thank you, Adele, for coming.

                     To her left is Dr. Greg Rosston, who is Deputy Director of Stanford Institute of Economic Policy and Research. Thank you for coming, Dr. Rosston.

                     And then finally down at the end of the table is Al Vincent, who is the Director of our ITS Labs in Boulder and who directs much of the technical work that is done to support spectrum policy positions from the Federal Government from NTIA.

                     So, thank you all for coming and for the first question -- this will surprise no one given the direction we have from the Deputy Secretary. First is how do you define efficiency in the spectrum context? Please be as specific as possible. And what is the role of efficiency in spectrum policy?

                     So, to start with that, I think we’ll start with somebody who I know has this at the tip of their fingers because I have it here with me, and Michael Calabrese, perhaps you can enlighten us with your definition of spectrum efficiency and its role in spectrum policy.

                     MR. CALABRESE: I wouldn’t say tip of my fingertips since it’s a very elusive concept as has been said here already today and, in fact, you know, I think we really do and should speak about it in at least a couple different ways, because when we talk about spectrum efficiency on an overall basis, we’re typically thinking about essentially the ability of citizens to communicate freely.

                     So, spectrum efficiency should be whatever enhances -- whatever facilitates communication and, you know, that may have economic components, but it also has First Amendment and democratic components as well. So, we can’t really just look at it only as an engineering concept or only as an economic concept.

                     That said, you can also look at it between services. For example, in terms of the efficient reuse of spectrum, for example, and, you know, that’s an important -- that’s an important concept because one of the great -- since I’m leading off I should mention that one of the, I think, great contributions of the spectrum policy task force report was that it pointed out that there really is not a scarcity of spectrum capacity. That what we have -- we have a scarcity only of access to the airwaves to use it more efficiently.

                     So, for example, this summer, with the help of a former senior DARPA engineer, from the roof of our building in Dupont Circle we measured the use of spectrum, you know, between Dupont Circle and toward the White House. And so this is in, you know, the center of Washington, which not only is the downtown area, but probably has additional spectrum use that is not found in many other cities. And we found, depending on how conservative you want to be, that below three gigahertz, in other words the prime spectrum that cuts through obstacles, between 60 and 80 percent is completely unused during peak business hours.

                     So, for example, you know, very little of the broadcast spectrum, for example, is in use particularly in the upper channels. So, that’s a notion of -- I think of both engineering and economic inefficiency that we’ve channelized the spectrum during the old analog world and now have left it, you know, as if we have taken the ocean and divided it into shipping lanes and then given exclusive rights to each shipping company to use a lane.

And so if the shipping company, you know, is kind of slowing down or isn’t keeping up with the times, you know, it’s not being used very well.

                     So, in that sense, there’s growth inefficiency. On the other hand, you know, as I said, I also wanted to help us keep our eye on the idea that it’s not just engineering or economic efficiency that matters, but also how well we’re giving all of our citizens, entrepreneurs, individuals access, you know, such as doing license with WiFi that matters.

                     MR. GALLAGHER: Thank you. Dr. Rosston, did you have anything you wanted to add from the academic perspective?

                     DR. ROSSTON: Sure. I think that as an economist I look at efficiency as -- usually you think of this as maximizing consumer benefits. What do consumers get? How can you best use spectrum decided by consumers?

                     Here at NTIA I think we have to think about this -- Adele has warned me in advance -- we think about how Federal Government spectrum users work, as well, and you don’t necessarily have direct consumer benefits from it. But I would -- so, I would modify my typical economist thing of consumer benefits to sort of public benefits that you get also from the Federal Government spectrum as well.

                     In spectrum there is always trade-offs. You might be able to, as Michael has said, maximize communication, but that may not be maximizing consumer benefits from it because you might have a lot of extremely low value communications going on that precludes some high value things. There are trade-offs in these things if you use -- if you, sort of, put everything at open access you might preclude things that need dedicated access, like television or like cellular communication, that need a dedicated channel in order to have a high power system. And if you have low power systems that preclude high power systems or high power systems that preclude low power systems, you have trade-offs and there should be ways to figure out how to have some sort of market test that provides the maximum consumer benefits from these different things.

                     In some sense, I like Michael’s shipping lane analogy. I think that’s the way our spectrum has been set up in some respects, which is that you have exclusive shipping lanes for people. But one of the problems is is that you have exclusive shipping lanes for a shipping lane that can carry a television broadcast and a shipping lane for something that can carry other broadcasts, but they can’t say, well, geez, I want to start carrying trains, or I want to start carrying something else on my ships.

                     So, the flexibility to figure out that my spectrum isn’t worth as much in what I’m using it for and I should be able to have the flexibility to change it, subdivide it, work with other people, is really important for getting the spectrum out into the public. So the fact that most of it is unused is partly a function of the fact that we’ve allocated this huge amount of spectrum to television and we can’t reallocate it without an incredibly detailed and problematic system. We need -- if we had real property rights in a real system to do it we could make much better access to this spectrum and increase spectrum efficiency.

                     MR. GALLAGHER: Bill, what’s the take from the commercial mobile wireless sector?

                     MR. HOGG: I guess the way we would look at it is we agree that you can’t look at any given dimension and say that’s the efficiency metric in which we use. I think of it as more of a triangle, if you will. On each one of the legs of the triangle are the quality value of the service that you provide. On the next leg of the triangle is the capacity or the spectral efficiency of that service. And on the last one is -- the leg of the triangle is the cost or the economic aspects of it.

                     So, really in order to make sure that you’re using the spectrum efficiently, you have to have a definition set that really balances all three of those aspects, and by doing so, you’re able to create innovation, create capabilities, create value and still have the flexibility inside of the allocations to -- as long as there is predictability, to be able to innovate inside of the various service needs and constraints that are available.

                     So, I think that we always look at each one of those dimensions because that’s what our customers demand of us, that, indeed, we provide a high quality service, that we provide it in a way that is economically beneficial to them and they see value, and then subsequently that we do it in a limited allocation of spectrum that is predictable and has certain characteristics that allow us to continue to innovate and get more out of our spectrum.

                     MR. GALLAGHER: Thank you. That’s a different graphical representation. We have shipping lanes, we have a triangle -- Adele, what’s your efforts brought us and your thoughts at this point?

                     DR. MORRIS: Well, I’ll be happy to provide the theory of everything.

                     My pick on economic efficiency is that it can incorporate all of these ideas. Economic efficiency you can think of as the allocation of resources that maximizes total net social benefit.

                     So, what that means for spectrum is you’re allocating a scarce resource across a wide variety of uses, each of which has some social benefit, and the idea is to get that allocation about right so that there’s no way to move the resource from one application to another and make society better off. Okay. It doesn’t mean that each individual is going to be the best off, but in some kind of aggregate sense the net social welfare is maximized.

                     So what that means for spectrum is you have social benefits that come from use by Federal users; you have social benefits that come from commercial applications; you have social benefits that come from, perhaps, public comments of spectrum for use in unlicensed environments; and then as policymakers the job is to figure out, well, what’s the right apportionment of spectrum across those applications?

                     Now, normally economists like to think that markets and prices do a very good job of efficiency allocating resources, and in general our economy proves that. Central planning has gone the way of the dinosaur in a lot of economies for good reason. Well, in the commercial side where we can establish a good and we can give it quality and quantity dimensions, prices and markets could be a very effective way to allocate a resource efficiently.

                     When you have Federal users it becomes more complicated. How do you set up an efficient allocation for something where a market may not work that well? And there the challenge becomes to construct the right incentives, to construct the right measures of social benefit that derives from a Federal use, and do our best job as stewards of a publicly -- a public good, just like we do in all manner of public policymaking -- of trying to get the balance right, and I think that’s what we’re talking about within our spectrum task force for Federal users. What constitutes the right balance and how do we get the incentives right for Federal users to reap the efficiencies that are cost effective?

                     As a fun note, I would like to talk about technical efficiency for a second. Technical efficiency is to some extent a component of economic efficiency, but up to a point. You know, it’s -- we talk about diminishing marginal returns.

                     If you have an extremely technical -- technically efficient system, but it’s enormously expensive or it introduces other undesirable properties, like it’s unreliable or what have you, then you have to question, well, is that the degree of technical efficiency economically efficient? Okay.

                     So, certainly a certain amount of technical efficiency, if you get the incentives right, will emerge. The goal is just to make sure you don’t pursue technical efficiency for its own sake. But more because it produces the optimal allocation of resources.

                     MR. GALLAGHER: Jim, I’ve been holding you to the end on this one because I know you have views. Based on what you’ve heard, you know, from the Department of Transportation’s perspective what is efficiency and should it be used or how do you use it in forming policy?

                     MR. MILLER: I’ll share the microphone of my friend, John Muleta from the FCC. Is this on? Okay.

                     I might have a different perspective on spectrum efficiency representing the Department of Transportation. And the primary reason for that is the FCC is a market facilitator and that’s a good thing. I come from the corporate world. The Department of Transportation is a safety regulator. So, we have different missions. And so part of what I liked about what Adele said is we need to find a balance.

                     I read the FCC Spectrum Policy Task Force once again over the weekend. I also read the New America Foundation report and I like a lot of what is in there. However, how that pertains to public safety bands is the real question. That is our primary interest.

                     When you talk about market incentives, from my perspective market driven means easy, cheap entrance, and cheapest is not necessarily the best in public safety bands. So, I’ll give you two examples of efficiency -- where I think the Department of Transportation, through our many modal administrations use spectrum very efficiently.

                     If you look at one navigation aide provided by the Federal Aviation Administration using one frequency in one particular geographic area, and there are hundreds of aircraft that use that one frequency, and who is in that -- who is in all those aircraft? There are thousands of passengers. And so we have a safety mission to make sure that they get where they want to get. And so I think that is one example of very efficient use of a spectrum.

                     A second greater example is the Department of Transportation, in partnership with the Department of Defense, helps manage the global positioning system. Now GPS provides position, velocity and timing information to the entire world. It’s a national asset and it’s become a global utility. It generates billions of dollars in revenues through countless services, applications, software and hardware. So, in my opinion, that is the ultimate example of spectrum efficiency.

                     We found some new economic incentives infringing or encroaching on the GPS spectrum. There is only one frequency that civilians use right now -- that’s 1575.42 megahertz -- and yet, in some cases we are not willing to protect that one frequency.

                     So if economic efficiency means that we’re going to have mobile satellite service, ancillary terrestrial component energy sandwiching, bracketing, out of band emissions in that one frequency, and we’re going to have ultra wide band overlays and underlays or however you want to visualize it on top of that, you’re thinking about squeezing a national asset that again the Department of Transportation and Department of Defense have a mission to provide.

                     So, I like the economic incentives. I’m for regulatory reform. But we need to do it in an incremental responsible fashion and it needs to be benefit driven with the best balance.

                     MR. GALLAGHER: John, did you have some thoughts to share based on what you’ve heard so far, and then I’ve got a follow-up on this subject that I want to press the panel on.

                     MR. MULETA: Yeah. Just more of an open question. I think this discussion about efficiency really begs a prior question, which is what are alternatives? Efficiency and objectiveness are all a function of what alternatives are available.

                     So, for example, I guess, you know, Jim, you pointed out in which somebody is encroaching or services are encroaching on a national good or whatever -- a national asset. I guess the question is, you know, why is that a problem if there is, you know, enough available substitutes.

                     And for both Michael and Greg, I guess the question I had is what is the role of a substitute due to the analysis of effectiveness?

                     So -- and anybody else who wants to go answer --

                     MR. MILLER: I guess the easiest way to answer that is to ask anyone in this room to name a substitute for the global positioning system at this point. It is not easy -- in fact, it’s impossible. We can’t turn up the power on those satellites right now. So, we have a national utility. It’s so good that the Europeans are building a counterpart called Galileo.

                     And so, in essence, the U.S. could lose technology -- a technology lead in satellite navigation, positioning and timing applications if, in fact, we allow this asset of the U.S. to be traded.

                     So, is there anyone in this room that can name for me a substitute for the GPS?

                     MR. GALLAGHER: I don’t see any hands. So, we can -- Mike Marcus from the FCC has his hand up and, Mike, if you’ll just speak slowly I’ll put your words in the microphone for you.

                     MR. MARCUS: When DTV gets implemented in urban areas there will be hyperbolic systems that are going to be derived in the urban terrestrial use.

                     MR. GALLAGHER: Mike was just saying for those on the internet is that when DTV is implemented that there will be hyperbolic -- was that the term? Hyperbolic.

                     MR. MARCUS: Location systems in urban areas.

                     MR. GALLAGHER: Location systems in urban areas that will be available. But we don’t have that today. What about the second part of John’s question? John, you had directed that to two specific folks on substitutes -- the role of substitutes and alternatives. Michael, why don’t we take you first.

                     MR. CALABRESE: Okay. There’s no question that there are certain public, you know, Federal uses that would -- that would need to be protected, but I think one of the things that probably needs improvement is some greater level of coordination in order to examine whether, in fact, there are substitutes, which would be one example.

                     For example, there could be, you know, with respect to -- you know, I don’t know technically whether what you said about GPS at this time is correct, but there could be, you know, many cases in which certain radio services could be done these days using cellular, using unlicensed, using things that either come from the commercial sector or which can be implemented in a different way. And I think that’s -- that’s something that needs to be looked at.

                     Over the longer term, I think it would be beneficial probably both for the efficiency of the use of Federal spectrum as well as for the economy if the government, you know, probably through the NTIA or some similar coordinating process, had an overall policy of promoting a technology such as DARPA’s XG sharing technology so that -- this is basically -- we had an event where basically DARPA released sort of an initial concept release, basically, for comment and they’re looking for comment.

                     But the XG technology -- essentially it’s a set of adaptable algorithms or protocols that would be embedded in the radio software -- software defined radio and would allow opportunistic sharing of frequencies. And the idea, you know, is that the military, in particular, will need this when they drop down into environments around the world.

                     I think if that was promoted domestically, as well, then many different Federal uses could have compatible radios based on this software defined adaptable frequency hopping technologies that would also service R&D, much as DARPA helped develop -- essentially develop the internet by promoting RFNET (phonetic), XG or a similar technology could promote, you know, great advances in commercial wireless technology, both for the economics but also for the sake of efficiency.

                     And that may get around a lot of these problems providing inherently substitutes as radios tend to switch from frequency to frequency or look before talk, et cetera.

                     MR. MULETA: I guess, Greg, what I wanted to inquire related to this is just to figure out if you’re outcome driven in a sense -- you know, you’re trying to provide a particular service or a particular functionality, isn’t that the question that you first need to answer and define clearly before then asking whether or not the spectrum is the most effective or efficient way of using -- of delivering that mechanism?

                     I’m trying to figure out what sort of the right -- the appropriate model for looking at these -- effectiveness in the questions.

                     DR. ROSSTON: I think what you’re trying --

I’m not sure I exactly understand the question but, I mean -- is that substitutes of spectrum versus non-spectrum uses or ideas that you can have different types of services using the spectrum. The substitutes are key, in my mind, to any kind of efficiency that -- if you have a service and I can develop a competitive alternative like the Europeans are doing to GPS, that’s probably -- it may not be good for the United States, but it’s probably good for consumers that there are alternatives and the fact that WiFi is competing with Cellular, but the fact more that Verizon is competing with Cingular is competing with AT&T, is really good for consumers, that there are different ways to provide these services and that -- the pay phone on the corner competes with wireless is also important.

                     So these things -- that is one compliment of substitutes. The other is in trying to increase that in terms of efficiency would be getting back to my idea of flexibility. The more we can increase the flexibility for spectrum users, the more efficient spectrum use will be, and it's important that we -- there’s been a move to try to limit special flexibility in order to raise revenue for the government, and in my mind that’s a hugely wrong-headed move in terms of trying to take a very shortsighted view of trying to raise a little bit of money in order to minimize the amount of flexibility on spectrum in order, simply, to raise revenue.

                     If we have such a valuable resource and it’s so constraint, we should try and do as much as we can to get flexibility out there and that will relieve a lot of the constraints both in the public uses spectrum, but also for the Federal Government use because the opportunity costs will be reduced.

                     So, the substitutes are the ability to use substitute spectrum for various different things and to provide more competitive provision and services is absolutely key to economic efficiency.

                     MR. HOGG: I’d also like to comment. I’d like to amplify a little bit on the flexibility piece because I think the wireless industry is a good example of what flexibility with a protected piece of spectrum and a good rule set brings you.

                     If any of you remember using your cell phone back in the early 80s, mid-80s and you look at what you’re using today and the technology that you were on, analog initially, then TDMA or CDMA, and then ultimately to 1X and to 3G technology, such as UMTS. What you see is constant innovation, constant substitution and that substitution is more spectrally efficient, but also brings new services to the marketplace in a way that are compelling to consumers, and you’ve seen the growth in the industry that is the result of that.

                     So, having the flexibility to be able to have substitutes that are more efficient, but in a predictable manner is very powerful and I think that you’ve seen, especially in the wireless industry, a drive to innovate and a drive to substitute for better technologies that can provide better services, faster data speeds, more robust graphics. I mean, all the things that consumers want to be able to do with their wireless devices in roughly the same amount of spectrum.

                     MR. MULETA: Let me ask a related question. I think all of the thread that I see here is that we’re all talking about some level of incentives for efficiency. So -- you know, Rick or Adele, if you want to jump in here and say what are the right types of incentives in the commercial sector, if you can give us an overview of that, as well as in the public sector, and then say, you know, can that be translated into a noncommercial environment? You know, what are the right sorts of incentives to work in a noncommercial sector?

                     MR. GALLAGHER: Before we leave the subject, though, I think moving to incentives -- we’ll have time for that. But I really want to nail down this one because the Deputy Secretary’s instructions were pretty clear. We’ve heard about -- and I would like to ask each panelist just starting down here with Rick.

                     Based on our discussion, we’ve heard about shipping lanes and triangles and we’ve talked about technical economic and social items of efficiency. I have a generalized comment, but I wanted to get your thoughts first.

                     Do you think the term “efficiency” has technical components, economic components and social components, or if you -- you can just answer yes and that will satisfy. If you think one of them should not be present, please explain why.

                     So, Rick, we’ll start with you.

                     MR. BURKE: Okay, Mike. Yeah. Absolutely. Efficiency comes in a variety of ways, as we’ve already -- as everyone has discussed, that it’s technical efficiency as well as economics.

                     And from an operator’s standpoint, you know, we have our technical efficiency, which involves our overall

implementation costs as well as -- versus the potential value of the service that we’re providing. And the economic efficiency to us becomes one of -- the potential of that service as it’s applied to the consumer. What are they willing to pay for what they’re getting?

                     So the view of efficiency actually is two views -- one from the service provider’s perspective and one from the consumer’s perspective. It’s achieving that balance of meeting the consumer’s need without driving our costs of investment of infrastructure through the roof in order to provide the services. In many cases limiting what that service is in order to achieve that balance is the best way to do that, so that we don’t try to be all for everyone.

                     MR. GALLAGHER: So, that’s a yes to technical -- to all three?

                     MR. BURKE: That’s a yes -- yes to the technical; yes to the economical.

                     MR. GALLAGHER: And yes to social?

                     MR. BURKE: And yes to the social.

                     MR. GALLAGHER: Michael.

                     MR. CALABRESE: Yes, all three. You know -- and I think for -- from the perspective of, you know, Federal coordination of its own use of spectrum, the social is going to have to be weighed even heavier than it would be by a commercial operator because, you know -- you know, I think it was said on here you simply can’t -- it may be, for example -- you may get more value added through a cellular architecture for certain purposes, or you may get, you know, more throughput through -- you know, per megahertz especially for a WiFi system and in other contacts. But the Federal Government has to, you know, I think consider, you know, other measures whether it’s public safety, homeland security and other things.

                     MR. GALLAGHER: Thank you.

                     MR. CALABRESE: But it has to balance all three.

                     MR. GALLAGHER: So another yes? Bill.

                     MR. HOGG: Yes on all three.

                     MR. GALLAGHER: Okay. John.

                     Mr. LAWSON: Let me use another special analogy. I’m from South Carolina and I went to the beach a lot. So, let’s talk about beachfront property.

                     The broadcast industry is becoming much more efficient through the temporary lending of a second six megahertz channel to complete the digital conversion. Certainly, two out of three apply here as far as public television is concerned. The technical efficiency is a Federal mandate and when this transition is complete it will free up huge blocks of analog television spectrum, beachfront property, which is a good thing for the public, for the government. It will also mean that with -- in the six megahertz that we retain we’ll be able to do a lot more.

                     So, we think there certainly is social efficiency here. We believe we’re going to be able to introduce a new generation of services, educational, cultural, public affairs to the American public and not just the televisions, but the PCs.

                     The economic efficiency remains to be seen. Right now for the broadcasters it has been all on the expense side of the ledger and we’re hopeful that we will be able to find economic uses of the digital spectrum, but the story is still out on that.

                     MR. GALLAGHER: So two question marks -- excuse me. Two yeses and a question mark from John. Okay. Jim.

                     MR. MILLER: Simple answer is yes, yes, yes. And I thank Adele Morris from the Treasury. She has done a very good job of getting all the Executive Branch agencies to take a look at this question as part of Mr. Gallagher’s efforts as part of the spectrum policy initiative.

                     However, I really need to ask the question, does spectrum efficiency translate into the substitution that we’re talking about? And a gentleman just raised the issue about TV. I’m not sure I understand this. TV taking the place of GPS.

                     The Department of Transportation has several programs that are in the interest of the public. We’re working with the FCC on dedicated short range communications for intelligent transportation systems. That’s a meshing of technologies -- GPS positioning and other types of communication applications.

                     Automatic identification systems for vessel traffic control on the seaways. The wide area augmentation system for precision aircraft guidance in the National Airspace system. And the FAA has an advanced communications system, it’s called VDL Mode 3, VHF Digital Link Mode 3, to transition from analog to digital communications.

                     So, the question is, do these new technologies need to be disruptive on our current infrastructure? I like competition. Again, I was a program manager for the largest airline in the world at the time. We invested in new technologies. The problem was these new technologies were coming under fire and the return on investment that we had put into this was such that it was being harmed, and we were forced to get into the spectrum debates.

                     We all know that a market environment requires a fight -- a competition. So, if WiFi and Blue Tooth and ultra wideband want to fight it out for a last man standing commercial market win, public safety cannot be the collateral damage.

                     So, we like experimental, we like competition, but perhaps we can find bands away from public safety frequencies in order to initiate these strategic experiments. That, to me, would be very efficient.

                     MR. GALLAGHER: So, I’ll take that as a yes, a yes and two votes for yes on social. Adele.

                     DR. MORRIS: Well, as I said, I really believe that economic efficiency incorporates the idea of social welfare and a degree of technical efficiency. So, I think -- I might even just say there’s one question and the answer to it is yes.

                     The question about substitutes I think -- the way economists think about substitutes is that if you have a market, the demand and supply for a good depends on the market availability and price of substitutes. Now, there may be instances where there are no substitutes. In spectrum there may be laws of physics that determine certain spectral lines that NASA needs to do some kind of special science or there might be international agreements that make it almost impossible to modify or change certain spectrum use for air traffic control or something like that.

                     In those cases there is no elasticities of demand. You need those to fulfill your mission. But in other areas where prices can work, you’ll take into account the prices of the substitutes when you choose what good you’re going to buy, and that, ideally, is the best way to allocate resources, at least through a market where markets can work.

                     I want to make one distinction, though, between efficiency and distributional effects. Okay. There’s efficiency and equity. Economists often separate these two notions because they’re very different conceptually.

                      If you have a good through which there is a robust and liquid secondary market -- you have a well defined good. It’s out there trading. There’s a price for it. You can exchange it and so on. It really doesn’t matter for efficiency sake how that good initially gets into the market. Whether the Federal Government auctions it or we give it to the Girl Scouts. As long as the Girl Scouts are in the secondary market it doesn’t matter for the ultimate economic efficiency of the allocation of that good.

                     Sometimes when people talk about public policy around spectrum they confuse their keen interest in the distributional outcome and who gets the resource with the efficiency of its ultimate allocation. Both are extremely policy matters.

                     We’re in Washington. We know distributional effects matter. But when we’re arguing over a policy or considering its effects, it’s very helpful to keep conceptually separate whether you really are talking about efficiency, meaning that those who value that resource greatest will be its ultimate recipients or are you really talking about who gets the quota rents or who gets the -- who gets the goodies?

                     So, I would just highlight that distinction as we go forward in our discussion of efficiency.

                     MR. GALLAGHER: So, I’ll take that as one big yes, but it’s kind of incorporating all of the elements into one. You think the economic measure really incorporates all three?

                     DR. MORRIS: I do believe that.

                     MR. GALLAGHER: Okay. Dr. Rosston.

                     DR. ROSSTON: I guess I would agree with everything Adele said, except I would call it a no, yes and maybe -- because I think there may be technical efficiency that’s incorporated in economic efficiency but, for example, the FCC, when I was there, mandated technical efficiency for 220 megahertz. They said you have to do specific technical efficiency.

                     Well, that has hamstrung the ability of operators to provide valuable services. It was technically efficient -- it was much more than people might have wanted to do and they could have provided much more valuable services, but they were required to have a certain amount of throughput, which precluded high quality voice. It was a problem and it may have caused a lack of competition.

                     So, I think the technical efficiency standing alone is not necessarily a good thing. It can be incorporated when you -- this is getting back to the idea, there are trade-offs in what you do.

                     So, I would say that technical efficiency, subject to cost considerations or subject to demand, is the important way to think about it. And then social efficiency, I think, is -- depends on what -- social efficiency and economic efficiency I, sort of, think of as the same thing rather than as two different goals.

                     You might say, well, in economic efficiency it doesn’t take account of police and fire services because they’re much more valuable than they’re willing to pay for. Well, as an economist I would say, well, you need to figure out how that fits in with the social value of those and that’s in economic efficiency.

                     I wanted to followup on what Adele and Jim both said. Jim was very concerned about interference from these market experiments or trials, and to me that says we need clear rules for what you can and can’t do. One of the big changes should be to focus on what outputs you’re allowed to do -- emissions -- so that there are clear rules about interference.

                     That way you move toward what Adele said about flexible secondary market. People know what they’re trading and Jim’s people are protected from interference and -- but not only the public guys are protected, but --the private guys are protected, but the public guys as well. So everybody knows what’s being traded and it can be incorporated in the efficiency standards.

                     MR. GALLAGHER: So that sounds like another -- sort of like Adele and you were talking down at that end of the table. So you have two votes together saying all three the same. Of course, if they’re all three wrapped into the same --

                     DR. ROSSTON: The economists at the far end of the table -- I would say left or right, but in Washington that’s connotations.

                     MR. GALLAGHER: Al, how about you?

                     MR. VINCENT: Well, actually -- I’m clean up here and I’m the technologist at the far end of the table.

                     The quick answer is, I vote yes on the three of them. The long answer is, I think that I’ve heard here from the discussion a number of different perspectives as to what the yeses and nos are about.

                     From my perspective, you know, purely from the work we do at Federal agencies and with private sector companies, it’s about, first, having an underpinning for any given piece of spectrum and any given technological choice, understanding how effectively or -- excuse me, how efficiently it’s being used in a technical sense. How much information can I use or can I push through it and is that the best choice for that piece of spectrum and that piece of technology?

                     And once you have those underpinnings, then you can start to build up questions about effectiveness for a mission, which is a different thing for public service, which is a different thing for commercial interests. And then on top of that, I believe, you can build an economic, you know, model that basically says okay, how much are we going to pay for this or how much are we going to sell it for, or how much value does the government put into the private sector by creating it?

                     I think if I was starting the tear-out card that you were talking about in the beginning, you know, having a set of unambiguous measurements, a technical efficiency for these various technical -- for these various spectrum choices would really be a first step because then we could play choices off against each other; we could understand when we use spectrum for something, is this the best of uses?

                     And similarly, the flip side of the comment that was made before about choices of technology or choices of spectrum utilization, to me what that’s really all about is the fact that at any given day a brand new wireless choice can appear. Some new technology can show up tomorrow and we have to basically work that in and decide how valuable that is. And once we have solid technical underpinnings and understanding about how the missions are evaluated -- and, again, we do some public safety work at ITS and we do some commercial work -- understanding, you know, the differences of those is something that may not be used to spectrum all that much. But when it does use it, it’s extremely valuable. It’s different from something that uses it consistently for whatever.

                     And so having the technical underpinnings to be able to do that and be able to make the choices in the long term that tells you then at that point you can add an economic valuation and go somewhere with it.

                     Similarly, it all boils down to interference because once you’re allocating a spectrum everybody has to either not interfere or interfere in a particularly predictable way with everybody else.

                     MR. GALLAGHER: Well, I would like to thank you all for that. Before I turn it over to John so we can explore incentives and their role in this process, I just thought I would offer you a comment and a question for the final exam for the panel.

                     The comment is that this discussion, I think, is relatively predictable in the sense that we’ve spent approximately an hour and the tools that you’ve given John and me say, go do what we want to do. Because we can manipulate these things, play them off on one another and justify them in a manner that suits the needs of a particular outcome and that’s what -- that’s the tool kit right now that I believe that John and I are left with to go make decisions. Because you can manipulate these concepts, you can play them off against one another to get to the objective you would like to achieve.

                     And so what I would ask, because clearly Adele and Dr. Rosston have some rigor right on the terms and what they believe is included, if for purposes of the response to the notice that we’ll put out for public comment, if you can think about how you would write it down on a piece of paper what the definition of efficiency we should be applying is, I would appreciate that personally. I know it would be very helpful to our process. It would also help me pass my exam with the Deputy Secretary.

                     In particular, if there are technical components, how do you define efficiency in a technical way? If there are economic components, how do we define those using the concept of substitute as appropriate? And then on the social waiting, how do we, perhaps, have some rigor around how we measure or value that component? Because if we can get as close as possible towards more rigor in isolating the unknowns it does leave more of these decisions in the hands of innovators in the marketplace and a little less discretion in the hands of arbitrary decisions that are made by policymakers. And I think that would be helpful for everybody.

                     So, thank you for the discussion on efficiency, everybody, and John, if you would guide us through the discussion on incentives. We look forward to that.

                     MR. MULETA: Let me start this by saying what I found interesting in the analysis was that -- the discussion that went on -- was that at the end of the day we were trying to judge behavior and so I think there’s two ways of managing behavior. One is to provide incentive, the other one is to, sort of, order people to provide mandates, although I tend to think mandates are a form of incentive. They just happen to be in the negative. So, you lose your license if you don’t do this if an incentive is to be effective.

                     So, I think what I’m trying to elicit from the panel is to say what incentives work for you from the technology side, what incentives work for you from the commercial side; and to the extent that you can transfer these from commercial and noncommercial sectors, how do you do it; what’s the form? For example, at FAA, how do you get one of the modal folks to -- you know, to have incentives, for example, to allow, let’s say, a market -- a potentially disruptive technology -- you know, create room for that. You know, is there a way to incentivize them because what we might actually be doing is promoting a much greater public good and so on.  

                     So, with that I’ll just open it up and maybe I’ll start with Rick again -- where you’re coming from and see what incentives work for you and how do you transfer them to the commercial sector?

                     MR. BURKE: Well, as a holder of spectrum, one of the things that I find most important to us is the ability to be flexible. As mentioned, technology changes quickly and things pop up that we haven’t even envisioned, and we would like to be able to implement those technologies in a manner that’s as least costly as possible.

                     Meaning, simplifying the rules for entry into a new technology for application into a spectrum, allowing for us to be able to utilize the spectrum in channelized chunks of narrow spaces or wide, however -- whatever it takes to meet that technology provided that we do meet a measurement of efficiency. That we’ve been provided with a spectrum holding that is, maybe, geographic in nature, as well as spectrally in nature. But as an incentive for us to utilize that as effectively as we can, we need to have that flexibility to adopt or adapt technology to meet our goals of service.

                     MR. MULETA: Is your ultimate measure for a private sector player, sort of, a dollar situation you could get out of it? I mean, is that -- when you talk about flexibility, it’s a flexibility to monetize or generate a return, right? Is that --

                     MR. BURKE: Flexibility to offer services that

-- yes, that will ultimately provide the greatest return of efficiency of services that we’re delivering to our end users because, after all, after we -- after the smoke clears, it’s the end recipient of the service, be they a commercial user or a public safety user. It’s their value of service that’s in their hand.

                     So, in order for us to be able to change with the tide, if you would, we would need to be able to offer changes or service offering. And, as Bill mentioned, being able to substitute technologies as our customer base grows and changes, to have that dynamics of scale to be able to bring something new to the parties without incurring a substantial cost due to meeting, you know, regulatory guidelines or reports, you know, and things that slow down that process.

                     MR. MULETA: Bill, if I -- maybe, as a commercial player, you can add to that --

                     MR. HOGG: Yes, I would. I would like to add to that. I think that the marketplace does, indeed, provide the ultimate incentive for us. As a private sector player, ultimately we need to provide goods and services that our customers want. We have to do it in an efficient way.

                     But I would like to touch on a point that Adele had brought up, and that is, we live in a global economy, and we need to think about how we create the right incentives in the marketplace that also allow us to take advantage of the economy use scale globally.

                     So, we need to think about the harmonization of our policy with what’s going on in the rest of the world, as well, and make sure that the incentives that we put in place be marketplace driven for private sector folks and that it provides the right amount of flexibility with a predictable role set that will allow us to also take advantage of the global economy use scales that are out there for technology. And I think that --

                     It just drives efficiency because of competition and the fact that in order to provide a service sufficiently, to provide it at a cost that customers are willing to pay at a value point that they’re willing to subscribe to a service -- you know, all the incentive that we need.

                     MR. MULETA: I guess, John, as a service provider, but yet a noncommercial one, how do incentives work for you? I think you described earlier a mandate as opposed to an incentive in the sense that you have to move from analog to digital. So what incentives would work for a noncommercial actors?

                     MR. LAWSON: Well, the incentive for the broadcasters was that -- is that ultimately will lose their licenses if we don’t complete -- if we don’t get on the air with a digital signal. I’m happy to say that 221 public stations have done that, almost two-thirds of our stations have -- are broadcasting in digital. So, the Federal mandate definitely stimulated that, but we also are beginning to see that we can provide some real services for people. New services that we’ve never been able to provide before and there’s a huge role for -- we are willing to put out bandwidth in play for public safety for emergency communications as well.

                     When you start talking about the incentives they begin to add up just purely from an operational standpoint. If we turned off analog broadcasting our stations would save $36 million a year in electricity costs. This is 20 percent of the entire funding that our stations get from the corporation for public broadcasting. That’s $36 million that’s not going into programming. It’s not going into educational content. So, we have a big incentive there.

                     We also have an incentive because, frankly, we think if we can -- if we can make this transition other things will fall into place, and for that reason our Board, the Board of the Association of Public Television Stations, last October directed us, the Staff, to develop a plan to embrace a date certain to turn off analog broadcasting. We’re, I think, considered heretics among some of our broadcaster colleagues and we have not settled on a date and we can’t do it alone. The government is going to have to be a partner with us and we need some commercial broadcasters to go with us.

                     But we would like to get this transition done and then you start looking at the major barrier. The major barrier to getting it done is taking care of those 14 or 15 million households that depend exclusively on over-the-air broadcasting for television. Then you’ve got another 30 to 40 million television sets in homes that may have cable, may have satellite that aren’t connected to either. The one in the kitchen; the one in the basement. How do we migrate these over-the-air consumers to digital.

                     We think that that’s where incentives come in. We think we have to put a very clear consumer proposition on the table as broadcasters. We’re going to introduce new services for you, new channels, higher quality for a one-time fee, which is to buy an expensive -- we hope an expensive set-top box.

                     I have to say that we’re encouraged by what we’ve seen in Europe. Berlin became the first market in the world to turn off analog broadcasting last August. The British Government, after a failed paid platform for digital terrestrial broadcasting, recalled the licenses, had a beauty contest competition and the BBC, BSkyB and Crown Castle commercial transition company, have launched a free over-the-air service called Free-View. And the last time I checked in the UK they were selling 100,000 set-top boxes a month for -- this is free. I mean, it’s “wireless” television. What a concept.

                     But I have to say in Berlin there was -- UK hasn’t turned off analog broadcasting, Berlin did. They had to migrate 160,000 households. Almost all of these people were incentivized to buy set-top boxes, but there was a stick with a carrot of these new services -- these free new services. The government -- the media -- specifically the media authority of Berlin, Brandenburg said guess what, folks. In 18 months we’re turning off analog broadcasting. So it gave the consumers a double incentive to make that transition.

                     MR. GALLAGHER: You know, John, I just want to take this opportunity to say -- congratulate you and your members for the aggressive nature that they’re looking into moving into digital and the digital realm. You’re to be commended for your bravery and your courage and we’ll be watching the progress of your decision as it goes forward, as well as paying attention to these international experiments.

                     But I wanted to thank you for sharing that with us because it certainly is a significant action out there in the world of spectrum and it certainly is a result of incentives, some of them negative coming from the government, and we’ll look forward to engaging with you and your group positively.

                     MR. LAWSON: Well, if I get too far out in front of my members I might have to come to you for a job, Mike.

                     MR. MULETA: Well, let me turn to another service provider, Jim, and the way I understand the DoT structure is you have, sort of, the office of the Secretary and then you have the modal transport. How do you create incentives for your various modal organizations to use spectrum efficiently? Are there incentives that you place in -- you know, how do you work it with your service providers?

                     MR. MILLER: Well, we are firmly in support of finding additional ways to use spectrum more efficiently. As I noted earlier, the FAA has a program to transition from analog to digital signals in their communication system. We’re using GPS to allow pilots to fly more efficiently.

                     So, it’s very important that we assist and work with the private sector to find more efficient ways to use radio energy because, quite frankly, we all know that there is not the real estate nor the money to pour additional concrete for more highways and more airports. It’s just not there. So we have to look for technology solutions.

                     The concern that I have being a regulatory agency and about safety is, does spectrum efficiency translate into making the most money as fast as you can? Now, the Department of Transportation doesn’t make money off of the spectrum that it uses. It provides a service to everyone in this room, to the nation as a whole, and to the world.

                     So, I would answer that we are looking for additional ways to use spectrum more efficiently. We support NTIA and FCC doing this. But we believe the transition needs to be benefit driven. I see a lot of stick, but very little carrot.

                     So, if we are talking about spectrum efficiency in terms of the Federal government agencies giving up more, what are they getting in return? And that is one of the questions that we are seeking answers to. Thank you.

                     MR. MULETA: Adele and Greg, I didn’t know if you had any thoughts about what incentives would work, either positive or negative.

                     DR. MORRIS: Yeah. Thanks, John. Speaking with regard to the management of Federal use of spectrum, to me there are kind of two categories of incentives. One is kind of administrative discipline. Much like we have a budget process; we have O&B; each agency gets a budget allocation; there are disciplines involved in that; there’s tracking and controlling of budgets; we know who’s got what budget. It’s a transparent rigorous process. It can be messy, but we do it and we do it with an eye to making as efficient as possible the running of the government and knowing that tax dollars are scarce resources. And there is an opportunity cost to the taxpayer of the money they send to the Federal government.

                     Similar to that, we have a spectrum resource. You could have administrative discipline, better analogous to the budget process when there are frequency assignments.

                     What’s the process for managing those assignments? Are we ground trooping the government master file? For an agency that says they thought X number of transmitters -- does anybody ever go out and see whether there are transmitters? Who is out there really looking into the actual fact of the resource needs of the agency? And there can be internal disciplines with any agency and disciplines across agencies and there also can be administrative functions to identify opportunities to gain efficiency across agencies.

                     We’re doing that, to some extent, in the land mobile arena. Where can we set up trunk systems where we don’t have to duplicate the same kind of system within a number of agencies? Where can we combine resources across agencies to get some technical efficiency and ultimately some economic efficiency? That’s the administrative category.

                     The other category is what you might think of as price signals. They come in, kind of, both the carrots and the sticks, if we want to think about that. There’s user fees, like what does it cost an agency to obtain a frequency assignment and what does that price depend on? Right now those user fees -- and there are user fees to Federal agencies, but they’re designed strictly to recover the costs of NTIA program administration.

                     Okay. The fees are not out there in any way related to the economic value of the resource. It’s just, you know, you slap kind of a flat fee on however many assignments you have on one day of the year. I mean, really the most, kind of, boneheaded thing you can do.

                     That works great for cost recovery. But if you want a price incentive you need to think about whether you can do it a different way without making it ungodly complicated.

                     Okay. So that’s one category of price incentive. Another category of price incentive is more in the carrot type idea, is the idea of secondary markets. We see this in the commercial sector. When you have a market driven -- a marketplace driven system, you know, my willingness to hold onto a resource depends on what I can get for it if I were to go to sell it.

                     Well, is it conceivable that Federal agencies could have something like a secondary market? Could they lease out the spectrum that they’re not actively using, and under what conditions and to whom, and if there is some kind of Federal emergency, could they preempt that lease? What could be the rules around something that might look something like a secondary market, and if it were the kind of a lease type thing, would there be a market for temporary spectrum use out there?

                     And this is something you folks would certainly know more about than we do. But I think those are some categories of spectrum incentives that we could certainly have a conversation about.

                     MR. MULETA: Let me -- for the non-economists at the table, let me, sort of, summarize what I thought I heard you say and I’ll ask Greg and Michael maybe to speak to this, and also the larger question.

                     One was I heard there’s this notion of administrative efficiency, which will create a measurement system and, you know, make it transparent. It’s numbers. It’s FTEs or something on that equivalent -- basis, and then we sort of -- but I think that notion requires that there be this uber (phonetic) administrator. You know, he who giveth and he who can taketh it away in a sense, right? Because O&B only works because he can -- they can take the budget away.

                     I think the other issue that I heard is that there are market mechanisms that are more incentive driven, like price signals, which is really -- again, you have to have some sort of a measuring system and some level of transparency and then allow people to maybe trade with these fundable things.

                     So, that’s what -- is that, sort of, a correct summarization?