Testimony of Assistant Secretary Victory on the Commercial Spectrum Enhancement Act, and the Creation of a Spectrum Relocation Fund

March 25, 2003
Testimony of Nancy J. Victory
Assistant Secretary for Communications and Information
National Telecommunications and Information Administration
Department of Commerce

Before the

Subcommittee on Telecommunications and the Internet

Committee on Energy and Commerce
United States House of Representatives

Hearing on

H.R. 1320, the Commercial Spectrum Enhancement Act

March 25, 2003

Mr. Chairman and Members of the Committee, thank you for this opportunity to testify before you today on H.R. 1320, The Commercial Spectrum Enhancement Act. I am Nancy J. Victory, Assistant Secretary for Communications and Information at the U.S. Department of Commerce. Although I have previously had the honor of testifying before this Committee, this is the first time that I have had the opportunity to address the important issue of spectrum management. I very much appreciate the opportunity to offer the Administration's views on means to improve spectrum management generally and specifically on the proposal authorizing the creation of a spectrum relocation fund.

Spectrum has become a critical asset underpinning modern defense systems, homeland security, public safety, everyday commerce and, of course, communications between friends and family. To cope with the burgeoning uses of spectrum and the increasing forms of beneficial wireless technologies and devices, we must figure out ways to better manage the radio spectrum. Managers of the spectrum - my agency, the National Telecommunications and Information Administration (NTIA), and the Federal Communications Commission (FCC) - must have the tools to react quickly to changes in technology and usage and to ensure that the allocation of the spectrum addresses the current need.

I therefore enthusiastically support legislative action authorizing the creation of a spectrum relocation fund, which will streamline and shorten the process for reimbursing incumbent users to facilitate their relocation to new spectrum and thus expedite the opening of the original spectrum to new services and technologies. I commend Chairman Upton for introducing H.R. 1320, which embodies a relocation fund mechanism. This is a significant step towards improving spectrum management.

As the Committee Members may be aware, the President's Fiscal Year 2004 Budget contains a similar initiative and the Administration recently re-transmitted the legislative language to Congress. Although there are differences in the details of H.R. 1320 and the Administration's proposal, they both are designed to streamline the mechanism for compensating incumbent users, while providing more certainty to private sector auction participants about the actual costs of accessing the spectrum on which they are bidding. I look forward to working actively with the Committee as it resolves these differences and crafts legislation embodying the most workable and beneficial relocation fund mechanism.

I. NTIA's Role in Spectrum Management

As you know, NTIA has the crucial responsibility for managing the radio communications spectrum used by the Federal government agencies in satisfying their missions. In this role, my agency fills thousands of frequency assignment requests from Federal agencies each year. As the tremendous demand for spectrum increases, however, NTIA must not only respond to frequency requests, we must also engage in planning and coordinating current and future spectrum use requirements among the agencies. Additionally, because so much of the spectrum is shared between the government agencies and the private sector, NTIA works closely with the FCC, the other co-manager of the spectrum, on overall spectrum management process and policies.

NTIA's laboratory, the Institute for Telecommunication Sciences (ITS), located in Boulder, Colorado, supports these efforts. ITS performs a wide range of engineering and research activities that directly and indirectly affect radio spectrum utilization and efficiency, and that thus help to improve spectrum management and use. ITS is the primary telecommunications research laboratory involved in the development and application of radio wave propagation measurements, studies, and prediction modules. Many of the propagation models in use today, in the United States and around the world, are derived from its work. Through ITS, NTIA continues to improve our understanding of radio wave transmissions to enhance spectrum use.

NTIA's role as manager of the Federal spectrum is especially important today with respect to defense, public safety, and homeland security. Today's military relies heavily on spectrum to accomplish specialized and critical missions. Indeed, information gained from wireless systems is a pivotal weapon in times of war. Domestic training on those systems and operations and protections here at home are critical to keeping our nation safe. It should not be surprising, then, that forty percent of the 280,000 Federal frequency assignments authorized by NTIA have been provided to the Department of Defense (DOD) for national security purposes. Likewise, public safety and homeland security are also obvious concerns to NTIA. In this regard, NTIA has a most important role in facilitating use of spectrum and ensuring network viability. Following the events of September 11, NTIA operated 24-hours-a-day, 7 days-a-week to fill frequency requests by federal agencies for law enforcement, special operations, and search and rescue operations at the World Trade Center and the Pentagon. We stand ready to do so again, if circumstances require it.

However, NTIA's spectrum concerns are not limited to defense and homeland security efforts. As the advisor to the President on telecommunications policy, my agency also recognizes its role in ensuring the availability of spectrum to meet the telecommunications needs of U.S. industries and consumers. The wonders of wireless technology continue to improve all of our lives -- at home, at work and at school. Wireless has also been a continuing area of growth and innovation for our economy. Spectrum must be made available so this growth and innovation can continue and our economic security can remain strong. The Department of Commerce looks forward to continuing to work with the FCC to evaluate asserted requirements for spectrum of both federal and non-federal users and to consider technology and other creative solutions where available. The problem, of course, is balancing all of these important, but competing, demands for spectrum when the spectrum itself is a finite resource.

II. Recent Progress in Spectrum Management

Currently, there is a strong sense among virtually all stakeholders -- government and private sector alike -- that our system of spectrum management is in need of modernization. We must look for new and creative ways of managing spectrum that not only protect current users' systems, but are also flexible to accommodate new technologies that enter the market. That is why last year NTIA hosted a high-level two-day Spectrum Summit that brought together leaders in the spectrum management community with those from industry to try to figure out how to make the process better and more transparent. FCC Chairman Michael Powell, his FCC colleagues, Federal agency representatives, private sector wireless service providers and manufacturers, technologists, economists and analysts participated in the event. The purpose of the Summit was to explore new innovative ideas to develop and implement spectrum management approaches that would encourage spectrum efficiency; that would provide spectrum for new technologies; and that would improve the effectiveness of the domestic and international spectrum management processes. Throughout the course of the two days, several themes or concepts continued to be touched upon by the panelists. As a result of those discussions, NTIA developed several basic goals or principles designed to guide our actions to achieve improved spectrum management:

First, the U.S. government must work together as "One Spectrum Team" in its approach to spectrum. As spectrum becomes scarcer domestically and globally, it becomes increasingly important to improve communication among the agencies engaged in spectrum management. Our country's spectrum needs are too important to be undermined by internecine squabbling between and within branches of government. As the head of NTIA, I have been committed to building a foundation of trust, collegiality and cooperation in our dealings within the Federal government and in our interactions with the FCC, the State Department and Congress. Chairman Powell at the FCC and Ambassador David Gross at the State Department have embraced this approach and have helped to develop an action plan to facilitate the efficient functioning of the nation's spectrum management team at home and abroad. As part of this plan, NTIA and the FCC recently executed a new Memorandum of Understanding to guide our interagency coordination. I am pleased to note that Janice Obuchowski, the new U.S. Ambassador to World Radio Conference 2003, has recently been added to this team. Ambassador Obuchowski has the full support of my agency in the important WRC preparations.

Second, there is the need to modernize our spectrum policies so that they are forward-looking. A concerted effort needs to be made to eliminate unnecessary government micro-management of spectrum uses. This means taking a fresh look at legacy policies, rules, and restrictions to assess their ability to accommodate emerging technologies or spectrum needs. Current practice requires users to seek permission from either NTIA or the FCC before changing the services offered over their licensed frequencies. This process can impose time-consuming approval processes that can engender lengthy delays. We need to look at policies that permit flexibility of uses and technology. This is essential to ensure that government does not block innovation. For example, NTIA has supported the FCC's proposal to allow secondary leasing of spectrum to third parties. We will be exploring whether and to what extent this could work for government users.

Third, we must pursue policies that encourage spectrum efficiency and that discourage spectrum waste. NTIA has long advocated the use of more spectrum efficient technologies. For example, NTIA has developed--and the Federal agencies are now implementing--a transition to narrowband technology to relieve congestion in the land mobile radio bands used by the Government. Under NTIA regulations, Federal agencies must convert to narrowband technology in one VHF land mobile frequency band by 2005 and in two others by 2008. Narrowbanding, where technically possible, holds great promise for increasing the number of channels available to all users of spectrum. We will also be examining other policies to encourage spectrum efficiency. In doing so, however, we must be mindful not to let essential reliability needs be sacrificed for efficiency. This is particularly important for critical communications, such as those for defense and public safety.

And finally, we must develop spectrum policies that ensure the deployment of robust wireless networks that are prepared for the worst of crises and that are able to deliver the best of services to the government, defense and public safety communities as well as to the American people. Attention to national security and homeland security is critical. In prior years, this may not have been a primary consideration. In today's world, it is all too important. The wireless networks of today and tomorrow must be robust and capable of functioning well, especially under the stress and strain of an emergency situation. The Department of Commerce is working hard to make sure its policies and requirements promote such operation. We have also been working with particular spectrum user communities to solve technical challenges to such improved operations, such as with respect to interoperability among public safety providers.

III. Individual Spectrum Management Challenges Continue

Last year's Spectrum Summit was a success. But it was only the start. Since the Summit, NTIA has made significant progress in achieving its goals for more efficient and effective spectrum management policies that we hope will provide more opportunities and certainty about the path ahead. The Spectrum Summit shed light on many issues and it continues to guide our policymaking. However, at the same time that we were working to improve our spectrum management policies overall, we faced several immediate spectrum allocation challenges.

Third Generation Advanced Services (3G). For NTIA, 3G posed the question of whether and how the federal government could make frequencies available for Third Generation advanced wireless services in the United States. With guidance from the President, the U.S. Department of Defense, the FCC, NTIA, and the private sector sat down and had honest discussions on what was doable and what was not. As a result of these candid discussions, NTIA and the FCC announced that an additional 90 MHz of spectrum would be made available to accommodate advanced mobile (3G) services and articulated a plan for accomplishing this. One of the basic premises of this plan was that the allocation would be technology neutral and thus the private sector could decide the technology that would ultimately be used. It was also imperative that the spectrum provided not be generation-specific, thus enabling the marketplace to determine whether the spectrum is going to be used for 2G or 3G or 4G or whatever lies ahead. I would like to note that one of the bands identified for 3G services, the 1710 - 1755 MHz band, is occupied with government users that are entitled to reimbursement for relocation expenses. The spectrum relocation fund mechanism under consideration would provide a critical means for facilitating the transition of these government users and accelerating the deployment of 3G operations.

Unlicensed Operations in the 5 GHz Band. Early this year, the U.S. Government and the private sector reached an agreement on how to make an additional 255 MHz of spectrum available for unlicensed use in the 5 GHz band - resolving another complex spectrum management issue that posed a potential barrier to deployment of devices using the 802.11(a) Wi-Fi technology. For nearly a year, the players at the table could not agree on the technical parameters that would permit sharing between the new unlicensed devices and incumbent operations. Finally, government and industry were able to find common ground and a consensus approach - fortunately, in time for the recent CITEL (Inter-American Telecommunication Commission) preparations for the World Radiocommunications Conference negotiations. We look forward to working with our colleagues in the other Western Hemisphere countries, as well as in countries around the world, to achieve a mobile allocation in the 5150-5350 MHz and 5470-5725 MHz bands that is consistent with protecting the operations of incumbent users.

IV. A Spectrum Relocation Fund Is a Needed Spectrum Management Improvement

The foregoing discussion provides some indication of the spectrum management challenges we face and the direction in which my agency thinks we need to proceed in order to improve how we manage the radio spectrum. Passage of legislation creating a spectrum relocation fund is consistent with and necessary for improved spectrum management. While existing law provides for reimbursement for federal entities relocating to new spectrum to make way for new services, the current process is time-consuming and frought with uncertainty for both incumbents and new entrants.

Existing Reimbursement Procedures. By way of background, the Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 provides that Federal users are entitled to reimbursement for their costs of relocating to accommodate non-Federal users of the spectrum. At the direction of the Act, NTIA in June 2002 promulgated rules formalizing the reimbursement procedures for new licensees to compensate federal agencies that relocate their operations to make frequency spectrum available for commercial use. Under these rules, auction participants are given an estimate of a Federal agency's cost to relocate prior to an FCC auction. Once the participant becomes a winning bidder at an FCC auction, the winning bidder is then required to negotiate with each affected Federal agency in their new license area and pay the agencies directly for their actual relocation costs. This amount that the winning bidder pays the federal agencies is thus separate from and in addition to the amount paid at auction for the spectrum.

There are a number of problems with the current process. First, the negotiations required under the rules will be significantly time-consuming and resource-intensive, depleting the resources of both government incumbents and auction winners. Second, to the extent classified or secret systems must be relocated, full and fair negotiations between government and the private sector will be difficult at best. Third, because the negotiation process will necessarily take time, and cannot begin until after the auction is complete and the license is issued, deployment of the new service is likely to be delayed several years after the close of the auction. And finally, the current process leaves completely uncertain for potential bidders the actual costs of deploying their new service, not to mention leaving uncertain for incumbents the time in which and extent to which their costs will be recouped.

Many of these same concerns were recognized by commenters in NTIA's rulemaking proceeding to adopt the current rules. In fact, private sector users participating in the proceeding overwhelmingly recommended that auction proceeds be used to pay for expenses incurred by the Federal entities as a result of relocation. However, as NTIA noted when adopting those rules, current law requires that new non-Government licensees directly reimburse Federal entities for relocation costs. In the absence of a statutory change, auction proceeds cannot be used to reimburse Federal entities for relocation costs.

A Spectrum Relocation Fund Addresses Problems with the Current Process. I am therefore pleased that this Committee is considering the necessary statutory change to authorize use of a spectrum relocation fund. This is a significant step forward to facilitating the transition by incumbents, to speeding the deployment of new technologies, and to providing more certainty and predictability for all involved. The fund is a spectrum management tool that is fully consistent with the types of forward-looking mechanisms that NTIA and the Administration believe are necessary to improve our management of the radio spectrum.

In order for a relocation fund to function effectively and to address the concerns with the current process, it must be designed consistently with three overriding goals:

Full reimbursement of all reasonable expenses. First, the legislation must provide for full reimbursement of all reasonable expenses the incumbents incur in relocating to new spectrum. Such full reimbursement is not only required by the Strom Thurmond Act, but is also necessary to ensure that Federal agencies can carry out their critical missions. Toward this end, it is important that any relocation fund legislation fully define the costs that are eligible for reimbursement and that this be a comprehensive list of the types of costs reasonably incurred by the incumbents in completing the transition. This will provide certainty and predictability for the incumbent users, as well as ensure that the fund can be administered efficiently. It is also important that estimates of the costs be collected in advance of the auction and that the legislation ensure, through an auction reserve price or other mechanisms, that the fund will contain and preserve sufficient monies to cover the actual reasonable relocation costs of the incumbent users.

A streamlined mechanism for drawing down funds. Second, it is essential that the process by which the Federal agencies draw down monies from the Fund be streamlined and relatively rapid. The establishment of a relocation fund provides little gain if the process for drawing down monies takes as long and is as resource intensive as the individual negotiations with auction winners would have been. Obviously, controls must be put in place to ensure effective money management. However, to the extent such controls and review can occur early in the process (say at an estimate stage), certainty of reimbursement for government users is increased, sufficient monies collected from the auction can be assured, and the deployment of the new service can be accelerated. Providing agencies with mandatory spending authority for the relocation payments means that agencies can begin the relocation process almost as soon as the auction receipts are paid into a fund. A relocation fund provides a centralized process for providing relocation payments to the agencies, which would be managed by the Office of Management and Budget similar to the Y2K and Emergency Response Funds.

Certainty for auction bidders and incumbents. Finally, in order to be effective, a spectrum relocation fund mechanism must provide certainty -- for auction bidders as well as for the incumbents. Legislation establishing the fund must ensure that the entities bidding for spectrum are not subject to additional relocation costs for the incumbents beyond the amount they pay for the spectrum at auction. As a result, auction winners will be assured of a certainty of process enabling them to ascertain how relocation will occur and when they will gain access to the spectrum. Moreover, the fund will enable auction participants to be better able to formulate realistic business plans and help to remove unexpected roadblocks to deployment of their new service.

By spelling out the relocation and draw down process, a centralized managed fund will provide incumbents with certainty and predictability as well. By understanding when and how monies will be made available, incumbents can be more pro-active in planning for and facilitating the transition. Predictability of process also will permit incumbents to minimize any temporary out-of-pocket costs -- a big concern for busy agencies with tight budgets. We anticipate working closely with the federal agencies to identify replacement spectrum or alternative technologies prior to the announcement of an auction, so that cost estimates can be as accurate as possible.

Although H.R. 1320 differs in its details from the Administration's proposal, the bill is generally consistent with these three goals. I look forward to working with the Committee to resolve any differences between the bill and the Administration's proposal and to help the Committee craft legislation embodying the most workable and beneficial relocation fund mechanism. I am sure that working together, we can ensure that legislation is passed that will address the concerns and interests of all affected parties.

Mr. Chairman and members of the Committee, I thank you again for the opportunity to testify on this important spectrum management issue. I welcome any questions you may have for me.