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					     Chapter IV - A                                                               Technology Primer


                      A. Technology Primer - Electromagnetic Wave
                          Propagation & Other Simple Principles

     1.      Waves (radiation) and modulation
             a.     wire
             b.     wireless (the so-called ether)

     2.      What is the spectrum?

             a.       Consider the “visible” spectrum: light waves of different colors.
                      Red Orange Yellow Green Blue Indigo Violet

b.   Suppose the gov’t awarded 7 people exclusive licenses to use one of the colors. Suppose
     further you were awarded color red. How could you use this color to transmit information?
     Perhaps you could send a bright red signal to indicate Yes (or on) and a pale red (pink) signal
     to indicate No (or off). With these two shades of red at your disposal, you could send lots of
     (digital) information, simply by sequencing your ons and offs. But your license has to be ex-
     clusive because if someone else sent messages in red, they would interfere with yours and
     confuse the receiving device.

c.   Many more than 7 exclusive licenses can be awarded because: (a) the seven principal colors
     can be subdivided into many hues, and licenses can be awarded for each; and (b) receiving
     devices are not limited to the “visible” spectrum, but can decode waves in parts of the spec-
     trum above and below visible light (i.e., ultra-violet and infra-red).

d.   Parts of the spectrum are measured by “frequencies,” literally how frequent does a wave go
     through its (sinusoidal) cycle. A 1 cycle (1 Hertz) wave repeats every second. Since waves
     travel at the speed of light (3 x 108 meters/second), then a wave that takes a full second to re-
     peat must be 3 x 108 meters long (about 186,000 miles). It would take a very long antenna to
     receive a 1 cycle wave since the antenna must be roughly ½ the size of the wave to capture all
     the information on the wave. An ordinary antenna can do an adequate job if it is ¼ the length
     of the wave, but not if it is much shorter than that.

Chapter IV - A                                                            Technology Primer

A 100 Hz wave would be 3 x 106 meters long. A 100,000,000 Hz (or 100 MegaHertz) wave
would be 3 meters long (about 10 feet). Information on that wave could be adequately cap-
tured by an antenna 2.5 feet long, which is about the length of your average car antenna. By
the way, 100MHz is right in the middle of the FM dial.

Chapter IV - A                                                            Technology Primer

        A wave that cycled 1 billions times per second (1,000,000,000 Hz, or 1 GHz) would
be .3 meters long (about a foot). A 3 inch antenna would nicely do for that frequency, about
what you see on cordless and wireless telephones.

        Wave length (l) = speed of light (c) divided by frequency (f)
        l-c/f or f=c/l

c.     Waves tend to pass through structures and material that are larger than the waves, but
are reflected by structures and material smaller than the waves. Thus, long waves (e.g., AM
frequences) tend to be reflected by bridges and the ionosphere, while shorter waves (e.g., FM
frequencies) pass right through. That’s why you can get FM on your car radio when you’re in

Chapter IV - A                                                              Technology Primer

a tunnel, but not AM. It’s also why you can hear AM signals from far away at night, but not
FM. AM signals bounce off the ionosphere back to earth.

3.    Bandwidth:

a.     The more information that a (FM) wave is expected to carry, the more it must modulate
its frequency. That means it must have a broader range of frequencies available (and not used
by anyone else). This range is known as “bandwidth.” For instance, TV signals carry much
more information than radio signals, hence they need more bandwidth. A TV “channel” is
about 6 MHz wide, an FM channel is about .2 MHz wide. So TV signals can carry about 30
times as much information as FM radio signals.

b.    The more information a signal carrys over a line (e.g., telephone line), the more
bandwidth it needs, and the fewer signals that can share a single line. That’s the problem with
high speed modems: they carry more information in a given period of time; they need more
bandwidth; regular telephone lines may not be physically wide enough to carry them.

4.      Modulating Electromagnetic Waves as a Means of Transmitting Information

       An E/M wave can be continuous or modulated. Modulation is the scientific term for
encoding. Equipment at the sending and receiving end encodes or deciphers variations in the
E/M signal. Here are the major variants.

          a.      Continuous Wave (CW). CW is the simplest form of modulation. The out-
put of the transmitter is switched on and off, typically to form the characters of Morse code.
CW transmitters are simple and inexpensive, and the transmitted CW signal doesn't occupy
much frequency space (usually less than 500 Hz). However, CW signals will be difficult to
hear on a normal receiver; you'll just hear the faint quieting of background noise as the CW
signals are transmitted. To overcome the problem, shortwave and ham radio receivers include
a beat frequency oscillator (BFO) circuit. This produces an internally-generated second car-
rier that "beats" against the received CW signal, producing a tone that turns on and off in step
with the received CW signal. This is how Morse code signals are received on shortwave.

        b.       Amplitude Modulation (AM)

In amplitude modulation, the strength (amplitude) of the carrier from a transmitter is varied
according to how a modulating signal varies.

When you speak into the microphone of an AM transmitter, the microphone converts your
voice into a varying voltage. This voltage is amplified and then used to vary the strength of
the transmitter's output. Amplitude modulation adds power to the carrier, with the amount
added depending on the strength of the modulating voltage. Amplitude modulation results in

Chapter IV - A                                                                Technology Primer

three separate frequencies being transmitted: the original carrier frequency, a lower sideband
(LSB) below the carrier frequency, and an upper sideband (USB) above the carrier frequency.
The sidebands are "mirror images" of each other and contain the same intelligence. When an
AM signal is received, these frequencies are combined to produce the sounds you hear.

Each sideband occupies as much frequency space as the highest audio frequency being trans-
mitted. If the highest audio frequency being transmitted is 5 kHz, then the total frequency
space occupied by an AM signal will be 10 kHz (the carrier occupies negligible frequency

AM has the advantages of being easy to produce in a transmitter and AM receivers are simple
in design. Its main disadvantage is its inefficiency. About two-thirds of an AM signal's
power is concentrated in the carrier, which contains no intelligence. One-third of the power is
in the sidebands, which contain the signal's intelligence. Since the sidebands contain the
same intelligence, however, one is essentially "wasted." Of the total power output of an AM
transmitter, only about one-sixth is actually productive, useful output!

Other disadvantages of AM include the relatively wide amount of frequency space an AM
signal occupies and its susceptibility to static and other forms of electrical noise. Despite this,
AM is simple to tune on ordinary receivers, and that is why it is used for almost all shortwave

        c.       Single Sideband (SSB)

 Since so much power is wasted in AM, radio engineers devised a method to transmit just one
sideband and put all of the transmitter's power into sending useful intelligence. This method
is known as single sideband (SSB). In SSB transmitters, the carrier and one sideband are re-
moved before the signal is amplified. Either the upper sideband (USB) or lower sideband
(LSB) of the original AM signal can be transmitted.

SSB is a much more efficient mode than AM since all of the transmitter's power goes into
transmitting useful intelligence. A SSB signal also occupies only about half the frequency
space of a comparable AM signal. However, SSB transmitters and receivers are far more
complicated than those for AM. In fact, a SSB signal cannot be received intelligibly on an
AM receiver; the SSB signal will have a badly distorted "Donald Duck" sound. This is be-
cause the carrier of an AM signal does play a major role in demodulating (that is, recovering
the transmitted audio) the sidebands of an AM signal. To successfully demodulate a SSB
signal, you need a "substitute carrier."

A substitute carrier can be supplied by the beat frequency oscillator (BFO) circuit used when
receiving CW signals. However, this means that a SSB signal must be carefully tuned to pre-
cise "beat" it against the replacement carrier from the BFO. For best performance, a SSB re-
ceiver needs more precise tuning and stability than an AM receiver, and it must be tuned more
carefully than an AM receiver. Even when precisely tuned, the audio quality of a SSB signal
is less than that of an AM signal.

SSB is used mainly by ham radio operators, military services, maritime and aeronautical radio
services, and other situations where skilled operators and quality receiving equipment are
common. There have been a few experiments in using SSB for shortwave broadcasting, but
AM remains the preferred mode for broadcasting because of its simplicity.

Chapter IV - A                                                              Technology Primer

        d.       Frequency Modulation (FM)

In CW, AM, and SSB, the carrier of the signal will not change in a normally operating trans-
mitter. However, it is possible to modulate a signal by changing its frequency in accordance
with a modulating signal. This is the idea behind frequency modulation (FM).

The unmodulated frequency of a FM signal is called its center frequency. When a modulating
signal is applied, the FM transmitter's frequency will swing above and below the center fre-
quency according to the modulating signal. The amount of "swing" in the transmitter's fre-
quency in any direction above or below the center frequency is called its deviation. The total
frequency space occupied by a FM signal is twice its deviation.

As you might suspect, FM signals occupy a great deal of frequency space. The deviation of a
FM broadcast station is 75 kHz, for a total frequency space of 150 kHz. Most other users of
FM (police and fire departments, business radio services, etc.) use a deviation of 5 kHz, for a
total frequency space occupied of 10 kHz. For these reasons, FM is mainly used on frequency
above 30 MHz, where adequate frequency space is available. This is why most scanner ra-
dios can only receive FM signals, since most signals found above 30 MHz are FM.

The big advantage of FM is its audio quality and immunity to noise. Most forms of static and
electrical noise are naturally AM, and a FM receiver will not respond to AM signals. FM re-
ceivers also exhibit a characteristic known as the capture effect. If two or more FM signals
are on the same frequency, the FM receiver will respond to the strongest of the signals and
ignore the rest. The audio quality of a FM signal increases as its deviation increases, which is
why FM broadcast stations use such large deviation. The main disadvantage of FM is the
amount of frequency space a signal requires.

        e.       Digital Modes

The same technology that makes it possible for you to view this Web site is also being used
on the air. Digital modes can organize information into packets that contain address fields,
information about the transmission protocol being used, error detection code, a few hundred
bytes of data, and bits to indicate where each packet begins and ends.

Instead of transmitting messages in continuous streams, packet modes break them into pack-
ets. At the receiving end, the different packets are re-assembled to form the original message.
If a packet is missing or received with errors, the receiving station can request a retransmis-
sion of the packet. Packets can be received out of sequence or even from multiple sources
(such as different relaying stations) and still be assembled into the original message by the
receiving station.

While packet modes have mainly been used to send text, any information that can be con-
verted into digital form---sound, graphics, video, etc.---can be transmitted by digital modes.

Chapter IV - A                                                                Technology Primer

Another advantage of packet modes is that packets can be addressed to specific stations in the
address field of each packet. Other stations will ignore packets not addressed to them.

The big disadvantage of packet modes is the complexity of the necessary receiving and trans-
mitting gear. The frequency space occupied is directly proportional to the speed at which
messages are transmitted, and radio digital modes are very slow compared to their Internet
equivalents. The slowest Web connection via the Internet is 14,400 baud (14.4K), while the
maximum practical digital mode rate via radio is 9600 baud (9.6K). On frequencies below 30
MHz, it is even slower; rates are usually restricted to just 300 baud (0.3K)! As a result, digital
modes via radio today deliver performance far short of their potential.

Special receiving adapters for packet modes are available, and these usually work in conjunc-
tion with personal computers. Most offer FSK receiving capabilities as well.

Another form of digital modulation is known as spread spectrum. Most other modulation
methods pack all of the transmitter's output power into a bandwidth of only a few kHz. (Even
in FM, the carrier doesn't occupy much bandwidth, although its frequency may be deviated
over a wide range.) Spread spectrum literally "spreads" the carrier over a frequency range that
may be as much as 10 kHz on frequencies below 30 MHz. (Spreading over 100 kHz or more
is common on the VHF and UHF bands.) This spreading is usually done via a "spreading
code" contained in an internal microcontroller chip.

When heard on a conventional receiver, spread sprectrum sounds like random noise or "gur-
gling" water. A receiver equipped with a microcontroller having the matching "spreading
code" is necessary to properly receive the spread spectrum transmission. Advantages of
spread spectrum include a high degree of privacy and freedom from intereference, since the
spread spectrum receiver will reject any signal not having the proper spreading code.

Almost all users of spread spectrum below 30 MHz are various military and government ser-

Chapter IV - B                                                             Spectrum Management

                      B. Spectrum Allocation and Management

                                       1. Background

                      An Economic Analysis of Domain Name Policy
                            Karl Manheim & Lawrence Solum
                        25 Hastings Comm. & Ent. L.J. 359 (2003)

The spectrum is an intangible construct. It is a convenient way to describe the physical trans-
port of energy using electromagnetic waves. It is a means of information delivery, not a
commodity or resource that can be “used up” in any physical sense. Yet, in economic terms,
the spectrum can support only so many channels of information at any one time. The number
of channels is dependent on the state of technology and on social preferences such as clarity
of reception and privacy concerns. Since this article is about economic and welfare policies,
not about engineering, we will assume there is a limited supply of useful spectrum which can
be “consumed” by use.1 If there were no limit on supply, there would be no need to develop
allocation policies. In the case of radio frequencies there is a limit, albeit more of an artificial
than technological nature. In either case, limited supply creates scarcity; scarcity creates a
need for allocation. The question at hand is whether scarce communication resources should
be allocated by government regulation or by the market.

Broadcasters "consume" spectrum in order to deliver information and services to others. In
economic terms, spectrum resembles a private good because it is rivalrous; i.e., use by one
consumer (broadcaster) diminishes the supply for others. 2 If broadcaster A transmits on a
frequency of 101 MHz, that frequency is no longer available for others (in the same geo-
graphic region and at the same time),3 at least not without rendering both signals worthless.
That is because multiple signals on the same frequency will interfere with one another; re-
ceiving devices will be unable to distinguish the signals and produce meaningful video or au-
dio. Indeed, it was the unregulated cacophony of voices transmitting on same or nearby fre-

    Recent technological advances seriously undermine the notion of spectrum scarcity, at least
    in the physical or engineering sense. As interference and simultaneity problems get worked
    out by advanced technology, many of the regulatory precepts that have sustained FCC li-
    censing for nearly a century need to be reexamined. See generally Stuart Minor Benjamin,
    The Logic of Scarcity: Idle Spectrum as a First Amendment Violation, 52 Duke L.J. 1
    We refer to “consumption” of the spectrum in economic not physical terms. While trans-
    mission itself does not deplete the supply of spectrum (an infinite number of transmissions
    can occur simultaneously on the same frequency), it does impede multiple use to transmit
    information. “It is the phenomenon of interference that gives rise to scarcity in radio com-
    munication.” Milton Mueller, Property Rights In Radio Communication: The Key To The
    Reform of Telecommunications Regulation, June 3, 1982.
    The radio spectrum can be described in three dimensions: frequency, geography and time.
    If any one of these differs between transmitters, interference should not arise. Thus, there
    are many ways that frequencies can be “re-used” by multiple parties, the most common of
    which is geographic separation of limited-range transmitters. Time division (akin to time-
    sharing of condominiums) is another. Although this was employed mostly in the early days
    of radio, this practice can still be found, especially for AM broadcasts. See Thomas W.
    Hazlett, The Rationality of U.S. Regulation of the Broadcast Spectrum, 33 J.L. & ECON.
    133, 147-48 (1990). AM signals travel further at night, so secondary licenses yield to clear-
    channel licenses on the same frequency either by not transmitting or reducing power at

Chapter IV - B                                                            Spectrum Management

quencies in the 1920s that lead to the well-known “tragedy of the commons,” rendering the
radio spectrum mostly unusable.

The rivalrous nature of the spectrum arises only if there is a limited supply. 4 If there were no
upper or lower limit on frequencies usable for transmitting information, an infinite number of
broadcasters could operate simultaneously, so long as there was compatibility between trans-
mission and reception devices. We know there is a lower limit on frequencies–something
near to zero cycles per second - but there may not be an upper limit.5 Consumer electronics
devices operating in the gigahertz range (billions of cycles per second) are now common-
place; the terahertz range (trillions of cycles per second) is not far behind.6 Using current
technologies, we could allocate at least a million broadcast channels of 10 KHz each (the
bandwidth of AM broadcast licenses) in every metropolitan area. That's more than enough to
fully eliminate "spectrum scarcity." Indeed, the FCC could give every person in the United
States his or her own broadcast license.

Of course this would never happen. First, there are competing uses for the frequencies, such
as other broadcast needs, public safety, and wireless telephony. Second, and more important,
"spectrum scarcity" is not altogether a bad thing. Scarcity created by regulation gives rise to
excludability, which creates value; it turns what might otherwise be a public good into a pri-
vate good. Accordingly, scarcity is not a problem for the radio industry, it is an opportunity.
So as to preserve vested positions, early proposals to expand the AM band (only 5% of usable
spectrum had been allocated to broadcast), and eliminate scarcity, were rejected as “danger-
ous” “pernicious,” and “fatuous.” The history of spectrum allocation in this country is one of
favoring powerful constituencies by giving them exclusive rights to generate monopoly rents.

However, to the extent scarcity promotes innovation and investment, its preservation may be
justified by public policy, if not by necessity.7 Herein lies one lesson that broadcast can offer
for regulating the domain name space: not all scarcity follows the model of a scarce physical
resource, such as land or water. Scarcity can be a function of architectural decisions and en-
gineering. Because excludability can be created by a system of legal regulation, a legal re-
gime can create economic scarcity. Whether to enforce scarcity, and its extent, depends on
the social benefit of having fewer rather than greater numbers of users. This in turn depends
on an economic and social welfare analysis of the good or service. We will return to this
analysis below. But one thing is certain: scarcity in frequencies, as in domain names, is inten-
tional and cannot be justified on technical grounds.

The rivalrous nature of the radio spectrum arises from the interaction of physics and regula-
tion. Two signals at the same frequency can interfere—that is physics. The FCC historically
allocated spectrum by grant licenses to broadcast within a band or range of frequencies—that

    Information capacity of the radio spectrum is determined by Shannon’s algorithm. See <> (last visited on March 18,
    Quantum physics imposes both upper and lower limits on wavelength and accordingly on
    frequency. But these can be disregarded for present purposes.
    Terahertz transmissions are already in use for laser and other optical communications. See,
    e.g., Ed Gerstner, Filling the Terahertz Gap (May 9, 2002) and Rüdeger Köhler et al.,
    Terahertz Semiconducting-heterstructure Laser, 417 NATURE 156-59 (May 9, 2002).
    Scarcity also justifies heavy regulation to promote “the public interest.” Indeed, scarcity is
    the basic premise of the Communications Act of 1934. See Glen O. Robinson, The Federal
    Communications Act: An Essay on Origins and Regulatory Purpose, in A Legislative His-
    tory of the Communications Act of 1934 (Max Paglin ed., 1989). Scarcity is also the ration-
    ale for content regulation on the airwaves. See The Logic of Scarcity, supra, n. 1, at 38-45.

Chapter IV - B                                                           Spectrum Management

is regulation. Excludability also arises from a combination of physics and regulation. The
law can grant an exclusive license to broadcast at a particular frequency in a specified geo-
graphic region. Physics makes it possible to detect violators, and limits the geographic range
of particular broadcasters—at least in certain parts of the spectrum. Regulation is required,
because broadcaster A's transmission on 101 MHz does not by itself prevent broadcaster B
from using the same frequency. Indeed, it is nearly impossible to exclude access to the spec-
trum for transmission through technological means.8 So exclusion requires some legal re-
gime, and the current regime is licensing.9 It is a regime that is sometimes difficult to en-
force, as evidenced by the proliferation of “pirate” radio stations” at various times, often off-
shore locations transmitting to coastal and border areas. However, because of the large in-
vestments typically necessary to erect studio and transmission facilities, illegal unlicensed
broadcast is rare.

As shown above, without exclusion, the spectrum is potentially worthless—interference
might prevent anyone from making use of the resource. Accordingly, spectrum policy in the
United States turns a public good (nonrivalrous use of technologically unlimited frequencies,
and not easily excludable) into a private good. Both spectrum scarcity and exclusion are arti-
facts of regulatory policy.

Licensing policy requires an elaborate bureaucracy (and compliant courts) to implement and
enforce. The Media Bureau (formerly Mass Media Bureau) processes roughly 5,000 license
applications a year. The bureau receives a good portion of the FCC’s annual appropriations,
which totaled 278 million dollars for fiscal year 2003. These are considerable public re-
sources devoted to the preservation and regulation of private goods.

    The Soviet Union tried this by “broadcasting noise, programming, or any other source of
     interference on the same frequency as a signal. During the Cold War, this technology was
     used by the Soviet government to prevent American radio signals from reaching its citi-
     zens.” See US Int’l Broadcasting Services During the Cold War, at
    Section 301 of the Communications Act of 1934 states: “No person shall use or operate any
     apparatus for the transmission of energy or communications or signals by radio [except
     under a license] granted under the provisions of this chapter.” 47 U.S.C. § 301. Any per-
     son convicted of violating § 301 shall “be punished … by a fine of not more than $10,000
     or by imprisonment for a term not exceeding one year.” 47 USC § 501.

Chapter IV - B                                                           Spectrum Management

                                      2. ITU Handbook

                     TELECOMMUNICATION                Document 2/34-E
                     DEVELOPMENT BUREAU                   31 July 1998
                     ITU-D STUDY GROUPS               Original: English



                            CHAPTER 1

The purpose of this handbook is to assist Administrations in their efforts aimed at organising
and/or improving their national spectrum management.

In the past, in many countries there was no need for any sophisticated spectrum management
structure. Due to the limited number of users of the radio frequency spectrum it was possible
to provide a frequency band to each user over a given geographic area for his/her exclusive
use. This situation has changed in many regions due to the tremendous development of radio
communication systems and the social and economic role of wireless telecommunications.
Radio frequency spectrum has become a precious and scarce resource.10 Its careful use and
management has become crucial to avoid congestion and mutual interference that nullifies all
possible benefits drawn from the applications of wireless technologies. Such a situation would
have negative impact on the overall economy, national and international.

1.1 International Framework

The International Telecommunication Union (ITU), a Specialised Agency of United Nations,
provides an international framework for the usage and management of radio frequency spec-
trum resources. The ITU Constitution and Convention with accompanying Radio Regulations
is an International Treaty to which all Countries - Signatories of the Treaty have committed
themselves. The ITU Constitution state that the Union, among others, shall "... effect alloca-
tion11 of bands of the radio-frequency spectrum, the allotment12 of radio frequencies and reg-

     It has generally been accepted that the spectrum resources have dimensions of frequency,
      geometrical space and time, and that they include also satellite orbits.
     The ITU Radio Regulations define allocation as entry in the Table of Frequency Alloca-
      tions of a given frequency band for the purpose of its use by one or more terrestrial or
      space radiocommunication services or the radio astronomy service under specified condi-
      tions. This term is also applied to the frequency band concerned.
     Allotment is defined in the Radio Regulations as entry of a designated frequency channel in
      an agreed plan, adopted by a competent conference, for use by one or more administra-
      tions for a terrestrial or space radiocommunication service in one or more identified coun-
      tries or geographical areas and under specified conditions.

Chapter IV - B                                                           Spectrum Management

istration of radio-frequency assignments13 [and] any associated orbital positions in the geosta-
tionary-satellite orbit in order to avoid harmful interference between radio stations of different
countries and co-ordinate efforts to eliminate harmful interference between radio stations of
different countries and to improve the use made of the radio-frequency spectrum and of the
geostationary-satellite orbit for radiocommunication services.”

These tasks are to be fulfilled "by ensuring the rational, equitable, efficient and economical
use of the radio-frequency spectrum by all radiocommunication services, including those us-
ing the geostationary-satellite orbit...." Moreover, "Members shall endeavour to limit the
number of frequencies and the spectrum used to the minimum essential to provide in a satis-
factory manner the necessary services. To that end, they shall endeavour to apply the latest
technical advances as soon as possible".

Further, the Constitution determines that "In using frequency bands for radio services, Mem-
bers shall bear in mind that radio frequencies and the geostationary satellite orbit are limited
natural resources and that they must be used rationally, efficiently and economically, in con-
formity with the provisions of the Radio Regulations, so that countries or groups of countries
may have equitable access to both, taking into account the special needs of the developing
countries and the geographical situation of particular countries."

It also declares that "All stations, whatever their purpose, must be established and operated in
such a manner as not to cause harmful interference to the radio services or communications
of other Members or of recognised operating agencies, or of other duly authorised operating
agencies which carry on a radio service, and which operate in accordance with the provi-
sions of the Radio Regulations" and that "Each Member undertakes to require the operating
agencies which it recognises and the other operating agencies duly authorised for this pur-
pose to observe the provision [...] above."

1.2 National Spectrum Management

Within this general framework, created by common decisions of all Countries-Members of
ITU, each country has the sovereign right to regulate its telecommunications following its
own needs and its own policy goals.

In most countries, it has now become necessary to operate a specialised agency - Spectrum
Management Authority, with general objectives to manage, monitor and optimise the uses of
the radio spectrum, following the ITU Convention, Constitution, Radio Regulations and other
relevant international treaties. This implies that the National Laws, Rules, and Regulations
imposed on national Radiocommunications should reflect the provisions of these international
agreements. However, no Law, Rule or Regulation could be implemented in practice without
efficient spectrum management.

The spectrum resources exploited by radiocommunications represent a high potential and
their efficient use is required to assure harmonious development of all activities in the country
that depend on radiocommunications:

Spectrum management contributes to building the national economy by providing and manag-
ing the resource necessary for radio communication use in a timely and efficient manner.

This statement reflects the fact that spectrum management is not only the mere husbandry of
frequencies, but has an immense effect on the country's telecommunications and thus on its
     Assignment is defined in the Radio Regulations as authorisation given by an administration
      for a radio station to use a radio frequency or radio frequency channel under specified

Chapter IV - B                                                             Spectrum Management

life, economy, safety and security. Spectrum managers now act as nation-builders that, in
their decisions, take into account a general context of nation's activities. This aspect is central
to the modern concept of spectrum management.

In the past, spectrum management was mainly representing exclusive frequency uses by gov-
ernments, and governmental policy, nationally and internationally. Now, in the development
of policies and procedures, successful governments include consultations with industry,
which increasingly is taking more and more important role.

In view of the nature of the physical communication medium, an optimum use of the spec-
trum resources requires a clear and comprehensive policy enabling appropriate spectrum
management and monitoring. As mentioned in the previous section, this policy should comply
with the ITU Convention and Constitution and the ITU Radio Regulations that complements

                                           CHAPTER 2

The radio frequency spectrum is a natural resource that exists independently of human activ-
ity. It is an intrinsically scarce resource since it is limited. In fact, only frequencies between 3
kHz and 3000 GHz are usable for information transmission via radio (Figure 2). This range is
theoretical; spectrum above 300 GHz cannot be used at present, because currently available
techniques are not sufficiently advanced. Thus, the practically available resource ranges be-
tween 3 kHz and 300 GHz. However, since making equipment that can operate above 60-100
GHz results in high prices for services supplied, only frequencies between 3 kHz and say 60
or 100 GHz are likely to be used by the end of the 20th century.


•     The total spectrum resources are limited by natural and physical constraints.
•     The available resources are determined by the evolution of technical and economic fac-
      tors (in particular the evolution of relative costs).
•     The useable resources are determined by technical and economic conditions.
•     As early as the 1950s, American economists noticed that the radio frequency spectrum
      and land have similar characteristics. They:
o     are naturally available in the physical environment,
o     are intrinsically scarce since their physical quantity is not extensible and man cannot re-
      produce them,
o     constitute a fixed stock able to supply a production flow indefinitely, provided it is man-
      aged effectively,
o     can be used in both extensive and intensive ways, and
o     are heterogeneous.

2.1       Interference, Scarcity, Exclusivity Of Use

If two transmitters with the same characteristics covering the same area would transmit on the
same frequency at the same time, they may generate mutually harmful interference. This
would waste the spectrum because no meaningful communication could take place.

Thus, the scarcity of the spectrum lies not only in its quantitative limitation, but also in this
necessary exclusivity in its use at a given time and geographic area. The situation is similar
for land, where one cannot use a given piece of land simultaneously for two different pur-

Chapter IV - B                                                            Spectrum Management

poses (e.g., housing and farming). In most cases effective use of the radio spectrum, like that
of land, requires granting transmitters exclusive rights of use to a specific portion of the spec-
trum, area and time.

Implementing these exclusive rights involves appropriate means or authorisations whether in
the framework of public concessions for a fixed or unlimited term, or through freely transfer-
able private property rights on a spectrum market.

2.2     Differential Rent

Various radio frequency bands have specific physical propagation characteristics that make
them suitable for various information transmission purposes. Generally, the higher the fre-
quency (shorter wavelengths), the less the signal is able to propagate beyond obstacles, either
natural or man-made.

In addition, the higher the frequency band the greater the available bandwidth. For optimum
exploiting of the radio spectrum the low frequencies should be used where the required chan-
nel widths are narrow (e.g., narrow band data or voice); higher frequencies should be used for
wider bandwidth signals (e.g., television, broad band multiplexed signals). Pursuing the anal-
ogy with land, flat land and broad open spaces are better suited to cereal crops while hilly
country and land dotted with trees are better suited to stock farming.

Technical means cannot overcome these types of heterogeneity of the resource, as is the case
for the fertility of the land. Having access to the most suitable frequency band thus makes it
possible to minimise investment cost of the equipment associated with the use of the radio
spectrum resource. The natural heterogeneity of frequencies thus appears as a source of dif-
ferential rent, the appropriation of which will be, explicitly or implicitly, an economic, politi-
cal and social issue.

In the simplest case, the differential rent is immediately perceptible. For example, assume that
two competing cellular radiotelephone systems use greatly different bands, both capable of
handling the same volume of traffic with the same quality. The first uses 800 MHz frequen-
cies, while the second has higher frequencies and assume as an example higher equipment
cost for higher frequencies. Since the market imposes a single price for cellular radio commu-
nications (P), the operator using the lower frequencies with lower equipment costs has a
higher profit level than his competitor. The origin and amount of this element of profit have
nothing to do with his qualities as an entrepreneur, but relate solely to the properties of the
assigned frequency band.

This is a typical case of a differential rent. Currently, the existence of these rents may not be
clearly manifested because the spectrum in most countries is not sold on a market and thus
has no price. What is more, many uses of the spectrum are totally outside any market value
logic as they involve achieving some other goals not directly related to economy (e.g., mili-
tary uses, amateur radio).

The fact remains that these differential rents exist for physical and technical reasons, inde-
pendently of their form or mode of appropriation. In the present context, they benefit certain
parties (e.g., operators, consumers, equipment suppliers) even if they do not have a monetary
value put on them or are not subject to an explicit appropriation strategy.

2.3 Scarcity Rent

When demand for a good exceeds its supply, then scarcity gives rise to the emergence of a
scarcity rent. This rent occurs because of the impossibility of increasing supply in the short
term, while demand continues to grow. As with differential rent, scarcity rent is not readily

Chapter IV - B                                                             Spectrum Management

apparent since the radio spectrum is not priced with this in mind. This rent links directly to
the scarcity of the resource, not its heterogeneous quality, as in the case of differential rent,
and one of the parties will appropriate it.

Assume two cellular radio operators (1 and 2) compete in a market. The demand for their ser-
vices exceeds their supply capacity, which is limited by the amount of spectrum available to
them. They raise the market price (P) for their services above costs. This increase is the emer-
gence of a scarcity rent. In doing so, they reduce the waiting list of customers and avoid over-
loading their network. In the case where operator also has a more appropriate frequency, then
the scarcity rent adds to his profits, as was the case with the differential rent.

One can clearly see the phenomenon of rent creation in countries where the tariff structure of
cellular telephone networks distinguishes between high-density urban areas, and low or me-
dium density areas. For example, a private company competing with a national telecommuni-
cation operator, charges twice the price in a major city and the closer suburbs than in the
provinces. Since the investment cost per subscriber due to the greater density of network
equipment in urban areas cannot justify doubling the price, one must conclude that this pri-
vate company appropriates a scarcity rent.

As the company’s public competitor adopts the same pricing policy, the two firms benefit
from the scarcity rent. This situation tends to arise in cases of duopolies, when the good in
demand is scarce.

This raises the question: Should the differential and scarcity rent not go to the owner of this
resource, the State?

In other words, should the State not legitimately include in its fees an amount to recover this
rent, since in the end the consumer bears the cost of the scarcity?

2.4 The "Spectrum Paradox"

Technical progress in the field of electronics and information technologies has multiplied the
number of users of radio spectrum.

While technical progress also has permitted a more intensive use of the spectrum, the imbal-
ance between the demand for radio frequencies and the available supply keeps growing, espe-
cially in urban areas. This imbalance tends to be structural, at least in the industrialised coun-
tries. Consequently, there is rivalry for the use of the spectrum, which is typical in situations
where the supply cannot satisfy the demand.

Economists suggest that, when demand for a scarce resource exceeds supply, a price system
should be implemented, to balance supply and demand. Since the spectrum is a scarce re-
source, the rules of national frequency provision should consider economic aspects.

However, in the case of spectrum, although demand often exceeds supply, the price of the
resource to many users remains nil in many countries. This atypical situation is called by
some economists the spectrum paradox. This paradox results from the methods of allocation
and regulation of the spectrum, that often consider only technical (i.e., interference control)
and legal aspects, and fail to take into account the economic value of the resource.

The spectrum paradox initiated a body of important economic literature dealing with the na-
ture and the mechanisms for the allocation of the resource. Given the current scarcity of the
spectrum, some countries are investigating the possibility of introducing economic incentives
into spectrum management procedures. A number of countries initiated studies on this subject
and have set up commissions or expert working parties to study proposals in this area but no

Chapter IV - B                                                             Spectrum Management

consensus on a common recommendation applicable to all countries has been reached on the
issue till now. A review of the status of these studies can be found in ITU-R Report SM.2012
on economic aspects of spectrum management.

It is, however, universally recognized that the spectrum has economic value. This value could
therefore be taken into account in spectrum management decisions and revealed to the users
of the resource, irrespective of whether they are private or public entities. In terms of general
principles, all countries acknowledge the need for greater flexibility in the current allocation
procedures so that the frequency bands can be reallocated relatively speedily when necessary
without jeopardizing long-term planning objectives. No final conclusion has been reached yet
as concerns the recommended methods and ways on how to implement these principles in

2.5.1   Traditional Approach to Spectrum Management

In legal terms, the radio spectrum is an international resource, analogous to international wa-
ters whose use requires international agreement. This is a historic classification that stems
from the use of HF at the beginning of the 20th century. Propagation characteristics are such
that a HF signal can go around the world across national borders. In order to avoid interfer-
ence and respect national sovereignty it was therefore necessary to regulate their use at the
international level.

As mentioned in Chapter 1, the International Telecommunication Union (ITU) has established
general rules and regulations regarding international spectrum allocation and spectrum man-
agement. These are contained in the Radio Regulations (RR) published by ITU. Taking into
account these international regulations, each member nation creates its own legislation and
relevant rules and regulations to accommodate its national radiocommunication infrastructure
and goals. The intent of these rules is to provide a necessary structure for the spectrum man-
agement process.

The progressive use of higher frequencies that propagate over shorter distances, often remain-
ing within national borders, means that there are now substantial, exclusively national spec-
trum uses. However, recognition of the international regulations by all countries results in
similar national allocations to services and national regulatory structures. These are of the
centralized administrative type, with the State playing the role of the General Spectrum Man-

Under the present approach to spectrum regulation most frequency bands are subject to some
restrictions that may be classified into six regulatory decision levels:

(1) International (ITU) restriction of type of use (e.g., fixed, mobile, broadcasting)
(2) National restriction of class of user (e.g., government or non-government)
(3) National restriction of type of use (e.g., fixed, land mobile, television broadcasting)
(4) National restriction of class of user (e.g., taxicabs, railroads, utilities)
(5) National restriction of system design technical details (e.g., modulation, power, antenna
(6) National restriction of spectrum use (e.g., No. of mobiles per channel, No. of channels
    per megahertz, co-channel distance spacing)

In the traditional approach, the interplay among the four major parties (i.e., administration,
manufacturer, operator, user) is complex and critically dependent on the regulatory environ-
ment. Hence, if we consider the radio frequency spectrum being owned by a public entity, the
Administration is the only judge of the need and timeliness of using particular frequencies,

Chapter IV - B                                                           Spectrum Management

and only the general interest "as represented by the State" is taken into account.14 Administra-
tion makes sole decisions as to the price of supplying a frequency band. These could include
supplying it above its cost (i.e., creating a revenue for the State treasury), or below its cost
(i.e., an industrial policy to indirectly subsidize the manufacturer or as a public service to the
end user).

Until now, in many cases account was taken principally (if not exclusively) of technical pa-
rameters such as transmitter power, coverage area, transmission characteristics, bandwidth,
and protection ratios that defined any sharing between different systems. Historic constraints
also were taken into account (e.g., when a certain frequency is given to a particular use, that
frequency is in principle inaccessible for another service).15 In this context, the efficiency of
providing radio frequencies was measured essentially on the basis of technical indicators. In-
deed, the major declared objective of most national administrations remained "until recently"
the avoidance of interference and the guarantee of service quality. On the basis of this found-
ing principle, allocation to services and assignment were accomplished on the basis of plan-
ning and first-come, first-served.

Planning depends on the availability of radio equipment.As the development of this equip-
ment is long and costly, manufacturers and operators prefer to ensure the availability of suit-
able frequencies before making the necessary investment.

                                    CHAPTER 3
                            SPECTRUM MANAGEMENT RULES

The national radiocommunications law should delegate the authority and responsibility to
manage spectrum use to a government body or bodies. Which agency or agencies are given
the authority to manage the spectrum will depend upon the structure of the national govern-
ment itself and will vary from country to country. Spectrum management can be carried out
by one or more agencies; a single authority may be better.

3.1 A clear-cut distribution of frequency bands and responsibilities

Frequency management is often shared between several entities. For instance, for various rea-
sons, radio frequency spectrum used by armed forces is managed separately in many coun-
tries. Without appropriate co-ordination, it may lead to conflicts with non-military users. It is
necessary to limit such conflicts by clearly distinguishing the "incompatible" users and avoid
structures oriented towards defending their own particular interests only.

3.2 Management requirements

The frequency spectrum is limited. As long as each user can have a frequency assignment for
his exclusive use, to keep order, it is sufficient to record the users only. However, this has
now evolved in view of the insufficient number of frequency assignments available to satisfy
the needs of an increasing number of potential users. Thus, the available frequency assign-
ments must be shared, that is used by two or more users. This may lead to chaos and conse-
quential blocking of radiocommunications if not managed and monitored adequately.

     Governments/Administrations act for public interest, that is the interest of all groups, in-
      cluding manufacturers, operators, and end users in a balanced manner as approved by the
      parliamentary majority, and the parliament continuously controls its activities. Some social
      or national goals, such as e.g. defence development of poor regions, building information
      infrastructure in remote areas, may require departure from the marked-oriented decisions.
     Such decisions may result from the necessity to protect the investments in the equipment

Chapter IV - B                                                          Spectrum Management

                            OF THE COUNCIL
                               of 7 March 2002
on a regulatory framework for radio spectrum policy in the European Commu-
                     (RADIO SPECTRUM DECISION)


Having regard to the Treaty establishing the European Community, and in particular Article
95 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the Economic and Social Committee,

Acting in accordance with the procedure laid down in Article 251 of the Treaty.


(1) On 10 November 1999 the Commission presented a communication to the European Par-
liament, the Council, the Economic and Social Committee and the Committee of the Regions
proposing the next steps in radio spectrum policy on the basis of the results of the public con-
sultation on the Green Paper on radio spectrum policy in the context of European Community
policies such as telecommunications, broadcasting, transport and research and development
(R & D). This Communication was welcomed by the European Parliament in a Resolution of
18 May 2000. It should be emphasised that a certain degree of further harmonisation of
Community policy on the radio spectrum is desirable for services and applications, in particu-
lar for services and applications with Community or European coverage, and that it is neces-
sary to ensure that the Member States make applicable in the required manner certain deci-
sions of the European Conference of Postal and Telecommunications Administrations

(2) A policy and legal framework therefore needs to be created in the Community in order to
ensure coordination of policy approaches and, where appropriate, harmonised conditions with
regard to the availability and efficient use of radio spectrum necessary for the establishment
and functioning of the internal market in Community policy areas, such as electronic commu-
nications, transport and R & D. The policy approach with regard to the use of radio spectrum
should be coordinated and, where appropriate, harmonised at Community level, in order to
fulfil Community policy objectives efficiently. Community coordination and harmonisation
may also help achieving harmonisation and coordination of the use of the radio spectrum at
global level in certain cases. At the same time, appropriate technical support can be provided
at national level.

(3) Radio spectrum policy in the Community should contribute to freedom of expression, in-
cluding freedom of opinion and freedom to receive and disseminate information and ideas,
irrespective of borders, as well as freedom and plurality of the media.

(4) This Decision is based on the principle that, where the European Parliament and the
Council have agreed on a Community policy which depends on radio spectrum, committee
procedures should be used for the adoption of accompanying technical implementing meas-

Chapter IV - B                                                            Spectrum Management

ures. Technical implementing measures should specifically address harmonised conditions
with regard to the availability and efficient use of radio spectrum, as well as the availability of
information related to the use of radio spectrum. The measures necessary for the implementa-
tion of this Decision should be adopted in accordance with Council Decision 1999/468/EC of
28 June 1999 laying down the procedures for the exercise of implementing powers conferred
on the Commission.

(5) Any new Community policy initiative depending on radio spectrum should be agreed by
the European Parliament and the Council as appropriate, on the basis of a proposal from the
Commission. Without prejudice to the right of initiative of the Commission, this proposal
should include, inter alia, information on the impact of the envisaged policy on existing spec-
trum user communities as well as indications regarding any general radio frequency realloca-
tion that this new policy would require.

(6) For the development and adoption of technical implementing measures and with a view to
contributing to the formulation, preparation and implementation of Community radio spec-
trum policy, the Commission should be assisted by a committee, to be called the Radio Spec-
trum Committee, composed of representatives of the Member States and chaired by a repre-
sentative of the Commission. The Committee should consider proposals for technical imple-
menting measures related to radio spectrum. These may be drafted on the basis of discussions
in the Committee and may in specific cases require technical preparatory work by national
authorities responsible for radio spectrum management. Where committee procedures are
used for the adoption of technical implementing measures, the Committee should also take
into account the views of the industry and of all users involved, both commercial and non-
commercial, as well as of other interested parties, on technological, market and regulatory
developments which may affect the use of radio spectrum. Radio spectrum users should be
free to provide all input they believe is necessary. The Committee may decide to hear repre-
sentatives of radio spectrum user communities at its meetings where necessary to illustrate the
situation in a particular sector.

(7) Where it is necessary to adopt harmonisation measures for the implementation of Com-
munity policies which go beyond technical implementing measures, the Commission may
submit to the European Parliament and to the Council a proposal on the basis of the Treaty.

(8) Radio spectrum policy cannot be based only on technical parameters but also needs to take
into account economic, political, cultural, health and social considerations. Moreover, the ever
increasing demand for the finite supply of available radio spectrum will lead to conflicting
pressures to accommodate the various groups of radio spectrum users in sectors such as tele-
communications, broadcasting, transport, law enforcement, military and the scientific com-
munity. Therefore, radio spectrum policy should take into account all sectors and balance the
respective needs.

(9) This Decision should not affect the right of Member States to impose restrictions neces-
sary for public order and public security purposes and defence. Where a technical implement-
ing measure would affect inter alia radio frequency bands used by a Member State exclusively
and directly for its public security and defence purposes, the Commission may, if the Member
State requests it on the basis of justified reasons, agree to transitional periods and/or sharing
mechanisms, in order to facilitate the full implementation of that measure. In this regard,
Member States may also notify the Commission of their national radio frequency bands used
exclusively and directly to pursue public security and defence purposes.

(10) In order to take into account the views of Member States, Community institutions, indus-
try and of all users involved, both commercial and non-commercial, as well as of other inter-
ested parties on technological, market and regulatory developments which may affect the use

Chapter IV - B                                                        Spectrum Management

of radio spectrum, the Commission may organise consultations outside the framework of this

(11) Radio spectrum technical management includes the harmonisation and allocation of radio
spectrum. Such harmonisation should reflect the requirements of general policy principles
identified at Community level. However, radio spectrum technical management does not
cover assignment and licensing procedures, nor the decision whether to use competitive selec-
tion procedures for the assignment of radio frequencies.

(12) With a view to the adoption of technical implementing measures addressing the harmoni-
sation of radio frequency allocation and of information availability, the Committee should
cooperate with radio spectrum experts from national authorities responsible for radio spec-
trum management. Building on the experience of mandating procedures gained in specific
sectors, for example as a result of the application of Decision No 710/97/EC of the European
Parliament and of the Council of 24 March 1997 on a coordinated authorisation approach in
the field of satellite personal-communication services in the Community and Decision No
128/1999/EC of the European Parliament and of the Council of 14 December 1998 on the co-
ordinated introduction of a third generation mobile and wireless communications system
(UMTS) in the Community, technical implementing measures should be adopted as a result of
mandates to the CEPT. Where it is necessary to adopt harmonised measures for the imple-
mentation of Community policies which do not fall within the remit of CEPT, the Commis-
sion could adopt implementation measures with the assistance of the Radio Spectrum Com-

(13) The CEPT comprises 44 European countries. It drafts technical harmonisation measures
with the objective of harmonising the use of radio spectrum beyond the Community borders,
which is particularly important for those Member States where the use of radio spectrum may
be affected by that of the non-EU members of CEPT. Decisions and measures taken in accor-
dance with this Decision should take account of the specific situation of Member States with
external frontiers. Where necessary, the Commission should be able to make the results of
mandates issued to CEPT compulsory for Member States, and where the results of such man-
dates are not available or deemed not acceptable, to take appropriate alternative action. This
will in particular provide for the harmonisation of use of radio frequencies across the Com-
munity, in line with Directive 2002/21/EC of the European Parliament and of the Council of 7
March 2002 on a common regulatory framework for electronic communications networks and
services (Framework Directive)(8) and taking into account the provisions of Directive
2002/20/EC of the European Parliament and the Council of 7 March 2002 on the authorisa-
tion of electronic communications networks and services (Authorisation Directive)(9).

(14) The coordinated and timely provision to the public of appropriate information concerning
the allocation, availability and use of radio spectrum in the Community is an essential element
for investments and policy making. So are technological developments which will give rise to
new radio spectrum allocation and management techniques and radio frequency assignment
methods. Development of long-term strategic aspects require proper understanding of the im-
plications of how technology evolves. Such information should therefore be made accessible
in the Community, without prejudice to confidential business and personal information pro-
tection under Directive 97/66/EC of the European Parliament and of the Council of 15 De-
cember 1997 concerning the processing of personal data and the protection of privacy in the
telecommunications sector(10). The implementation of a cross-sectoral radio spectrum policy
makes the availability of information on the whole radio spectrum necessary. In view of the
general purpose of harmonising radio spectrum use in the Community and elsewhere in
Europe, the availability of such information needs to be harmonised at European level in a
user-friendly manner.

Chapter IV - B                                                         Spectrum Management

(15) It is therefore necessary to complement existing Community and international require-
ments for publication of information on use of radio spectrum. At international level, the ref-
erence paper on regulatory principles negotiated in the context of the World Trade Organisa-
tion by the Group on Basic Telecommunications also requires that the existing state of allo-
cated radio frequency bands be made publicly available. Commission Directive 96/2/EC of 16
January 1996 amending Directive 90/388/EEC with regard to mobile and personal communi-
cations(11) required Member States to publish every year or make available on request the
allocation scheme of radio frequencies, including plans for future extension of such frequen-
cies, but covered only mobile and personal communications services. Moreover, Directive
1999/5/EC of the European Parliament and of the Council of 9 March 1999 on radio equip-
ment and telecommunications terminal equipment and the mutual recognition of their con-
formity(12), as well as Directive 98/34/EC of the European Parliament and of the Council of
22 June 1998 laying down a procedure for the provision of information in the field of techni-
cal standards and regulations and of rules on information society services(13), require Mem-
ber States to notify the Commission of the interfaces which they have regulated so as to as-
sess their compatibility with Community law.

(16) Directive 96/2/EC was at the origin of the adoption of a first set of measures by CEPT
such as European Radiocommunications Committee Decision (ERC/DEC/(97)01) on the pub-
lication of national tables of radio spectrum allocations. It is necessary to ensure that CEPT
solutions reflect the needs of Community policy and are given the appropriate legal basis so
as to be implemented in the Community. For that purpose, specific measures have to be
adopted in the Community both on procedure and substance.

(17) Community undertakings should obtain fair and non-discriminatory treatment on access
to radio spectrum in third countries. As access to radio spectrum is a key factor for business
development and public interest activities, it is also necessary to ensure that Community re-
quirements for radio spectrum are reflected in international planning.

(18) Implementation of Community policies may require coordination of radio spectrum use,
in particular with regard to the provision of communications services including Community-
wide roaming facilities. Moreover, certain types of radio spectrum use entail a geographical
coverage which goes beyond the borders of a Member State and allow for transborder ser-
vices without requiring the movement of persons, such as satellite communications services.
The Community should therefore be adequately represented in the activities of all relevant
international organisations and conferences related to radio spectrum management matters,
such as within the International Telecommunication Union (ITU) and its World Radiocom-
munications Conferences.

(19) The existing preparation and negotiation mechanisms for ITU World Radiocommunica-
tion Conferences have generated excellent results due to willing cooperation within the
CEPT, and the Community's interests have been taken into account in the preparations. In
international negotiations, Member States and the Community should develop a common ac-
tion and closely cooperate during the whole negotiations process so as to safeguard the unity
of the international representation of the Community in line with the procedures which had
been agreed in the Council conclusions of 3 February 1992 for the World Administrative Ra-
dio Conference and as confirmed by the Council conclusions of 22 September 1997 and 2
May 2000. For such international negotiations, the Commission should inform the European
Parliament and the Council whether Community policies are affected, with a view to obtain-
ing endorsement by the Council on the Community policy objectives to be achieved and on
the positions to be taken by Member States at international level. In order to ensure that such
positions also appropriately address the technical dimension related to radio spectrum man-
agement, the Commission may issue mandates to the CEPT for this purpose. Member States
should accompany any act of acceptance of any agreement or regulation within international

Chapter IV - B                                                           Spectrum Management

fora in charge of, or concerned with, radio spectrum management by a joint declaration stat-
ing that they will apply such agreement or regulation in accordance with their obligations un-
der the Treaty.

(20) In addition to international negotiations specifically addressing radio spectrum, there are
other international agreements involving the Community and third countries which may affect
radio frequency bands usage and sharing plans and which may address issues such as trade
and market access, including in the World Trade Organisation framework, free circulation and
use of equipment, communications systems of regional or global coverage such as satellites,
safety and distress operations, transportation systems, broadcasting technologies, and research
applications such as radio astronomy and earth observation. It is therefore important to ensure
compatibility between the Community's arrangements for negotiating trade and market access
issues with the radio spectrum policy objectives to be pursued under this Decision.

(21) It is necessary, due to the potential commercial sensitivity of information which may be
obtained by national authorities in the course of their action relating to radio spectrum policy
and management, that the national authorities apply common principles in the field of confi-
dentiality laid down in this Decision.

(22) Since the objective of the proposed action, namely to establish a common framework for
radio spectrum policy, cannot be sufficiently achieved by the Member States and can there-
fore, by reason of the scale and effects of the action, be better achieved at Community level,
the Community may adopt measures, in accordance with the principle of subsidiarity as set
out in Article 5 of the Treaty. In accordance with the principle of proportionality as set out in
that Article, this Decision does not go beyond what is necessary in order to achieve that ob-

(23) Member States should implement this common framework for radio spectrum policy in
particular through their national authorities and provide the Commission with the relevant
information required to assess its proper implementation throughout the Community, taking
into account international trade obligations of the Community and its Member States.

(24) Decisions No 710/97/EC and No 128/1999/EC remain in force.

(25) The Commission should report annually to the European Parliament and the Council on
the results achieved under this Decision, as well as on planned future actions. This may allow
the European Parliament and the Council to express their political support, where appropriate,


Article 1 - Aim and scope

1. The aim of this Decision is to establish a policy and legal framework in the Community in
order to ensure the coordination of policy approaches and, where appropriate, harmonised
conditions with regard to the availability and efficient use of the radio spectrum necessary for
the establishment and functioning of the internal market in Community policy areas such as
electronic communications, transport and research and development (R & D).

2. In order to meet this aim, this Decision establishes procedures in order to:

(a) facilitate policy making with regard to the strategic planning and harmonisation of the use
of radio spectrum in the Community taking into consideration inter alia economic, safety,
health, public interest, freedom of expression, cultural, scientific, social and technical aspects

Chapter IV - B                                                           Spectrum Management

of Community policies as well as the various interests of radio spectrum user communities
with the aim of optimising the use of radio spectrum and of avoiding harmful interference;

(b) ensure the effective implementation of radio spectrum policy in the Community, and in
particular establish a general methodology to ensure harmonised conditions for the availabil-
ity and efficient use of radio spectrum;

(c) ensure the coordinated and timely provision of information concerning the allocation,
availability and use of radio spectrum in the Community;

(d) ensure the effective coordination of Community interests in international negotiations
where radio spectrum use affects Community policies.

3. Activities pursued under this Decision shall take due account of the work of international
organisations related to radio spectrum management, e.g. the International Telecommunica-
tion Union (ITU) and the European Conference of Postal and Telecommunications Admini-
strations (CEPT).

4. This Decision is without prejudice to measures taken at Community or national level, in
compliance with Community law, to pursue general interest objectives, in particular relating
to content regulation and audio-visual policy, to the provisions of Directive 1999/5/EC and to
the right of Member States to organise and use their radio spectrum for public order and pub-
lic security purposes and defence.

Article 2 - Definition

For the purposes of this Decision, "radio spectrum" includes radio waves in frequencies be-
tween 9 kHz and 3000 GHz; radio waves are electromagnetic waves propagated in space
without artificial guide.

Article 3 - Committee procedure

1. The Commission shall be assisted by a committee ("the Radio Spectrum Committee").

2. Where reference is made to this paragraph, Articles 3 and 7 of Decision 1999/468/EC shall
apply, having regard to the provisions of Article 8 thereof.

3. Where reference is made to this paragraph, Articles 5 and 7 of Decision 1999/468/EC shall
apply, having regard to the provisions of Article 8 thereof.

The period provided for in Article 5(6) of Decision 1999/468/EC shall be set at three months.

4. The Committee shall adopt its rules of procedure.

Article 4 - Function of the Radio Spectrum Committee

1. In order to meet the aim set out in Article 1, the Commission shall submit to the Radio
Spectrum Committee, in accordance with the procedures set out in this Article, appropriate
technical implementing measures with a view to ensuring harmonised conditions for the
availability and efficient use of radio spectrum, as well as the availability of information re-
lated to the use of radio spectrum, as referred to in Article 5.

Chapter IV - B                                                           Spectrum Management

2. For the development of technical implementing measures referred to in paragraph 1 which
fall within the remit of the CEPT, such as the harmonisation of radio frequency allocation and
of information availability, the Commission shall issue mandates to the CEPT, setting out the
tasks to be performed and the timetable therefor. The Commission shall act in accordance
with the procedure referred to in Article 3(2).

3. On the basis of the work completed pursuant to paragraph 2, the Commission shall decide
whether the results of the work carried out pursuant to the mandates shall apply in the Com-
munity and on the deadline for their implementation by the Member States. These decisions
shall be published in the Official Journal of the European Communities. For the purpose of
this paragraph, the Commission shall act in accordance with the procedure referred to in Arti-
cle 3(3).

4. Notwithstanding paragraph 3, if the Commission or any Member State considers that the
work carried out on the basis of a mandate issued pursuant to paragraph 2 is not progressing
satisfactorily having regard to the set timetable or if the results of the mandate are not accept-
able, the Commission may adopt, acting in accordance with the procedure referred to in Arti-
cle 3(3), measures to achieve the objectives of the mandate.

5. The measures referred to in paragraphs 3 and 4 may, where appropriate, provide the possi-
bility for transitional periods and/or radio spectrum sharing arrangements in a Member State
to be approved by the Commission, where justified, taking into account the specific situation
in the Member State, on the basis of a reasoned request by the Member State concerned and
provided such exception would not unduly defer implementation or create undue differences
in the competitive or regulatory situations between Member States.

6. To achieve the aim set out in Article 1, the Commission may also adopt technical imple-
menting measures referred to in paragraph 1 which are not covered by paragraph 2, acting in
accordance with the procedure referred to in Article 3(3).

7. With a view to contributing to the formulation, preparation and implementation of Com-
munity radio spectrum policy, and without prejudice to the procedures set out in this Article,
the Commission shall consult the Radio Spectrum Committee periodically on the matters
covered by Article 1.

Article 5 - Availability of information

Member States shall ensure that their national radio frequency allocation table and informa-
tion on rights, conditions, procedures, charges and fees concerning the use of radio spectrum,
shall be published if relevant in order to meet the aim set out in Article 1. They shall keep this
information up to date and shall take measures to develop appropriate databases in order to
make such information available to the public, where applicable in accordance with the rele-
vant harmonisation measures taken under Article 4.

Article 6 - Relations with third countries and international organisations

1. The Commission shall monitor developments regarding radio spectrum in third countries
and in international organisations, which may have implications for the implementation of
this Decision.

2. Member States shall inform the Commission of any difficulties created, de jure or de facto,
by third countries or international organisations for the implementation of this Decision.

Chapter IV - B                                                           Spectrum Management

3. The Commission shall report regularly on the results of the application of paragraphs 1 and
2 to the European Parliament and the Council and may propose measures with the aim of se-
curing the implementation of the principles and objectives of this Decision, where appropri-
ate. When necessary to meet the aim set out in Article 1, common policy objectives shall be
agreed to ensure Community coordination among Member States.

4. Measures taken pursuant to this Article shall be without prejudice to the Community's and
Member States' rights and obligations under relevant international agreements.

Article 7 - Notification

Member States shall give the Commission all information necessary for the purpose of verify-
ing the implementation of this Decision. Member States shall immediately inform the Com-
mission of the implementation of the results of the mandates pursuant to Article 4(3).

Article 8 - Confidentiality

1. Member States shall not disclose information covered by the obligation of business confi-
dentiality, in particular information about undertakings, their business relations or their cost

2. Paragraph 1 shall be without prejudice to the right of relevant authorities to undertake dis-
closure where it is essential for the purposes of fulfilling their duties, in which case such dis-
closure shall be proportionate and shall have regard to the legitimate interests of undertakings
in the protection of their business secrets.

3. Paragraph 1 shall not preclude publication of information on conditions linked to the grant-
ing of rights to use radio spectrum which does not include information of a confidential na-

Article 9 - Report

The Commission shall report on an annual basis to the European Parliament and the Council
on the activities developed and the measures adopted pursuant to this Decision, as well as on
future actions envisaged pursuant to this Decision.

Article 10 - Implementation

Member States shall take all measures necessary, by laws, regulations and administrative pro-
visions, for the implementation of this Decision and all resulting measures.

Article 11 - Entry into force

This Decision shall enter into force on the day of its publication in the Official Journal of the
European Communities.

                 4. Management of Radio Frequencies in the EU

See Article 9, Framework Directive (2002/21/EC)

Chapter IV - C                                                               Broadcast Licensing

                                   C. Broadcast Licensing

                                 1. Localism and Diversity

                                       Before the
                            Federal Communications Commission
                                  Washington, D.C. 20554

In the Matter of:                                        )
Broadcast Localism                                       )         MB Docket No. 04-233

                                    NOTICE OF INQUIRY

Adopted: June 7, 2004                                                Released: July 1, 2004


1. As with competition and diversity, localism has been a cornerstone of broadcast regula-
tion for decades.16 Broadcasters, who are temporary trustees of the public’s airwaves,17 must
use the medium to serve the public interest, and the Commission has consistently interpreted
this to mean that licensees must air programming that is responsive to the interests and needs
of their communities of license. Even as the Commission deregulated many behavioral rules
for broadcasters in the 1980s, it did not deviate from the notion that they must serve their lo-
cal communities. Rather, the Commission at that time found that market forces, in an increas-
ingly competitive environment, would encourage broadcasters to accomplish this goal, and
that certain rules were no longer necessary.

2. The concept of localism derives from Title III of the Communications Act, and is re-
flected in and supported by a number of current Commission policies and rules. Title III gen-
erally instructs the Commission to regulate broadcasting as the public interest, convenience,
and necessity dictate, and section 307(b) explicitly requires the Commission to “make such
distribution of licenses, frequencies, hours of operation, and of power among the several
States and communities as to provide a fair, efficient, and equitable distribution of radio ser-
vice to each of the same.” Pursuant to this mandate, when the Commission allocates channels
for a new broadcast service, its first priority is to provide general service to an area, but its
next priority is for facilities to provide the first local service to a community. In carrying out
the mandate of Section 307(b), the Commission has long recognized that “every community
of appreciable size has a presumptive need for its own transmission service.” Indeed, the Su-

     See, e.g., Deregulation of Radio, 84 F.C.C.2d 968, 994 ¶ 58 (1981) (“The concept of local-
      ism was part and parcel of broadcast regulation virtually from its inception.”).
     Broadcasters are considered to be temporary trustees of public spectrum because the Com-
      munications Act instructs the Commission to award licenses to use the airwaves expressly
      on the condition that licensees serve the public interest. See 47 U.S.C. § 309(a) (requiring
      the Commission to determine, in the case of applications for licenses, “whether the public
      interest, convenience, and necessity will be served by granting such application”). This
      model is often referred to as one of public trusteeship.

Chapter IV - C                                                              Broadcast Licensing

preme Court has stated that “[f]airness to communities [in distributing radio service] is fur-
thered by a recognition of local needs for a community radio mouthpiece.”

3. Once awarded a license, a broadcast station must place a specified signal contour over its
community of license to ensure that local residents receive service. A station must maintain
its main studio in or near its community of license to facilitate interaction between the station
and the members of the local community it is licensed to serve. For similar reasons, a station
“must equip the main studio with production and transmission facilities that meet the applica-
ble standards, maintain continuous program transmission capability, and maintain a meaning-
ful management and staff presence.” The main studio also must house a public inspection
file, the contents of which must include “a list of programs that have provided the station’s
most significant treatment of community issues during the preceding three month period.”
The purpose of this requirement is to provide both the public and the Commission with in-
formation needed to monitor a licensee’s performance in meeting its public interest obligation
of providing programming that is responsive to its community. In addition, as a general mat-
ter, when a broadcast station seeks to renew or transfer its license, it must give public notice
to its community to ensure that members of the community have an opportunity to file a peti-
tion to deny if they object to the station’s application for renewal or transfer of license.

4. All of these rules, policies, and procedures reflect the Commission’s overarching goal of
establishing and maintaining a system of local broadcasting that is responsive to the unique
interests and needs of individual communities. Various former rules and procedures also
served this purpose, including the ascertainment process, the processing guidelines used to
evaluate the programming performance of licensees at renewal, and the credit awarded for
integration of local ownership and management under the Commission’s prior comparative
licensing scheme.

5. During the recent review of our structural broadcast ownership rules, we heard concerns
from the public that broadcast stations may be failing to meet the needs of their local commu-
nities. As we found in our recent broadcast ownership decision, there is a correlation between
certain classes of broadcast station owners and certain characteristics of localism exhibited by
those stations, such as the quantity of local news and public affairs programming. This Notice
of Inquiry, however, will address behavioral rules that promote localism, regardless of iden-
tity of ownership. As stated by Senate Commerce Committee Chairman John McCain at a
hearing last summer on localism and the public interest: “This Committee has spent consid-
erable time examining and debating the role of ownership limitations to achieve public inter-
est goals. . . . Today’s hearing is to consider whether Congress should use other means to
achieve these goals, such as putting ‘teeth’ in the public interest standard.”

6. As part of the Commission’s effort to better understand whether broadcast stations are
serving the needs and interests of their local communities, and whether any behavioral regula-
tion is needed, Chairman Powell recently established a Localism Task Force to gather empiri-
cal data on broadcast localism, and to advise the Commission on concrete steps to promote
this significant policy goal. In order to hear directly from the public about the localism efforts
of broadcasters, the Task Force is charged with conducting a number of field hearings around
the country. The Task Force has already held three of these events (Charlotte, North Caro-
lina; San Antonio, Texas; and Rapid City, South Dakota), during which it heard from the pub-
lic, with a wide variety of views, on the issue of whether and how broadcasters are serving the
needs and interests of their communities. The Task Force will soon hear from the public in
other areas of the country.

7. Given the importance of localism, we initiate this proceeding to receive direct input from
the public on how broadcasters are serving the interests and needs of their communities;
whether we need to adopt new policies, practices, or rules designed directly to promote local-
ism in broadcast television and radio; and what those policies, practices, or rules should be.

Chapter IV - C                                                               Broadcast Licensing

For each of the public policy goals discussed below, we seek comment on the particular
mechanism needed to ensure that licensees satisfy the stated goal. We seek comment on
whether market forces will provide enough incentive for a broadcast station to satisfy a par-
ticular policy goal, or whether regulation is needed. Finally, we seek comment on any other
rules, policies or procedures, not reviewed below, that might be relevant to our objectives.


8. Communication with Communities. In the past, the Commission regulated the way in
which broadcasters obtained input from their local communities regarding matters of local
interest, in order to ensure they air programming that responded to those interests. Through
its “ascertainment” requirement, the Commission directed broadcasters to comply with de-
tailed procedures for determining the problems, needs, and interests of their communities.

9. Nature and Amount of Community-Responsive Programming. Sensitive to First
Amendment concerns inherent in any form of content regulation, the Commission has never
attempted to define with precision the programming that a broadcaster should air to serve the
needs and interests of its community. Tthe Commission has, however, attempted to describe
the nature of community-responsive programming. For example, in 1960, the Commission
identified, by way of guidelines rather than rules, the “major elements usually necessary to
meet the public interest, needs and desires of the community in which the station is located, as
developed by the industry, and recognized by the Commission.” The Commission identified
fourteen “major elements,”18 but made clear that these “are neither all-embracing nor con-
stant,” and “do not serve and have never been intended as a rigid mold or fixed formula for
station operation.”

10. The Commission has previously noted that certain groups have complained that broad-
casters do not air enough community-responsive programming. For example, the Commis-
sion cited a study indicating that, in the markets examined, 35% of television stations pro-
vided no local news, and 25% provided neither local news nor local public affairs program-
ming. As a result, the Commission noted, certain groups have encouraged the Commission to
adopt minimum, specific standards for community-responsive programming.

11. Political Programming. One area in which broadcasters have concrete, defined program-
ming obligations is political programming. Under section 312(a)(7) of the Act, the Commis-
sion is expressly empowered to revoke the license of a broadcast station that does not allow
“reasonable access” to or the “purchase of reasonable amounts of time” on its facilities by a
“legally qualified candidate for Federal elective office.” In addition, under section 315, “[i]f
any licensee shall permit any person who is a legally qualified candidate for public office to
use a broadcasting station, he shall afford equal opportunities to all other such candidates for
that office in the use of such broadcasting station.” The Commission has offered interpreta-
tions of these requirements in the past.

12. The Commission has previously noted that some broadcasters have aired many hours of
political programming, including conventions, debates, issue fora, and campaigns, and that

     In the 1960 En Banc Programming Inquiry, the Commission stated (id.):
     The major elements usually necessary to meet the public interest, needs, and desires of the
     community in which the station is located... have included: (1) opportunity for local self-
     expression, (2) the development and use of local talent, (3) programs for children, (4) reli-
     gious programs, (5) educational programs, (6) public affairs programs, (7) editorialization
     by licensees, (8) political broadcasts, (9) agricultural programs, (10) news programs, (11)
     weather and market reports, (12) sports programs, (13) service to minority groups, [and]
     (14) entertainment programs.

Chapter IV - C                                                              Broadcast Licensing

several television networks have provided free airtime to candidates for President in recent
elections. The Commission also, however, cited studies suggesting that many television
broadcasters provided little or no political programming. The Commission observed that, as a
result, certain groups had recommended that broadcast stations provide a limited amount of
time for “candidate-centered discourse” shortly before an election, and that the Commission
prohibit television broadcast stations from adopting blanket bans on the sale of airtime to state
and local candidates.

13. At the recent Congressional hearing on localism and the public interest, one witness re-
ported research results that suggested a decline in political programming. The research indi-
cated that, during the 2000 election, the majority of the subject stations aired less than one
minute of “candidate-centered discourse” per night before election events. During 2002, only
44% of the 10,000 news broadcasts studied contained any campaign coverage at all, and only
14% of the campaign stories that were aired focused on local elections. The research also
suggested that larger station group owners air less local campaign news than smaller and mid-
sized station group owners.

14. Should the Commission require broadcasters to air a minimum amount of local or na-
tional political and civic discourse? How much program time in recent years has been de-
voted to local political coverage and to national political coverage? What steps can be taken
to encourage voluntary efforts for political and civic discourse? We seek comment on the
extent to which the Commission may take action in this area. Given that Congress has en-
acted specific requirements governing political programming, would it be appropriate or per-
missible for the Commission to take additional steps to enhance broadcasters’ coverage of
local political candidates and issues? Should the Commission consider coverage of local
candidates and issues a “plus” at license renewal, without penalizing renewal applicants who
have not broadcast such programming?

15. Underserved Audiences. The fact that broadcasters must air programming that responds
to the needs and interests of their communities requires that they take into account all signifi-
cant groups within their communities. For example, in its 1960 En Banc Programming In-
quiry, the Commission explained that: “the broadcaster should consider the tastes, needs and
desires of the public he is licensed to serve in developing his programming and should exer-
cise conscientious efforts not only to ascertain them but also to carry them out as well as he
reasonably can. He should reasonably attempt to meet all such needs and interests on an equi-
table basis. Particular areas of interest and types of appropriate service may, of course, differ
from community to community, and from time to time.”

16. The Commission has elaborated on this principle, underscoring the link between commu-
nity-responsive programming and “the need for programming by groups that were not being
adequately served by broadcasting.” At the same time, the Commission has recognized that
efforts to develop balanced programming does not necessarily require that a station attempt to
provide service to all segments of the community in markets where multiple broadcast sta-
tions are available to satisfy the specialized needs of certain groups.19

     See Radio Deregulation Order, 84 F.C.C.2d at 997 ¶ 66 (“What is important is that broad-
      casters present programming relevant to public issues both of the community at large or, in
      the appropriate circumstances, relevant primarily to the more specialized interests of its
      own listenership. It is not necessary that each station attempt to provide service to all
      segments of the community where alternative radio sources are available.”).

Chapter IV - C                                                              Broadcast Licensing

Network-Affiliation Rules

17. A number of Commission rules govern the relationships between television networks and
their affiliated stations. The general goal of these rules is to ensure that local stations remain
ultimately responsible for programming decisions, notwithstanding their affiliation with a
national programming network. Under the “right to reject” rule, for example, the Commis-
sion will not license a station that has an agreement with a network that “prevents or hinders
the station from: (1) [r]ejecting or refusing network programs which the station reasonably
believes to be unsatisfactory or unsuitable or contrary to the public interest or (2)
[s]ubstituting a program which, in the station’s opinion, is of greater local or national impor-
tance.” The “time option” rule states that the Commission will not license a station that has
an agreement with a network that “provides for the optioning of the station’s time to the net-
work organization, or which has the same restraining effect as time optioning,” meaning an
agreement that “prevents or hinders the station from scheduling programs before the network
agrees to utilize the time during which such programs are scheduled, or which requires the
station to clear time already scheduled when the network organization seeks to utilize that
time.” By ensuring that stations themselves retain the power to make programming decisions,
these rules are intended to promote localism.

18. Payola. The Commission has defined “payola” as “the unreported payment to, or accep-
tance by, employees of broadcast stations, program producers, and program suppliers of any
money, services, or valuable consideration to achieve airplay for any programming.” Sec-
tions 317 and 507 of the Act set forth the current statutory standards for payola. As the
Commission has paraphrased, “[s]ection 507 requires those persons who have paid, accepted,
or agreed to pay or accept … payments to report that fact to the station licensee before the
involved matter is broadcast. In turn, section 317 of the Act requires the licensee to announce
that the matter contained in the program is paid for, and to disclose the identity of the person
furnishing the money or other valuable consideration.” Section 73.1212 of the Commission’s
rules set forth our sponsorship identification rules, which implement the requirements of sec-
tion 317, and are designed to alert listeners and viewers of a broadcast station to the fact that
they are hearing or viewing programming for which the station has received valuable consid-
eration by ensuring that the station discloses that fact. When payola causes stations to broad-
cast programming based on their financial interests at the expense of community responsive-
ness, the practice is inconsistent with localism.

19. Voice-Tracking. Other matters argued to impact localism negatively have been called to
our attention. For example, “voice-tracking” refers to the practice of importing “popular out-
of-town personalities from bigger markets to smaller ones, customizing their programs to
make it sound as if the DJs are actually local residents.” By centralizing talent and creating
name recognition, the practice would appear to enable radio stations both to decrease costs
and increase ratings and revenue. However, according to the American Federation of Televi-
sion and Radio Artists, “when a media company uses voice-tracking as a strategy to eliminate
live broadcasts and local employees altogether, the connection to the local community can be
hurt.” The Commission does not have rules that directly address this practice. What steps are
necessary to preserve localism? What is our statutory authority to adopt such regulations, and
what particular practices should be defined as inconsistent with a broadcaster’s programming

20. National Playlists. Another localism concern -- raised by the Future of Music Coalition
in its comments in the Biennial Ownership proceeding -- is the effect of “national” playlists
developed by large corporate radio owners on the access of local talent to air time. Absent
such access, local artists, it is argued, are stifled and localism suffers. We seek comment on
the prevalence of national playlists and their effect on localism. To what extent does the use
of such playlists prevent local stations from making independent decisions about airplay, and
thereby diminish the diversity and types of music heard on the radio, such as music performed

Chapter IV - C                                                              Broadcast Licensing

by local artists? What steps if any does the Commission need to take in this area to protect

License Renewals

21. The periodic license renewal process is perhaps the most significant mechanism available
to the Commission and the public to review the performance of broadcasters and to ensure
that licensees have served their local communities. In the past, licenses were granted for a
relatively short period – three years – and the Commission played an active role in evaluating
licensee performance during the prior license term. Applicants were required to submit sub-
stantial amounts of programming and other data – including details of ascertainment efforts
and commercial time figures – with their renewal application and the Commission reviewed
this information using specific processing guidelines. Furthermore, competing applications
could be filed against a renewal application. Where such applications were filed, the Com-
mission undertook a comparative analysis to determine which licensee, the incumbent or the
challenger, would provide the best service to the public.

22. Much has changed since this renewal regimen was put in place. As noted above, the
Commission itself deregulated the renewal process substantially in the 1980s, turning from
active review to a more passive role based on petitions to deny and license certifications.
Congress, in the Telecommunications Act of 1996, eliminated the comparative renewal proc-
ess and extended the maximum license term for broadcasters to eight years. It also revised
the standard used by the Commission to evaluate renewal applications, narrowing the range of
conduct the Commission could consider in acting upon a renewal application. Section
309(k)(1) instructs the Commission to grant an application for renewal if its finds that “(A)
the station has served the public interest, convenience, and necessity; (B) there have been no
serious violations by the licensee of this Act or the rules and regulations of the Commission;
and (C) there have been no other violations by the licensee of this Act or the rules and regula-
tions of the Commission which, taken together, would constitute a pattern of abuse.” Section
309(k)(2) authorizes the Commission, if an applicant for renewal does not meet these stan-
dards, to deny its application, or condition it, including reducing the license term. Section
309(k)(4) explicitly states: “In making the determinations specified in paragraph (1) or (2),
the Commission shall not consider whether the public interest, convenience, or necessity
might be served by the grant of a license to a person other than the renewal applicant.” Only
if the Commission denies a renewal application because it fails to meet the statutory standard
may it accept applications for the license from other applicants.

23. These developments have caused some to suggest that we do not examine thoroughly
enough whether a licensee has served the public interest. Are new procedures needed to
strengthen our license renewal process to ensure that the station at issue has served in the past,
and will continue to serve in the future, the needs of its community of license? Given the
fundamental importance of the issues and programs lists and other contents of the public file
in terms of documenting how broadcast stations serve their communities, should the Commis-
sion conduct audits of these files? How can we make the license renewal process more effec-
tive, and what are the benefits and burdens of any proposals for change? Although the Act
has long required us to find that a station serves the public interest in order to renew its li-
cense, what boundaries are there on the scope of our evaluation? How do the 1996 Act
amendments limit our authority? Are there means by which we can better involve the sta-
tion’s community in this determination? Is the interval between renewals too long to permit
an effective and timely review of stations’ performance? If license terms of eight years are
retained, should some form of mid-term review – as we now conduct for EEO compliance –
be used?

Chapter IV - C                                                               Broadcast Licensing

             2. Licensing & Renewal Under the 1996 Telecom Act

 Section 307(c) (47 U.S.C. 307(c)) is amended to read as follows:
  (1) INITIAL AND RENEWAL LICENSES- Each license granted for the operation of a
broadcasting station shall be for a term of not to exceed 8 years. Upon application therefor, a
renewal of such license may be granted from time to time for a term of not to exceed 8 years
from the date of expiration of the preceding license, if the Commission finds that public inter-
est, convenience, and necessity would be served thereby.

 Section 309 (47 U.S.C. 309) is amended by adding at the end thereof the following new sub-
  (1) STANDARDS FOR RENEWAL- If the licensee of a broadcast station submits an appli-
cation to the Commission for renewal of such license, the Commission shall grant the applica-
tion if it finds, with respect to that station, during the preceding term of its license--
 (A) the station has served the public interest, convenience, and necessity;
  (B) there have been no serious violations by the licensee of this Act or the rules and regula-
tions of the Commission; and
  (C) there have been no other violations by the licensee of this Act or the rules and regula-
tions of the Commission which, taken together, would constitute a pattern of abuse.
  (2) CONSEQUENCE OF FAILURE TO MEET STANDARD- If any licensee of a broad-
cast station fails to meet the requirements of this subsection, the Commission may deny the
application for renewal in accordance with paragraph (3), or grant such application on terms
and conditions as are appropriate, including renewal for a term less than the maximum other-
wise permitted.
  (3) STANDARDS FOR DENIAL- If the Commission determines, after notice and opportu-
nity for a hearing as provided in subsection (e), that a licensee has failed to meet the require-
ments specified in paragraph (1) and that no mitigating factors justify the imposition of lesser
sanctions, the Commission shall--
  (A) issue an order denying the renewal application filed by such licensee under section 308;
  (B) only thereafter accept and consider such applications for a construction permit as may
be filed under section 308 specifying the channel or broadcasting facilities of the former li-
  (4) COMPETITOR CONSIDERATION PROHIBITED- In making the determinations
specified in paragraph (1) or (2), the Commission shall not consider whether the public inter-
est, convenience, and necessity might be served by the grant of a license to a person other
than the renewal applicant.

  (d) PUBLIC INTEREST REQUIREMENT- Nothing in this section shall be construed as
relieving a television broadcasting station from its obligation to serve the public interest, con-

Chapter IV - C                                                              Broadcast Licensing

venience, and necessity.20 In the Commission's review of any application for renewal of a
broadcast license for a television station that provides ancillary or supplementary services, the
television licensee shall establish that all of its program services on the existing or advanced
television spectrum are in the public interest. Any violation of the Commission rules applica-
ble to ancillary or supplementary services shall reflect upon the licensee's qualifications for
renewal of its license.

     Sec. 309(a) reads as follows:
“If upon examination of any application for a station license or for the renewal or modifica-
    tion of a station license the Commission shall determine that public interest, convenience,
    or necessity would be served by the granting thereof, it shall authorize the issuance, re-
    newal, or modification thereof in accordance with said finding. In the event the Commis-
    sion upon examination of any such application does not reach such decision with respect
    thereto, it shall notify the applicant thereof, shall fix and give notice of a time and place
    for hearing thereon, and shall afford such applicant an opportunity to be heard under such
    rules and regulations as it may prescribe.”

Chapter IV - C                                                              Broadcast Licensing

                                   3. Licensing in the EU

                    Radiocommunications Agency, United Kingdom21

                                   Licensing Policy Manual

European Directive 97/13/EC

European Union Directive 97/13/EC sets a common framework for general authorisations and
individual licences, in the field of telecommunication services (including radio), and came
into force on 1 January 1998. The Directive has been enacted into UK legislation by Statutory
Instrument 1997 number 2930, which amended licensing provisions in both the Telecommu-
nications Act 1984 (T Act) and the Wireless Telegraphy Act 1949 (WT Act). 22

In summary the aim of the Directive is to ensure that Member States use fair and transparent
procedures for issuing licences which allow licensees to provide telecom services or net-

The Directive applies to approximately 75% of all WT Act licence classes, involving about
25% of all licences issued. However, in order to ensure equal treatment the Radiocommunica-
tions Agency seeks to apply the provisions of the Directive to all of the licence classes it is-
sues including, where applicable, licences in areas not covered by the Directive such as ama-
teur radio.

The WT Act 1949 extends to the Channel Islands and the Isle of Man. However, the EU Li-
censing Directive does not extend to those territories. Nonetheless, in order to ensure equality
of treatment to all licensees, the Radiocommunications Agency has assumed that its Licensing
Directive procedures also apply to WT Act licences in these areas. Some requirements of the
Directive are:

•      No licence application should be refused unless spectrum is unavailable, or on the
grounds of public safety, security, morality or insufficient information has been provided.
•        Licence fees should normally be set to recover the administrative costs incurred by
the licensing authority. However, the Directive allows national authorities to impose charges
that reflect the need to ensure optimum use of these resources.
•        The Agency may limit the number of licences for a new service where there is a spec-
trum constraint. In doing so, it must publish reasons and allow interested parties to express
their views.

     The Radiocommunications Agency has been superceded by the Office of Communications
     The Licensing Directive (97/13/EC) was repealed on 5 July 2003, and replaced by the
      Framework Directive. However the Licensing Committee, created by the 1997 Directive,
      continues. Committee meetings are attended by representatives of the Member States, the
      candidate countries and the EEA countries, including the independent national regulatory
      authorities. The Licensing Committee exercises both advisory and regulatory functions.
      The Committee is involved principally in the harmonisation of conditions for licensing and
      in the establishment of a one-stop shopping procedure as well as in discussing the need for
      harmonisation of spectrum.

Chapter IV - C                                                               Broadcast Licensing


                                 Office of Communication
                                 TV Licensing Department
                                      Riverside House
                                 2A Southwark Bridge Road
                                     London SE1 9HA
                                    Tel: 020 7981 3000

Length of licence

1. A licence issued in respect of Digital Television Programme Services (DTPS) shall con-
tinue in force until surrendered or revoked, so in principle a licence is of unlimited duration
unless a positive act is taken to terminate it.

Ownership restrictions

2. The Broadcasting Act 1990 (as amended by the Broadcasting Act 1996 and the Communica-
tions Act 2003) lays down a number of restrictions on who may hold Ofcom's broadcasting li-
cences. The following are among those who are disqualified from holding a licence or from con-
trolling a licensed company:

  a) a local authority (except where the service is provided exclusively for the purposes of
  carrying out the functions of a local authority under Section 142 of the Local Government Act
  1972 (as amended) (provision by local authorities of information relating to their activities)
  b) a political body
  c) a religious body, other than where Ofcom is satisfied that it is appropriate for a particular
  person to hold a licence and makes a determination to that effect. (The guidelines for those
  seeking such a determination are attached to these notes at Annex A)
  d) any company controlled by any of the above or by their officers or associates
  e) an advertising agency or any company controlled by such an agency or in which it holds
  more than a 5 per cent interest.

3. Please note that the Broadcasting Act 1990 (as amended by the Broadcasting Act 1996 and
the Communications Act 2003) provides for Ofcom to determine that in certain circumstances a
person with less than a 50 per cent share can been deemed to control a company.

4. Failure by a licensee to comply with statutory ownership provisions will constitute a
breach of the licence and if not rectified may result in revocation in accordance with the terms
of the licence.

5. Where information is relevant to determining whether an applicant is a disqualified person, it
is an offence for the applicant to supply false information or to withhold information with the
intention of misleading Ofcom. If a person is convicted of such an offence the court may make
an order disqualifying the applicant from holding a licence for a specified period. A disqualifica-
tion order applies not only to the individual concerned but to any company of which he or she is
a director or involved in the management of (whether directly or indirectly).

6. Ofcom may revoke the licence at any time if any change takes place affecting the nature
or characteristics of the licensee, or in the persons having control over or interests in the li-
censee, or which gives rise to a failure to comply with any requirement imposed by or under
the Broadcasting Act 1990, such that, if it fell to Ofcom to determine whether to award the

Chapter IV - C                                                              Broadcast Licensing

licence to the body in the new circumstances of the case, it would be induced by the change
not to do so. Before revoking the licence, Ofcom must notify the licensee and give the licen-
see a reasonable opportunity of making representations about the matters complained of. This
also applies to other powers of Ofcom to revoke the licence. If a licensee is disqualified by
virtue of a disqualification order the licence is treated as revoked from the time the order takes

Content issues

7. All programmes included in the licensed services together with all advertising and home
shopping content must comply with a number of general standards and specific advertising
and sponsorship standards and observe the provisions of Ofcom’s Fairness and Standards
Codes. The respective forms of the Fairness and Standards Codes are still subject to consulta-
tion and are expected to be finalised early in 2004. In the meantime the relevant content codes
as issued by the ITC will continue to apply.

8. Pertinent examples include the requirement that persons under the age of eighteen are
protected, that no material likely to encourage or to incite the commission of crime or lead to
disorder is included, that news is presented with due impartiality and reported with due accu-
racy and that adequate protection for members of the public from offensive and harmful is
provided. Licensees must ensure that the inclusion of advertising which may be misleading,
harmful or offensive is prevented.

9. Unless Ofcom agrees otherwise, licensees must allocate a majority of transmission hours,
excluding news, sports events, games, advertising, teletext and home shopping, to European
programmes. At least 10% of such transmission hours must be reserved for European inde-
pendent productions and an adequate proportion must be recent.

Restrictions concerning Listed Events

10. Where a provider of a television service enters into a contract for the rights to televise the
whole or any part of a "listed event" live for reception in the United Kingdom or in any area
of the United Kingdom, the requirements set out in the Broadcasting Act 1996 and the Com-
munications Act 2003 must be met. Please note, however, that changes made by the Communi-
cations Act 2003 to the listed events provisions in the 1996 Act are not expected to enter into
force until mid-2004. In the meantime, the relevant provisions of the 1996 Act will apply una-
mended (as is made clear in the drafting of the listed events condition in the licence) and the
ITC’s code giving guidance on listed events will continue to apply. The European Directive
89/552/EEC (as amended by European Directive 97/36/EC) sets out the rules regarding the
televising of events designated in other EEA countries.

11. The events which are listed at present in the UK are :

Group A                                           Group B
The Olympic Games                                 Cricket Test Matches played in England
The FIFA World Cup Finals Tournament              Non-Finals play in Wimbledon Tournament
The FA Cup Final                                  All Other Matches in the Rugby World Cup
The Scottish FA Cup Final (in Scotland)           Six Nations Rugby Tournament Matches
The Grand National                                Involving Home Countries
The Derby                                         The Commonwealth Games
The Wimbledon Tennis Finals                       The World Athletics Championship
The European Football Championship Finals         The Cricket World Cup – Final, Semi-finals
The Rugby League Challenge Cup Final              and Matches Involving Home Nations’ Teams
The Rugby World Cup Final                         The Ryder Cup
                                                  The Open Golf Championship

Chapter IV - C                                                               Broadcast Licensing

12. Events may be added to or deleted from the list by the Secretary of State after consulta-
tion with Ofcom, the BBC, the Welsh Authority and appropriate rights holders.

Equal opportunities and training requirements

13. If the licensee falls within the category of persons described by Sections 337(7) and (8) of
the Communications Act 2003 then it must in relation to employment with the licensee have
in place arrangements

  (a) for promoting (i) equal opportunity between men and women and between different
  racial groups and (ii) the equalisation of opportunities for disabled persons and
  (b) for training and retraining persons whom it employs in connection with the provision of
  the licensed service or the making of programmes for it.

14. In due course Ofcom will be issuing guidance about these requirements.

Fairness and standards

15. Licences refer to obligations in relation to fairness and standards which are addressed in Of-
com’s Fairness Code and Standards Code. Ofcom has a duty to consider and adjudicate on cer-
tain complaints received from the public. Complaints from the public are divided into two cate-
gories - fairness complaints (i.e. complaints relating to unjust or unfair treatment in programmes
or an unwarranted infringement of privacy in or in connection with the obtaining of material in-
cluded in the programmes) and standards complaints (i.e. complaints relating to the portrayal of
violence or sexual conduct in programmes or alleged failures of those programmes to attain stan-
dards of taste and decency). The licensee will be obliged in accordance with any direction issued
by Ofcom to publish by broadcasting or otherwise a summary of a complaint against a pro-
gramme which appeared on the licensed service, and any findings (or a summary of them) on the
complaint. In relation to a standards complaint, the licensee may, in addition, be required to pub-
lish any observations of Ofcom (or a summary of them, as approved by Ofcom) on the com-
plaints. The licensee is also required to report on any supplementary action in consequence of
Ofcom's findings on the complaint. The respective forms of the Fairness and Standards Codes
are still subject to consultation and are expected to be finalised early in 2004. In the meantime
the relevant content codes as issued by the ITC will continue to apply.

Fair and effective competition issues

16. Ofcom has a duty to ensure fair and effective competition in the provision of licensed ser-
vices and services connected with them, and the licence prohibits practices or arrangements
prejudicial to such competition. The licence also provides for Ofcom to issue directions, codes or
guidelines for the purposes of ensuring fair and effective competition. Licensees must comply
with these provisions.

17. Ofcom also issues and reviews, from time to time, Codes of Conduct or practice relating
to certain matters such as, for example, conditional access issues and electronic programme

18. The behaviour of a licensee would not be anti-competitive, ie, damaging to competition,
unless that licensee, either alone or acting in concert with others, would have enough influ-
ence on the relevant market to affect the operation of the competitive process in terms of
price, quality, choice or availability of the services. In other words, Ofcom’s powers apply to
agreements, transactions or courses of conduct which are likely to have an appreciable impact
on competition.

Chapter IV - C                                                              Broadcast Licensing

19. Areas of activity, in addition to those related to subscriber management services or elec-
tronic programme guides, which may come under scrutiny by Ofcom include the terms on
which material for inclusion in the licensed service is acquired or commissioned (eg. the
length of rights, key contractual terms, etc.); the terms on which programmes are supplied at
either the wholesale level to multiplex operators (eg. whether exclusive rights to capacity is
required, full-line forcing. etc) or at the retail level to customers (e.g. whether the programme
service is bundled with others in a manner which inhibits the availability of a wide range of
services and restricts viewer choice). These examples are provided for guidance only and
should not be taken to preclude Ofcom investigation in any other area.

Technical Standards

20. Except for television licensable content services broadcasting from a satellite only broadcast
or transmitted for reception outside the European Economic Area, every licensed service must
use a transmission system complying with Article 17(1) of Council Directive 2002/21EC on the
use of standards for the transmission of television signals.

Variation of licences

21. Ofcom has power to vary the licences, but only after the licensee has been given a reasonable
opportunity to make representations about any proposed variation. The Annex to the licence
will be varied from time to time in response to notifications submitted by the licensee in ac-
cordance with paragraph 27 above.


22. An application for a digital television programme services licence containing one or more
digital programme services must be accompanied by a cheque for a total of £1575, which is
made up of an application fee of £1000 and the first year’s licence fee of £575. Subsequent
fees are due in advance on each anniversary of the date of grant of the licence in accordance
with the tariff at Annex C, as varied from time to time by Ofcom. Where the annual fee is
equal to or more than a designated amount, currently £25,000, the fee is payable by equal
monthly instalments. Late payments carry interest from the date due until the date of actual

23. Should a licensee wish to vary its digital television programme services licence by adding
one or more digital television programme services then that application to vary the licence
should be accompanied by a fee of £1000.

Enforcement of licence conditions and sanctions

In the event of a breach of the conditions of a licence Ofcom has power to impose sanctions.
A guidance note on sanctions is attached at Annex B. Failure to pay licence fees will nor-
mally result in revocation of the licence, as well as appropriate action for the recovery of the
debt. Licences may also be revoked at the licensee’s request and if the licensee is no longer
subject to UK jurisdiction.

Chapter IV - C                                                             Broadcast Licensing

                        4. Reexamining the Need for Regulation

                                     Thomas W. Hazlett
                              97 Colum. L. Rev. 905, May, 1997

        “An Act to promote competition and reduce regulation in order to secure
        lower prices and higher quality services for American telecommunications
        consumers and encourage the rapid deployment of new telecommunications

Preamble to the Telecommunications Act of 1996

Despite ambitious rhetoric regarding the scope of liberalization in telecommunications mar-
kets, the omnibus 1996 Telecommunications Act did shockingly little to disturb age-old
regulatory arrangements in radio and television broadcasting. Consider that the primary re-
forms in this sector involved the following:

    •   TV and radio licenses have been extended to eight years (from 7 in radio, 5 in TV);
    •   Renewal of licenses has been made easier as the burden has shifted to the Federal
        Communications Commission (FCC) to show a "pattern of abuse" to justify non-
    •   Incentives for third parties to challenge license renewals have been reduced;
    •   Various ownership restrictions have been relaxed, particularly in radio markets;
    •   A violence-filtering "V-chip" has been mandated for television sets, and violence-
        labeling for TV shows;
    •   The FCC has been prohibited from awarding new licenses for Advanced Television to
        any applicants other than existing TV stations, and from charging for such awards.

These policy reform measures are so favorable to industry incumbents that, with the exception
of the V-chip provision, they could well have been written by the National Association of
Broadcasters. In essence, the legislation - called sweeping by many and dubbed "revolution-
ary" by the President - took serious spectrum reform off the table. One half of the telecom-
munications world, traditionally partitioned into "wireline" and "wireless," has survived the
first "major" rewrite of the 1934 Communications Act intact. Indeed, ever since the Radio Act
instituted "public interest" regulation, little has changed in how we allocate spectrum and as-
sign licenses to private wireless service providers. Despite the announced goals of competi-
tion and deregulation, the recent legislation has, in fact, extended the problems with adminis-
trative control of spectrum.

The means by which we regulate broadcasters have proven amazingly successful in terms of
political survivorship. The current system, devised under the regime of President Calvin Coo-
lidge and Secretary of Commerce Herbert Hoover, has continued virtually unamended
through decades of technological progress, the invention and adaptation of television, political
reform movements (including deregulation), and a "top-to-bottom" rewrite of telecommunica-
tions law. This implies a remarkable stability.

Over a generation ago, our current regulatory structure was properly condemned as anticom-
petitive. Since the publication of Nobel Laureate Ronald Coase's classic paper on the FCC in
1959, many policy analysts have shown that spectrum allocation and licensing procedures
employed by the FCC unduly restrict competition in the broadcasting marketplace. The legal-
ity of restricting broadcast entry - which immediately raises the spectre of limiting and polic-

Chapter IV - C                                                              Broadcast Licensing

ing speech - has likewise attracted severe criticism from legal scholars. Yet the basic rules
concocted in 1927 continue in force. The government issues broadcasting licenses as special
privileges, using this power to coerce certain types of speech or to engage in subtle but none-
theless potent forms of censorship. Where is the momentum for reform in broadcasting law?

II. The Physical Scarcity Doctrine and the First Amendment - An Overview

Before 1927, the allocation of frequencies was left entirely to the private sector, and the result
was chaos. It quickly became apparent that broadcast frequencies constituted a scarce re-
source whose use could be regulated and rationalized only by the Government. Without gov-
ernment control, the medium would be of little use because of the cacophony of competing
voices, none of which could be clearly and predictably heard. Consequently, the Federal Ra-
dio Commission was established to allocate frequencies ... in a manner responsive to the pub-
lic "convenience, interest, or necessity."

The dichotomy between constitutional protections extended to the print media and those af-
forded the electronic media has received a great deal of attention in the legal, communica-
tions, and public policy literature. First Amendment protection blankets print publishers, as
vividly seen in Tornillo, but has only scantily covered electronic publishers since NBC and
Red Lion. An impressive regulatory structure for the electronic press has been erected
around the legal interpretation found in this line of cases, with broadcasters licensed as "pub-
lic trustees" by the FCC, and cable television operators franchised by local governments. In
either situation, the character and performance of electronic publishers are explicitly taken
into account in licensing and renewal decisions - an activity that seriously compromises the
strictures against government discretion in regulation of the press.

US law holds that broadcasting is fundamentally different from print in two ways. First, with-
out government regulation of the broadcast band, no electronic speech would be possible; the
government in essence creates the entire category of broadcast speech via regulation, giving it
special authority to influence communication. Second, the "physical scarcity" of the elec-
tromagnetic spectrum dictates that not all who wish to broadcast may do so; hence, the gov-
ernment must, in its simple custodial role, employ some discretion in selecting licensees.

A. The Economic Critique

Since Coase's pathbreaking analysis, many scholars have asserted that the physical scarcity
doctrine crafted in NBC was logically false. Simply because exclusive rights to spectrum are
necessary for the efficient functioning of the broadcasting industry, it does not follow that
government must either own or use its discretion to assign such rights. Nor, certainly, does it
call for government regulation of the content of programs broadcast. It would suffice that the
time, place, and frequency coordinates of spectrum use be legally defined. Defining (and en-
forcing) such access rights, moreover, turns out to be nothing more than the property rights
"traffic cop" function that government must undertake to deter anarchy in any market. Coase
noted that the Court, by arguing that federal licensing of broadcasters was necessary to elimi-
nate the interference threat endemic to common property, mistakenly compacted two distinct
functions - rights definition and rights assignment - into one.

The economics of this analysis are flawless. The argument's persuasiveness has attracted
many efforts to fix this "mistake" in First Amendment law by showing that a private assign-
ment mechanism is indeed workable for policing access to electromagnetic spectrum. Regu-
lation of content is not required to solve the technical commons problem in airwave usage.
Proponents of such regimes appear to believe that the analytical errors of earlier generations
may now be corrected by implementing more logically appealing regulatory structures and by
auctioning off FCC licenses. Indeed, while Congress gave up its decades-long resistance to
auctions in 1993, it authorized the FCC to sell only nonbroadcast licenses. The $ 20 billion in

Chapter IV - C                                                              Broadcast Licensing

auction receipts thus far obtained starkly shows that there are no "technical" barriers to as-
signing broadcasting rights by the price system.

B. The Technological Critique

The second line of criticism of prevailing law, which has gathered considerable support, sug-
gests that the communications marketplace has clearly changed since the current regime was
constructed (or even since Red Lion). According to this view, the technical ability to exploit
the electromagnetic spectrum has vastly increased in recent decades, with cable, satellite, and
wireless cable (to name just 3 new product delivery sources) adding dramatically to viewer
choice. Any once-critical scarcity problem appears to have been surmounted. Similarly,
powerful new communications systems have led some to herald the triumph of technology
over traditional regulatory approaches. This view has been embraced by the Speaker of the
House of Representatives, Newt Gingrich (R-Ga.), who has advocated abolition of the FCC
on the theory that the new digital and spread spectrum technology makes the agency obsolete.
Media "convergence" also demonstrates the effect of technology on the cogency of the physi-
cal scarcity doctrine. Not only are the electronic press conduits becoming more abundant, but
they are converging as well, becoming seamlessly integrated with those of print and other
media. Thus, as technological change has accelerated, regulatory distinctions between media
have become less precise, undermining the rationale for distinct treatment of broadcasting.

C. A Public Choice Analysis

While the Economic Critique forcefully refutes the logic of the physical scarcity doctrine, and
the Technological Critique amasses impressive marketplace evidence for its view, neither ex-
plains key determinants of the current policy regime. Hence, they do not squarely join the
public policy debate. Physical scarcity and its ancillary justifications for content regulation
must be understood as ad hoc rationalizations of policies adopted to achieve specific distribu-
tional goals, not to correct a market failure (tragedy of the commons), as has been asserted
previously in both case law and the scholarly literature. Congress did not advance broadcast
licensing in the "public interest" to remedy "chaos" or "physical scarcity" problems--problems
that would be placed center stage by the U.S. Supreme Court long after the advent of radio
legislation. Instead, Congress was motivated to institute regulation of a new technology that it
correctly identified as a powerful source of news and information that could dangerously
challenge existing political interests.

Congress's motivation in establishing a broadcast licensing scheme was not to further unregu-
lated and constitutionally protected speech, but rather to assert control over the content of the
material that might be broadcast. Since then, the driving force in federal licensing has been
rational tripartite maximization: legislators maximize political support by arbitrating a rent-
seeking competition for valuable licenses and by gaining editorial influence over broadcast
material; incumbent broadcasters maximize profits by obtaining both free licenses and the
erection of barriers barring new entrants, realizing significant license rents; and "public inter-
est" lobbyists maximize utility in a politicized assignment process that yields the highest re-
turns on their human capital. Hence, a classic rent-seeking competition forged the licensing
regime for broadcasting in the 1920s, and has steadfastly maintained it ever since, due to the
dominating vector of political support associated with the scheme. In the pages that follow, I
will demonstrate just how this occurred.

IV. The Vacuity of "Physical Scarcity"

While the view has developed that the physical scarcity doctrine in NBC and Red Lion is an
analytical error, the conventional wisdom ascribes the confusion to a technological sophistica-
tion of electronic communications media that appeared relatively obscure to older jurists.
Yet, it is difficult to regard the physical scarcity doctrine as meaning anything at all. There is

Chapter IV - C                                                             Broadcast Licensing

the economic argument of Coase, well-taken, that scarcity pervades all economic goods, and
that, for example, while the number of Renoir paintings may be finite, the market routinely
auctions them off. Conversely, airwaves cannot be thought of as physically scarce in this
manner, because frequencies are divisible (or expandable) in ways that works of art are not.
The spectrum can be mined more intensively, using less separation between frequencies with
more (or higher quality) broadcast transmitters and better receivers, or more extensively, de-
ploying more sophisticated sending and receiving equipment so as to exploit progressively
higher or lower wavelengths.

Since the very early days of radio communications, capacity has been seen as a systematic
trade-off between bandwidth and technology. As a paper written to commemorate the centen-
nial of Guglielmo Marconi's invention (or discovery) of wireless radio details:

One of the very first questions asked of young Marconi about his nascent technology was
whether it would ever be possible to operate more than one transmitter at a time. Mar-
coni's key British patent No. 7,777 was a milestone as it taught the use of resonant tuning
to permit multiple transmitters to simultaneously occupy the radio spectrum.

Of course, advances in the state of the art brings progressively more radio spectrum into pro-
ductive use: today there is "over 30,000 times more spectrum at our disposal than in Mar-
coni's day." While this relationship between man-made tools and the radio spectrum resource
can clearly be seen over time, it is true at any moment in time as well. The number of fre-
quencies assigned for use by various parties always involves cognition of the relevant range
of possibilities - a range that is limited by economic cost, not by fixed physical proportions.
This was seen and acknowledged explicitly by informed commentators at just the moment
that the Radio Act of 1927 was being crafted. As an article in Science summarized the broad-
casting situation:

We have at the present time only 89 wave lengths and Canada uses five of these, leaving
the United States 84... Increasing the number of wave lengths is possible, but would in-
volve difficulties, [W.D. Terrell, chief of the Department of Commerce's Radio Division]
explained. Radio receiving apparatus is now made to cover the broadcasting band from
200 meters to 545... If broadcasting stations were allotted wave lengths outside the pre-
sent range radio apparatus would have to be altered to permit reception.

The idea of a fixed number of frequencies to be awarded to a fixed number of speakers simply
begs the question of unit definition, as well as the question regarding how much of the spec-
trum is to be used for radio broadcasting. Reduced to its simplest form, the proponent of
"physical scarcity" must be asked to name the number of technically available frequencies.
Any number less than infinity can be increased by further subdivision of time, power, or
bandwidth coordinates....

Ironically, the absolute lack of content in the physical scarcity concept has helped to enable
the physical scarcity doctrine to live a long and healthy life. The criticism that the doctrine
has repeatedly invoked inevitably focuses on the relative lack of scarcity - indeed, a relative
abundance - which the electronic media increasingly exhibit when compared to the traditional
print press. This line of attack became acute when, in 1974, Tornillo established that the Mi-
ami Herald newspaper was entitled to sweeping First Amendment protections regardless of its
market dominance or political influence. This came only five years after the Red Lion verdict
put the Supreme Court on record as justifying FCC rules requiring (unpaid) right-of-reply
over a tiny, daytime-only radio station.

The emptiness of physical scarcity as a concept, however, has rendered empirical challenge
moot. It specifies something distinct from economic scarcity, the only sense in which we
might meaningfully discuss scarcity, and simply asserts a state of nature. Since this assertion

Chapter IV - C                                                              Broadcast Licensing

itself lacks substance, empirical falsification becomes quite impossible. This has led to appar-
ent frustrations on the part of many expert commentators. The late Ithiel de Sola Pool ob-
served that the Red Lion Court's finding that "scarcity is not entirely a thing of the past" com-
pelled the Court to characterize "scarcity as a continuing objective fact." This was curious to
Pool, in that, "by the time of [Red Lion] it was technically possible to provide as many chan-
nels on cable television as consumers would pay for. With cable, the limitations on spectrum
are gone." Yet, in that physical scarcity admits to no coherent definition, the "objective"
facts of the marketplace will not overcome the unique property alleged for spectrum. There is,
in short, no way to disprove a logical cipher. This forms the impressive legal contribution of
the doctrine. In Pool's apt description: "The notion that nature itself inexorably required the
selective licensing of broadcasters has persisted to the present. It is the core of the 1969 [Red
Lion] decision."

VIII. Conclusion

The publishing business is, in short, the only organized private business that is given explicit
constitutional protection. Ever since the first regularly scheduled public radio-broadcast in
1920, Congress has played a unique and central [role] in the control of radio-broadcasting.

The interests of the regulated industry, broadcasting, are served by erecting entry barriers
against competition. That mission has been accomplished via the public interest standard. As
is customary, recipients of license rents agree to an implied regulatory contract, what in
broadcasting is called "public trusteeship." In agreeing to submit to various aspects of content
control, including licensing itself, broadcasters are allowed to realize rents.

Regulators and public interest advocates have benefitted from a system that allows political
decisionmakers to overrule consumer choices in an unregulated marketplace. By being in the
loop on licensing decisions, such players are automatically in the loop on content decisions,
thus achieving proximity to political clout as well as important status within the regulated
(broadcasting) industry itself. That this creates First Amendment problems is virtually self-
evident. But the fact that the courts have remained deferential to such regulatory discretion
being imposed on electronic speech is a tribute to the effectiveness of the political coalition
vested in the physical scarcity doctrine.

What is most clear is that the demand to regulate broadcasting in the United States has not
been driven by any technical necessities, policymakers' misunderstandings, or the naivete of
experts. Rather than a passive governmental response to market failure, as hypothesized in
Red Lion, the motive to regulate broadcasting has been, since its earliest days, driven by the
rents available to licensees on the one side, and the gains available to political actors from
influence over a medium of pervasive social importance on the other.

This brings us to the very heart of the First Amendment question in electronic communica-
tions. To borrow Charles Fried's phrase, "primacy of politics" was asserted. What we are led
to conclude is that the demand to regulate electronic communications has arisen for reasons
having nothing to do with physical scarcity - a concept that fails to survive even the most cur-
sory logical scrutiny. Nor can it be attributed to any alleged confusion of early radio industry
regulators concerning property rights, as radio's earliest regulators were demonstrably facile
with rules to "minimize interference" using traditional - and available - legal institutions. Nor,
lastly, was there any doubt as to the reason radio was especially important: it was seen as a
dramatically influential medium of expression. Hence, the demand to allocate and license ra-
dio spectrum administratively has arisen from the very quarters against which the Founders
crafted a First Amendment to protect us: an alliance of private publishers and government
agents creating and distributing monopoly rights in an industry of supreme importance to de-
mocratic life.

Chapter IV - D                                                                Spectrum Auctions

                                   D. Spectrum Auctions

                                       1. United States

                            a. The Road to Market Allocation

                       An Economic Analysis of Domain Name Policy
                             Karl Manheim & Lawrence Solum
                         25 Hastings Comm. & Ent. L.J. 359 (2003)

The Radio Act of 1912 was the United States’ first effort at spectrum management.23 It de-
clared it illegal to “use or operate any apparatus for radio communication as a means of com-
mercial intercourse among the several States … except under and in accordance with a li-
cense, revocable for cause, in that behalf granted by the Secretary of Commerce and Labor.”
The Act did not specify criteria for licensing nor, apparently, did it authorize the Secretary to
promulgate his own. In an early case, the Court of Appeals ruled that Secretary Hoover had
no power to deny licenses, but only empowered to assign frequencies. This was followed by
a district court decision that a station's use of a frequency not assigned to it was not a viola-
tion of the Radio Act. This was reiterated by a 1926 Attorney General opinion. In response,
Secretary Hoover abandoned all effort to regulate the spectrum, instead urging that stations
“regulate themselves.” A “tower of Babel” ensued.

In the void created by federal incompetence, both the market and the courts responded to re-
store some semblance of order on the airwaves. Stations did agree amongst themselves on
transmission times and frequencies and a healthy market developed in broadcast rights. More
importantly, perhaps, a state court decision in 1926 upheld a tort claim by Chicago station
WGN against a “wave jumper” that was broadcasting so close to WGN’s frequency as to
cause interference. The decision was the first to recognize “a particular right or easement in
and to the use of [a] wave length.”

Just as a common law of broadcast property rights (based on first occupation) began to de-
velop, Congress passed the Radio Act of 1927 and created the Federal Radio Commission
(FRC). Salient provisions of the Act confirmed public ownership of the airwaves and speci-
fied merit-based free licenses, in exchange for which broadcasters would provide public ser-
vice. Congress rejected alternate allocation schemes such as first occupation, lottery and auc-
tion. Rather, applicants would be evaluated on the basis of “public interest, convenience and
necessity.” In cases of competing applications, administrators would hold comparative hear-
ings. The notion of government control through licensing flowed from the antecedent princi-
ple of public ownership of the spectrum, “an idée fixe in the debates of Congress.”

One of the FRC’s first decisions was to keep the broadcast band at its current size rather than
to expand it to accommodate all existing broadcasters. Scarcity was codified. Licensing cri-
teria and broadcasting standards quickly followed. The former favored wealthy applicants
with superior technical capability and broadcast experience. The latter favored middle-of-the
road programming. Broadcasts by socialist stations, unconventional columnists, social critics,
evolutionists, and fringe candidates were forced off the air. As the Commission stated, there
was “not room in the broadcast band for every school of thought, religious, political, social
and economic, each to have its separate ... mouth piece in the ether.” Despite the prohibition
of censorship in the 1927 Act, both the FRC and the Court of Appeals effectively adopted
policies and interpretations of the statute that had the effect of nullifying this prohibition.

     Earlier laws were in the nature of technology forcing. See, e.g., The Ship Act of 1910, Pub.
     L. No. 61-262, ch. 379, 36 Stat. 629.

Chapter IV - D                                                                 Spectrum Auctions

This regime was the product of a statutory mandate to promote “the public interest.” The un-
derlying justification for the rationing of licenses was spectrum scarcity, but spectrum-
scarcity was itself the product of the regulatory regime. Just as the advent of the printing
press a half-millennium before prompted the Licensing Act, discovery of radio waves as a
means of communication lead to licensing of spectrum use. In both cases, what was really
being licensed was the right to speak.

In 1934, the Radio Act was supplanted by the Communications Act and the FRC was re-
placed by the FCC. This transition was accompanied by minimal changes in broadcast licens-
ing policies and standards. In fact, the ownership and licensing precepts established in 1927
remained mostly intact for seventy years. Those precepts were: a) public ownership of the
airwaves, b) short term licensing, c) free rent to broadcasters, and d) monopoly rents by
broadcasters. In other words, a select few—the entrenched stakeholders—were given rights
worth billions of dollars.24 The value of broadcast licenses typically derived from two
sources: advertising revenue (income) and sale of licenses (the capitalized value of the ex-
pected future income stream). Prior to the grandfathering of digital licenses to broadcasters in
1996, the estimated opportunity cost to taxpayers of free licensing was as high as $100 billion
or more. The granting of free digital licenses to existing television broadcast license holders
resulted in an additional wealth transfer to entrenched stake holders of $70 billion or more.

In addition, the broadcast licensing regime imposes direct costs of government. The FCC's
annual budget is approximately one-quarter-billion dollars annually. This cost is high be-
cause ad-hoc license evaluation and even systematic spectrum decision making both require
substantial expertise and staff resources. Moreover, given the economic rents that can be real-
ized by those who are awarded licenses, it is not surprising that there is substantial competi-
tion. In the case of broadcast licenses, that means holding expensive “comparative hearings”
(dubbed "beauty contests") and hearings on “petitions to deny” license renewal. It might all
be worth it if licensees were truly fulfilling their public trust responsibilities and promoting
the “public interest, convenience and necessity.” But the failure of the broadcast industry on
this score is so well known that further argument on this point is unnecessary.

Suffice it to say that it was official government policy for most of the twentieth century to
give away public property and convert public goods into private ones. Early stakeholders
were the beneficiaries. Radio stations sell in the hundred million dollar range, and television
stations are priced in the multi-hundred million dollar range. Networks cost more – roughly
$20 billion. Shouldn’t the federal treasury be getting some of this windfall?

Most economists think so, and have repeatedly told the FCC. One of the earliest critics of
spectrum allocation policy was Ronald Coase, the noted British economist (later at the Uni-
versity of Chicago). In testimony before the FCC in 1959, Coase argued for a system of
competitive bidding (auctions) for licenses.

      [U]se of the pricing mechanisms … would avoid the need for much of the costly and
      time-consuming procedures involved in the assignment of frequencies by the Commis-
      sion. It would rule out inefficient use of frequencies by bringing any proposal for the use
      of such frequencies up against the test of the market, with its precise monetary measures

     “The great irony in Congress's declaration that the electromagnetic spectrum is the posses-
      sion of the people is that access to the spectrum is almost completely closed to the public.
      The spectrum is locked away in blocks of bandwidth licensed to a privileged few through
      methods that are too complex and expensive for all but major corporations or the politi-
      cally connected to bear (an extraordinary number of broadcast licenses are held by former
      members of Congress).” Arthur De Vany, Implementing a Market-Based Spectrum Pol-
      icy, 41 J.L. & ECON. 627, 641 (1998).

Chapter IV - D                                                                Spectrum Auctions

      of cost and benefit… And it would avoid that arbitrary enrichment of private operators of
      radio and television stations which inevitably follows from the present system. We some-
      times hear denunciations of giveaways and their corrupting influence. You, gentlemen,
      are administering what must be one of the biggest giveaways of all.25

Coase refined his reasoning in his now famous theory (“Coase theorem”) that, in the absence
of transaction costs, efficiency of resource allocation is independent of how a property right is
initially assigned. As applied to broadcast, it holds that initial license allocation would have
little effect on who gets to use the spectrum. Licensees and aspirants would "agree them-
selves around" the FCC’s initial distribution of rights and effectuate a license transfer when-
ever it was to their mutual advantage. In most cases, the market would achieve Coasian opti-
mality by reposing broadcast rights with whoever was willing to pay most for them. For this
and other writings on the institutional structure of the economy Coase won the Nobel Prize in
economics in 1991.

In short (assuming the constraint of forced scarcity), federal licensing policy had little influ-
ence on the actual use of the airwaves, only on who received windfalls.26 As Thomas Hazlett
describes it, federal policy went through two epochs corresponding to different theories of
spectrum regulation. These were the “chaos theory” (self-regulation by the industry prior to
1927), and the “error theory” (licensing per “public interest” standard after 1927). Neither
produced desirable effects.

A third era in licensing – lottery – began with experimental trials in the 1980s. After being
inundated with thousands of applications for new cellular and Personal Communications Ser-
vice (PCS) licenses, each requiring comparative hearing, the FCC lobbied Congress for lot-
tery authority. It came in the Omnibus Budget Reconciliation Act of 1981.27 Lotteries were
quickly extended to new classes of broadcast service – Low-Power Television and Low-
Power FM radio, in part. The hope was that random selection would speed up licensing and
deployment of these new services. That hope faded quickly.

Although cheaper to administer, lotteries proved to be an inefficient means of awarding li-
censes. Lottery applications were easy to submit. Applicants did not need to provide detailed
credentials, as they would in the case of comparative hearings. Nor would they need to con-
duct market studies and ascertain the need or value of service, as they would if they had to
amortize the cost of a license obtained at market price. So applications came in by the hun-
dreds of thousands. Winners would often "flip" or resell their licenses to larger entities at
substantial profit “without ever delivering service to a single customer.” Some licenses won
at lottery were resold in short order for tens of millions of dollars. The windfalls continued,
as per the Coase Theorem. But the transaction costs were high, including the cost of delay in
getting licenses to firms that could actually use them. “One estimation of social cost for the
ten-year delay in licensing of cellular providers [by lottery] was 2 percent of Gross National
Product (GNP).” By 1985, the FCC indicated its desire to eliminate the lottery system.

     Ronald Coase, Testimony before the FCC, December, 1959. See 3 Ronald Coase, The Fed-
     eral Communications Commission, 2 JL & Econ. 1, 17-35 (1959)
     See Ithiel de Sola Pool, Technologies of Freedom (reprint ed. 1984) at 139-40 (1983)
      (“Under existing practice the original licensees make a windfall profit by selling the li-
      cense to someone else…. If the market … had been pushed one level further back and the
      government had offered spectrum rights for lease or sale at a price reflecting market value,
      any windfall would have gone to the public, not to politically favored individuals”).
     Lotteries were authorized by the Omnibus Budget Reconciliation Act of 1981, Pub. L. No.
     97-35, 95 Stat. 357, at 736-37 (codified as amended at 47 U.S.C. § 309(i) (2001)).

Chapter IV - D                                                                Spectrum Auctions

“The long policy march to FCC license auctions” reached its destination during the Clinton
administration. The Omnibus Budget Reconciliation Act of 1993 authorized the FCC to use
competitive bidding to assign radio licenses in non-broadcast bands (e.g., wireless telephony).
A vigorous and successful auction regime took hold. A 1997 report by the Congressional
Budget Office (CBO) found that “by most assessments, the FCC auctions have assigned li-
censes to use the spectrum in an economically efficient way.” CBO also estimated that spec-
trum auctions would “yield $27 billion in receipts to the federal Treasury” in the first five
years of license sales. Beyond, 1998, however, auction revenue would tail off substantially,
producing only an estimated $6.0 billion in the following five years. However, if the FCC’s
auction authority were expanded, for instance to include broadcast frequencies, projected
revenues would jump to more than $30 billion. That would help narrow the budget deficit.28

Later that year, Congress passed the Balanced Budget Act of 1997. It expanded the FCC’s
auction mandate to include new broadcast licenses. To be sure, very few “new” broadcast
licenses are issued these days (the consequence of spectrum scarcity), and will not be until
analog licenses are reclaimed as part of the transition to digital television.29 But auctions are
now underway for broadcast as well as all other commercial uses of the spectrum. Competi-
tive bidding is the fourth and latest era of license allocation policy. By all accounts, the
FCC’s experience with auctions has validated economic theory favoring auctions as the allo-
cation method yielding the highest and best use of spectrum.30

     Since that report the spectrum market has become exceptionally volatile, not just in the US
     but worldwide, and some auction winners have defaulted. Accordingly, the CBO has re-
     vised its estimates on several occasions. See, e.g., Congressional Budget Office, The
     Budget and Economic Outlook: Fiscal Years 2001-2010, at 92 (Jan. 2000).
     Full-power television broadcasters were each entitled to a second license, to be used for
     digital broadcasts, during the decade-long transition from analog to digital television.
     When the transition is complete, sometime after 2006, broadcasters must return their ana-
     log licenses. However, analog channels will be auctioned off for future use even before
     they are reclaimed by the FCC. See id. § 3003 .
     The experience in Europe has been somewhat different. Recent auctions for new “third
      generation” (3G) wireless telephone frequency licenses have had mixed results, sometimes
      leading to company failure and excessive pricing. Much of this is due, we believe, to three
      factors: (1) inconsistent allocation methods among countries in the European Union (EU),
      making it difficult for national companies to compete in other markets; (2) poor auction
      design; and (3) lack of experience in an incipient industry (3G), resulting in inaccurate
      market models and overbidding by auction participants. See Owen M. Kendler, Auction
      Theory Can Complement Competition Law: Preventing Collusion In Europe's 3g Spec-
      trum Allocation, 23 U. Pa. J. Int'l Econ. L. 153 (2002) (discussing flaws in EU auctions).
      We don’t believe these problems have plagued spectrum auctions in the U.S. or or likely
      to arise with domain name auctions. See Peter Cramton, Spectrum Auctions, Handbook of
      Telecommunications Economics, 2 (Feb. 2001) (“In comparison with other countries, the
      FCC auctions represent the state-of-the-art in spectrum auction design and implementa-
      tion…The FCC’s leadership in spectrum auctions has had positive consequences world-
      wide. Many countries wisely have imitated the FCC auctions; those that have not have suf-
      fered from inefficient license assignments and other flaws”)
      Nonetheless, we acknowledge that spectrum auctions in Europe have left a bitter taste for
      some, not the least of whom is the European Parliament. Clause 11 of its “Resolution on
      the Commission Communication” regarding the 1999 EU Regulatory Framework for Elec-
      tronic Communications states the Parliament “is concerned to note that the Commission
      does not discourage spectrum auctions, since auctions tend to raise licence fees above their
      economic value, raise consumer tariffs and hamper the introduction of new services”).

Chapter IV - D                                                               Spectrum Auctions

                                b. Adoption by the FCC

                                     Before the
                          Federal Communications Commission
                                Washington, D.C. 20554

In the Matter of                                      )
Implementation of Section 309(j) of the               )            MM Docket No. 97-234
Communications Act -- Competitive Bidding             )
for Commercial Broadcast and Instructional            )
Television Fixed Service Licenses                          )

                               FIRST REPORT AND ORDER

 Adopted: August 6, 1998                                           Released: August 18, 1998

                                           I. INTRODUCTION

         1. By this First Report and Order, we implement provisions of the Balanced Budget
Act of 1997, which expanded the Commission's competitive bidding authority under Section
309(j) of the Communications Act of 1934, 47 U.S.C.  309(j), by adding provisions governing
auctions for broadcast services. We adopt general competitive bidding procedures to select
among mutually exclusive applicants for commercial analog broadcast service and Instructional
Television Fixed Service (ITFS) licenses. We adopt herein a "new entrant" bidding credit to
further the goals of the designated entity provisions of Section 309(j). We note, however, that
we intend to continue our review of the barriers to entry or growth that may exist for small,
minority- and women-owned businesses in broadcasting, and make future adjustments to our
auction rules, as appropriate, in light of these studies. In addition, pursuant to our discretion
under Section 309(l) to utilize either comparative hearings or competitive bidding procedures to
resolve certain mutually exclusive commercial broadcast applications filed before July 1, 1997,
we conclude that all of these pre-July 1st applications should be resolved by competitive
bidding procedures. We also decide in this First Report and Order to resolve pending
comparative renewal proceedings that are outside the scope of our auction authority under
Sections 309(j) and 309(l) of the Communications Act through comparative hearings in which
the applicants may present whatever evidence they believe relevant, with the renewal
expectancy remaining the most important factor.

                                 II. BACKGROUND AND SUMMARY

         2. As fully described in the Notice of Proposed Rulemaking in this proceeding, the
Commission has traditionally used comparative hearings to decide among mutually exclusive
applications to provide commercial broadcast service, and it has used a system of random
selection to award certain types of broadcast licenses, such as low power television and
television translator, pursuant to Section 309(i), 47 U.S.C.  309(i). For purposes of comparative
hearings, the Commission has developed a variety of comparative criteria, including the
"integration" of ownership and management, which presumed that a station would offer better
service to the extent that its owner(s) were involved in the station's day-to-day management.
However, in Bechtel v. FCC, 10 F.3d 875, 878 (D.C. Cir. 1993) (Bechtel II), the United States
Court of Appeals for the District of Columbia Circuit held that "continued application of the
integration preference is arbitrary and capricious, and therefore unlawful." The Commission
subsequently froze all ongoing comparative cases (including comparative renewal cases)
pending resolution of the questions raised by Bechtel II.

Chapter IV - D                                                                Spectrum Auctions

           3. Subsequently, on August 5, 1997, Congress enacted the Balanced Budget Act of
1997, which expanded the Commission's auction authority under Section 309(j) of the
Communications Act to include commercial broadcast applicants. Amended Section 309(j)
provides that, except for licenses for certain public safety noncommercial services and for
certain digital television services and noncommercial educational or public broadcast stations,
"the Commission shall grant the license or permit to a qualified applicant through a system of
competitive bidding . . . [i]f . . . mutually exclusive applications are accepted for any initial
license or construction permit." Balanced Budget Act of 1997,  3002(a)(1), codified as 47
U.S.C.  309(j). In addition, Section 3002(a)(2), codified as 47 U.S.C.  309(i), amends Section
309(i) to terminate the Commission's authority to issue any license through the use of a system
of random selection after July 1, 1997, except for licenses or permits for stations defined by
Section 397(6) of the Communications Act (i.e., noncommercial educational or public broadcast
stations). Finally, Section 3002(a)(3) adopts Section 309(l), codified as 47 U.S.C.  309(l),
which governs the resolution of pending comparative broadcast licensing cases. Specifically, it
says the Commission "shall have the authority" to resolve mutually exclusive applications for
commercial radio or television stations filed before July 1, 1997 by competitive bidding
procedures. It specifies further that any auction conducted under this provision must be
restricted to persons filing competing applications before July 1, 1997.

         4. As a result of the Budget Act, the Commission no longer has the option of resolving
competing applications for commercial broadcast stations by comparative hearings except for
certain applications filed before July 1, 1997, and it lacks the authority to resolve competing
applications for commercial broadcast stations by a system of random selection. The
Commission began this rulemaking proceeding to implement these provisions of the Budget

         5. In the Notice, the Commission tentatively proposed to adhere to the Commission's
existing competitive bidding procedures that are already in place for non-broadcast services, set
forth in 47 C.F.R.  1.2101-1.2111, subject to any changes made in these procedures in the
ongoing Part 1 Rulemaking, where the Commission had proposed certain modifications to those
procedures. We invited interested parties to identify any procedures that are inappropriate for
broadcast auctions and to propose alternatives. After the release of the Notice in this
proceeding, the Commission adopted a Third Report and Order and Second Further Notice of
Proposed Rulemaking in the Part 1 Rulemaking, 13 FCC Rcd 374 (1997) (hereafter Third
Report and Order), in which it modified its competitive bidding procedures in all auctionable
services in an effort to streamline the Commission's regulations, make the auction process more
efficient, and provide more guidance to auction participants. The general competitive bidding
procedures for future applications that are subject to auctions are discussed in Section III(C). ..

         6. Discussion. Based upon the broad, explicit language of Section 309(j)(1), we
continue to believe that auctions are mandatory for all secondary commercial broadcast services
(e.g., LPTV, FM translator and television translator services). Similarly, we find that, except
for certain pending applications that are subject to Section 309(l), our auction authority is
mandatory, rather than permissive, for all full power commercial radio and analog television
stations. Specifically, our general auction authority set forth in Section 309(j)(1), as amended,
now provides that the Commission "shall grant" licenses by competitive bidding and it no
longer restricts the type of spectrum license which may be awarded through competitive bidding
or requires an affirmative public interest determination that the use of competitive bidding will
serve the objectives of the statute.

        Statutory Exemption for Noncommercial and Public Broadcast Stations

       7. Section 309(j)(2) sets forth three types of spectrum licenses to which our
competitive bidding authority does not apply. In addition to licenses for certain public safety

Chapter IV - D                                                               Spectrum Auctions

radio services and certain digital television stations, we may not use competitive bidding to
award licenses for "stations described in section 397(6) of this Act." Section 397(6) of the
Communications Act, 47 U.S.C.  397(6), defines the terms "noncommercial educational
broadcast station" and "public broadcast station." To effectuate this exemption, we proposed in
the Notice, 12 FCC Rcd at 22383 ( 50), that such nonprofit applicants would be exempt from
competitive bidding when they applied to use reserved broadcast channels, for which applicants
must be noncommercial educational entities. Auctions would be used for nonreserved
frequencies, however, where applicants may be either commercial or noncommercial
educational entities. We stated that we would treat nonprofit applicants for commercial
frequencies, including those who could qualify under 47 C.F.R.  73.503 as non-profit
educational organizations, no differently under the proposed filing and competitive bidding
procedures than any other mutually exclusive applicant for commercial frequencies.

          8. Retention of Broadcast Licensing Procedures. As proposed in the Notice, 12 FCC
Rcd at 22381-82 ( 46), a winning bidder in broadcast auctions will, consistent with existing
broadcast licensing procedures, be awarded a construction permit, rather than a "license." As
currently required, winning bidders will then be required, within a specified time period, to
construct their facilities and file an application for a "license to cover construction permit" to
obtain a license for the constructed facilities. See 47 C.F.R.  73.3598. We will retain this
broadcast licensing procedure in the auction context, because it comports with the requirements
of Section 319 of the Communications Act and has functioned well in the non-auction context.
We also note that, given the requirements of Section 319, broadcast auction winners, unlike
winning bidders in some other auctionable services, will not be permitted to construct their
facilities prior to grant of their long-form applications and issuance of their construction
permits. See 47 U.S.C.  319(d) ("With respect to any broadcasting station, the Commission shall
not have any authority to waive the requirement of a permit for construction," except that the
requirement for a permit may be waived by the Commission "for minor changes in the facilities
of authorized broadcast stations.").

          9. Accordingly, IT IS ORDERED, That pursuant to the authority of Sections 4(i) and
(j), 301, 303(f), 303(g), 303(h), 303(j), 303(r), 307(c), 308(b), 309(j), 309(l) and 403 of the
Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 301, 303(f), 303(g),
303(h), 303(j), 303(r), 307(c), 308(b), 309(j), 309(l) and 403, this First Report and Order IS
ADOPTED, and Part 73 and Part 74 of the Commission's Rules ARE AMENDED as set forth
in the attached Appendix C.

Chapter IV - D                                                               Spectrum Auctions

  Federal Communications Commission                           News Media Information: 202-418-0500
  445 12th Street, SW                                                  Internet:
                                                                               TTY: 1-888-835-5322
  Washington, DC 20554

                                                                                     DA 05-737
                                                                               March 22, 2005

                  SCHEDULED FOR JULY 20, 2005

             Notice and Filing Requirements, Minimum Opening Bids,
                 Upfront Payments and Other Auction Procedures


By this Public Notice, the Wireless Telecommunications Bureau (“Bureau”) announces the
procedures and minimum opening bid amounts for the upcoming auction of licenses in the
Lower 700 MHz band C block (710-716/740-746 MHz) scheduled for July 20, 2005 (Auction
No. 60). On January 26, 2005, in accordance with Section 309(j)(4) of the Communications
Act of 1934, as amended, the Bureau released a public notice seeking comment on reserve
prices or minimum opening bid amounts and the procedures to be used in Auction No. 60.
The Bureau received no comments in response to the Auction No. 60 Comment Public Notice.

                                   Background of Proceeding
On January 18, 2002, the Commission released the Lower 700 MHz Report & Order which
adopted allocation and service rules for the Lower 700 MHz Band. Specifically, the Commis-
sion reallocated the entire 48 megahertz of spectrum in the band to fixed and mobile services
and retained the existing broadcast allocation for both new broadcast services and incumbent
broadcast services during their transition to digital television (“DTV”). The Commission es-
tablished technical criteria designed to protect incumbent television operations in the band
during the DTV transition period, allowed low power television (“LPTV”) and TV translator
stations to retain secondary status and operate in the band after the transition, and set forth a
mechanism by which pending broadcast applications may be amended to provide analog or
digital service in the core television spectrum or to provide digital service on TV Channels
52- 58.

In its service rules, the Commission divided the Lower 700 MHz band into three 12-
megahertz blocks, with each block consisting of a pair of 6-megahertz segments, and two 6-
megahertz blocks of contiguous, unpaired spectrum. The Commission decided to divide the
five blocks in the Lower 700 MHz band plan as follows: for the two 6-megahertz blocks of
contiguous unpaired spectrum, as well as two of the three 12-megahertz blocks of paired

Chapter IV - D                                                             Spectrum Auctions

spectrum, the Commission determined to assign licenses in six Economic Area Groupings
(“EAGs”); for the remaining 12 megahertz block of paired spectrum, the Commission deter-
mined to assign licenses in 734 Metropolitan Statistical Areas (“MSAs”) and Rural Service
Areas (“RSAs”). All operations in the Lower 700 MHz band are generally regulated under
the framework of Part 27’s technical, licensing, and operating rules. To permit both wireless
services and certain new broadcast operations in the Lower 700 MHz band, however, the
Commission has amended the maximum power limits in Part 27 to permit 50 kW effective
radiated power (“ERP”) transmissions in the Lower 700 MHz band, subject to certain condi-
tions. Finally, the Commission established competitive bidding procedures and voluntary
band-clearing mechanisms for the Lower 700 MHz band. On June 14, 2002, the Commission
affirmed its decisions in the Lower 700 MHz Report and Order.

With respect to the MSA and RSA licenses, the Bureau notes that MSAs and RSAs are col-
lectively known as Cellular Market Areas (CMAs). CMAs were created from the Metropoli-
tan Statistical Areas (“MSAs”) defined by the Office of Management and Budget (CMA001-
CMA305), the Gulf of Mexico (CMA306), and Rural Service Areas (“RSAs”) established by
the FCC (CMA307-CMA734). These RSAs include parts of Puerto Rico not already in an
MSA (CMA723-CMA729), U.S. Virgin Islands (CMA730-CMA731), Guam (CMA732),
American Samoa (CMA733), and Northern Mariana Islands (CMA734). The CMA designa-
tion, rather than MSA/RSA, is used in the FCC Integrated Spectrum Auction System and in
the Universal Licensing System.

                                  Licenses to be Auctioned
Auction No. 60 will offer five CMA licenses in the Lower 700 MHz band C block (710-
716/740-746 MHz). These licenses remained unsold in Auction No. 49, which closed on June
13, 2003. The C block is a 12-megahertz block consisting of a pair of 6-megahertz segments.
A complete list of the licenses available in Auction No. 60 and their descriptions is included
in Attachment A of this Public Notice.

                                   Rules and Disclaimers
                                      Relevant Authority
Prospective applicants must familiarize themselves thoroughly with the Commission’s rules,
particularly those relating to the Lower 700 MHz band contained in Title 47, Part 27, of the
Code of Federal Regulations, and those relating to application and auction procedures, con-
tained in Title 47, Part 1, of the Code f Federal Regulations. Prospective applicants must also
be thoroughly familiar with the procedures, terms and conditions (collectively, “terms”) con-
tained in this Public Notice; the Auction No. 60 Comment Public Notice; and the Commis-
sion’s decisions in proceedings regarding competitive bidding procedures.

The terms contained in the Commission’s rules, relevant orders, and public notices are not
negotiable. The Commission may amend or supplement the information contained in our
public notices at any time, and will issue public notices to convey any new or supplemental
information to applicants. It is the responsibility of applicants to remain current with all
Commission rules and with all public notices pertaining to this auction. Copies of Commis-
sion documents, including public notices, are available at FCC Auctions Internet site, Additionally, documents are available for public inspection
and copying during regular business hours at the FCC Reference Information Center, 445
12th Street, SW, Room CY-A257, Washington, DC 20554. Documents may also be pur-
chased from the Commission’s duplicating contractor, Best Copy and Printing, Inc. (“BCPI”),
445 12th Street, SW, Room CY-B402, Washington, DC 20554, 800-378-3160 (telephone) or When ordering documents from BCPI, please provide the appro-
priate FCC document number (for example, DA 05-171 for the Auction No. 60 Comment
Public Notice).

Chapter IV - D                                                                    Spectrum Auctions

                                         Auction Specifics
                                          Auction Date
The auction will begin on Wednesday, July 20, 2005, as announced in the Auction No. 60
Comment Public Notice. The initial schedule for bidding will be announced by public notice
at least one week before the start of the auction. Unless otherwise announced, bidding on all
licenses will be conducted on each business day, and will continue until bidding has stopped
on all licenses.

                                  Auction Title
Auction No. 60 – Lower 700 MHz Band C block.

                                   Bidding Methodology
The bidding methodology for Auction No. 60 will be simultaneous multiple round bidding.
The Commission will conduct this auction over the Internet using the FCC’s Integrated Spec-
trum Auction system (“ISAS” or “FCC Auction System”), and telephonic bidding will be
available as well. Qualified bidders are permitted to bid telephonically or electronically.

                                     Amount of Upfront Payment
In the Part 1 Order the Commission delegated to the Bureau the authority and discretion to
determine appropriate upfront payment(s) for each auction. In addition, in the Part 1 Fifth
Report and Order, the Commission ordered that “former defaulters,” i.e., applicants that have
ever been in default on any Commission license or have ever been delinquent on any non-tax
debt owed to any Federal agency, be required to pay upfront payments 50 percent greater than
non-“former defaulters.” For purposes of this calculation, the “applicant” includes the appli-
cant itself, its affiliates, its controlling interests, and affiliates of its controlling interests, as
defined by Section 1.2110 of the Commission’s rules.

In the Auction No. 60 Comment Public Notice, we proposed that the amount of the upfront
payment would determine a bidder’s initial bidding eligibility, the maximum number of bid-
ding units on which a bidder may place bids. In order to bid on a license, otherwise qualified
bidders that applied for that license on Form 175 must have a current eligibility level that
meets or exceeds the number of bidding units assigned to that license. At a minimum, there-
fore, an applicant’s total upfront payment must be enough to establish eligibility to bid on at
least one of the licenses applied for on Form 175, or else the applicant will not be eligible to
participate in the auction. An applicant does not have to make an upfront payment to cover
all licenses for which the applicant has applied on Form 175, but rather to cover the maximum
number of bidding units that are associated with licenses on which the bidder wishes to place
bids and hold provisionally winning bids at any given time.

In the Auction No. 60 Comment Public Notice, the Bureau proposed upfront payments on a
license-by-license basis using a formula based on bandwidth and the license area population:

      $0.005 * MHz * License Area Population with a minimum of $1,000 per license.

In calculating its upfront payment amount, an applicant should determine the maximum num-
ber of bidding units on which it may wish to be active on (bid on or hold provisionally win-
ning bids on) in any single round, and submit an upfront payment amount covering that num-
ber of bidding units. In order to make this calculation, an applicant should add together the
upfront payments for all licenses on which it seeks to bid in any given round. Applicants
should check their calculations carefully, as there is no provision for increasing a bidder’s
eligibility after the upfront payment deadline.

    Chapter IV - D                                                                        Spectrum Auctions

                                       Attachment A
               Auction No. 60 – Lower 700 MHz Band Licenses to be Auctioned

Market                        License            Frequencies   Bandwidth            Bidding Upfront
           Market Name                   Block                           Population                     Opening
Number                        Number               (MHz)         (MHz)               Units Payment

MSA / RSA Licenses*

CMA169Mayaguez, PR         WZ-CMA169-C C 710-716, 740-746         12       227,412   14,000   $14,000     $27,000

CMA202Arecibo, PR          WZ-CMA202-C C 710-716, 740-746         12       199,750   12,000   $12,000     $24,000

CMA723Puerto Rico 1 - Rincon WZ-CMA723-C C 710-716, 740-746       12        14,767    1,000    $1,000      $1,800

CMA727Puerto Rico 5 - Ceiba WZ-CMA727-C C 710-716, 740-746        12        41,757    2,500    $2,500      $5,000

CMA729Puerto Rico 7 - Culebra WZ-CMA729-C C 710-716, 740-746      12         1,868    1,000    $1,000      $1,000

         AUCTION TOTAL                       5Licenses                               30,500   $30,500    $58,800

      *The Cellular Market Areas (CMAs) were created from the Metropolitan Statistical Areas (MSAs) defined by
       the Office of Management and Budget (CMA001-CMA305), the Gulf of Mexico (CMA306), and Rural Ser-
       vice Areas (RSAs) established by the FCC (CMA307-CMA734). The CMA designation, not MSA/RSA, is
       used in the FCC Integrated Spectrum Auction System and in the Universal Licensing System.

Chapter IV - D                                                        Spectrum Auctions

                                    Attachment C


The FCC will sponsor a one-day seminar for Auction No. 60 applicants. The seminar
is free of charge and will provide information about pre-auction procedures, service
and auction rules, conduct of the auction, and the FCC Auction System.

Representatives from each company may attend on a reservation basis, first-come
first-served until room capacity is filled. The seminar will be held:

                                Tuesday, May 24, 2005
                        Federal Communications Commission
                          445 12th Street, SW Room 2-B516
                               Washington, DC 20554
                          Registration 9:30 a.m. - 10:00 a.m.
                            Seminar 10:00 a.m. - 2:00 p.m.
                         If hotel accommodations are needed
       please contact (888) 225-5322, option two for a list of hotels in the area
                      To register, complete the form below and
                                   return no later than
                           Friday, May 20, 2005, by fax to:

                                  FCC Auction 60
                       Auctions and Spectrum Access Division
                                1270 Fairfield Road
                            Gettysburg, PA 17325-7245

                           FAX: (717) 338-2850
                           Phone: (717) 338-2888

I/We will attend the Auction No. 60 Seminar, scheduled for Tuesday, May 24, 2005.

Name of attendee: _____________________________________________________

Name of attendee: _____________________________________________________

Company name: ______________________________________________________

Company address: _____________________________________________________


Chapter IV - D                                                              Spectrum Auctions

                                         2. Europe

                        United Kingdom Spectrum Auction
                                  Third Generation
                   The Next Generation of Mobile Communications
                             Information Memorandum
                                 1st November 1999

HM Government (the “Government”) is keen that New Entrants to the UK mobile market, as
well as existing 2G operators, should be encouraged to take part in the Auction. The Govern-
ment has taken innovative but appropriate and fair steps to provide New Entrants with the
opportunity to bid for WT Act Licences and subsequently roll out 3G networks on a more
equal footing with existing 2G operators.

Recipients considering submitting applications to pre-qualify (“Applications”) for the Auction
should note the following key issues:

■ Broadly, there are no technical or financial pre-qualification requirements for entering the
Auction other than the provision of a deposit. Details of ownership structures, the 3G tech-
nology to be used and confirmation of compliance with the rules of the Auction must also be
provided. Bidders must be a single body corporate but need not be telecom companies.
■ The Secretary of State will offer five WT Act Licences and standardize use of spectrum
with 3G standards. The largest WT Act Licence has been reserved for a New Entrant.
■ BTCellnet’s and Vodafone’s Mobile PTO T Act Licences have been modified so as to
commit them to negotiate a roaming agreement if asked to do so by New Entrants.

The Wireless Telegraphy Acts 1949 to 1998 (the “Wireless Telegraphy Acts”) provide for the
assignment of spectrum. More specifically, the Wireless Telegraphy Act 1998 (the “WT Act”)
allows licences to be issued by auction under statutory instrument. The terms of those WT
Act Licences to be auctioned are in Appendix K. The procedures and rules of the Auction will
be set out in the Notice (a draft of which is at Appendix J), to be issued pursuant to the Regu-
lations (draft contained in Appendix I).

Management of spectrum is a non-devolved matter, and the WT Act Licences will therefore
allow for the use of spectrum in Northern Ireland, Scotland, and Wales as well as in England.
The WT Act Licences will not permit use of spectrum in Channel Islands or the Isle of Man.

Recipients should note that the Regulations and the Notice are not yet in final form. The
Regulations are currently undergoing statutory consultation before being made and laid before
Parliament. The Notice will only be issued once the Regulations have come into force, which
is expected to be by 20th December 1999. The Radiocommunications Agency (the “RA”) ex-
pects that the Notice will remain materially unchanged from that shown in the draft Notice at
Appendix J, except as described in Section 4.6. Copies of the Regulations and the Notice in
final form will appear on the Auction website when available. Recipients should also note that
only the Regulations and the Notice have statutory effect. Accordingly, in the event of any
difference between the procedures set out in the Memorandum and the provisions of the
Regulations and the Notice, the latter are definitive.

Overview of 3G

3G technology is intended to revolutionise the capabilities of mobile communications. First
Generation (“1G”) analogue mobile technology proved the concept of mobile telephony with

Chapter IV - D                                                               Spectrum Auctions

basic voice services. The Second Generation (“2G”) – digital GSM in Europe and many other
parts of the world – showed the dramatic scope for growth in both market penetration and
usage. It also introduced facilities such as international roaming and short messaging services.
3G should extend the market for mobile communications much further. Its capabilities are
expected to include:

■ high quality voice telephony; combined with
■ high speed (potentially up to 2 Mbps) data transmission.
High data rates open up the possibility of transmitting information in a multiplicity of media –
voice, pictures and photos, text and figures, video clips, real-time video footage, sound track-
sand software applications. Potential application areas include:
■ fast access to corporate networks and the internet;
■ information services / e-commerce (details of train times, traffic conditions, booking facili-
ties, etc);
■ on-line banking, shopping and audio on demand;
■ video-conferencing and broadcast; and
■ leisure services (interactive games, audio / video on demand).

The UMTS Forum describes the technology as:

“… a mobile communications system that can offer significant user benefits including high-
quality wireless multimedia services to a convergent network of fixed, cellular and satellite
components. It will deliver information directly to users and provide them with access to new
and innovative services and applications. It will offer mobile tandardized communications
to the mass market regardless of location, network or terminal used.

“The markets for mobility and for fixed multimedia are already large and growing rapidly.
Customers will want to combine mobility with multimedia, resulting in higher demand for
bandwidth and creating a significant shift towards new data services. For Europe alone, this
new market is estimated to be as large in 2005 as the whole mobile market is today, given an
appropriate political and regulatory environment.”

During the early years of operation, it is expected that a combination of 3G and GSM systems
will be used by one or more operators to provide intermediate services, at least until wider,
better quality 3G coverage is available. GSM itself is being upgraded to provide faster data
rates through General Packet Radio Service (“GPRS”). Operators expect that this will not
only provide useful coverage and capacity backup with lower speed data and voice services,
but will enable more advanced services to be developed in the interim. The introduction of
Wireless Application Protocol (“WAP”), an internet protocol adapted for use with mobile de-
vices, which can be used over GSM and GPRS, is also expected to accelerate the introduction
of advanced services. Dual band handsets, which permit both 2G and 3G use, are currently
under development.A number of technologies are being developed to provide 3G services,
within the framework of the International Telecommunication Union (“ITU”). The technolo-
gies form part of a family of standards known as IMT-2000. The process of defining and
evaluating technologies is progressing within the ITU and the detailed definition of the radio
interfaces for IMT-2000 should be completed by the end of 1999.

Within Europe, UMTS is being developed to be a member of the ITU’s IMT-2000 family.
The development of the UMTS radio interface is now being undertaken by the European
Telecommunications Standards Institute (“ETSI”) and other regional tandardized         n bod-
ies within a global partnership project known as the Third Generation Partnership Project

Chapter IV - D                                                                Spectrum Auctions

Bidders will be required to select, at the time of submission of Applications, which IMT-2000
technology they will use if they are successful in the Auction. Bidders will only be able to
change technologies after the Auction with the consent of the RA, following a public consul-
tation process.

A recent initiative by a group of global mobile operators, the Operators Harmonisation Group,
put forward a series of proposals for standardized of the Code Division Multiple Access
(“CDMA”) 3G standards to form one standard with three modes:

■ Direct sequence CDMA;
■ Multicarrier CDMA; and
■ TDD.

These proposals have been endorsed by the ITU and also by 3GPP and 3GPP2.

UK and European policy background

The Government has decided to allocate WT Act Licences through an auction process. Drafts
of the Regulations and the Notice under which the Auction will take place are at Appendices.

Decision 128/1999/EC of the European Parliament and of the Council of 14th December 1998
on the co-ordinated introduction of a third-generation mobile and wireless communications
system (UMTS) in the Community (the “UMTS Decision”) is intended to facilitate the rapid
and co-ordinated introduction of compatible UMTS networks and services in the Community
on the basis of internal market principles and in accordance with commercial demand. It re-
quires Member States to take all actions necessary in order to allow the co-ordinated and pro-
gressive introduction of 3G mobile services in each of their territories by 1st January 2002 at
the latest and, in particular, to establish an tandardized system for UMTS no later than 1st
January 2000.

In order for the Government to comply with the UMTS Decision, the EC Commission have
said that one of the WT Act Licences will have to be based on the UMTS technology as stan-
dardized by ETSI. If none of the Applicants for the Auction, or none of the provisional suc-
cessful Bidders, has elected to use this standard, the Secretary of State can decide not to pro-
ceed with the remainder of the Auction. In such an event, the Government will not be respon-
sible for any costs or other liabilities incurred by any person in connection with the Auction.

The Government attaches great importance to the further development of competition in the
mobile telecommunications sector. It is therefore keen to encourage market entry and sustain-
able competition. This is reflected in the objectives for the Auction, as announced to the
House of Commons by the then Telecommunications Minister, Barbara Roche MP, on 18th
May 1998:

The pre-qualification process

Bidders are not required to pass a technical test nor to provide details of the services they in-
tend to offer. Instead, Bidders must:

■ provide a £50 million Initial Deposit;
■ submit a completed Application Form and provide supporting information (principally on
group structure and directors); and
■ a statement as to the technology the Bidder will use in the spectrum (a “Standards Election

Chapter IV - D                                                               Spectrum Auctions

If the Secretary of State decides that any Bidder is not a fit and proper person to hold a WT
Act Licence – or that the grant of a WT Act Licence to the Bidder would be prejudicial to the
interests of national security – then that Bidder will not pre-qualify. These conditions are de-
scribed in full in Chapter 4.

The Auction

The Auction is a modified version of the auction designs used by the US Federal Communica-
tions Commission. It will take place in two phases. The First Phase will only be applicable to
Associated Bidders (those Bidders who are closely related to each other through common
shareholdings – Section 3.7.9 of the draft Notice provides the detailed rules covering the defi-
nition of Associated Bidders which are also shown, with illustrative diagrams, at Appendix
F). The First Phase will be used to determine which members of each group of Associated
Bidders will be taken through to the main auction phase (the “Second Phase”). If there are no
Associated Bidders, there will be no First Phase.

The Government has set a minimum price (the “Reserve Price”) for each WT Act Licence. In
the First Phase this is expressed on a per MHz basis, and is set at £3.57 million. For the Sec-
ond Phase, the Reserve Prices are: Licence A: £125.0 million; Licence B: £107.1 million;
Licences C to E: £89.3 million

First Phase

Bidders which are associated with one or more other Bidders are divided into groups, each of
which will contain the Bidders who are associated with each other. More than one such group
may exist. The Bidders within each group of Associated Bidders then compete with each
other for the right to enter the Second Phase of the Auction. Bidding is undertaken by one
Bidder at a time, sequentially, and is based on bidding the price each Associated Bidder is
willing to pay per single MHz of any WT Act Licence. Bidding starts at the Reserve Price
(expressed in per MHz terms). The RA will determine the required raise in each Round.

Bidding continues in the First Phase until those Bidders remaining in each group are no
longer associated with each other. These Bidders will be brought forward into the Second
Phase. The Secretary of State will then also bring forward into the Second Phase those Bid-
ders who have dropped out from the First Phase at an earlier stage, provided that they are not
associated with any of the other Bidders which go forward to the Second Phase.

Bidders which have bid in the First Phase and who are taken forward into the Second Phase
will be obliged to bid on one WT Act Licence in the first Round of the Second Phase. The
minimum price at which they will be permitted to bid on any WT Act Licence in the Second
Phase will be their highest bid (on a per MHz basis) in the First Phase of the Auction. If they
do not bid in the Second Phase, they will lose their Deposit and will be deemed to have bid on
the largest spectrum package available to them at their highest price, per MHz, in the First
Phase. Greater detail on the First Phase is contained in Section 4.4.2 of the Memorandum, and
the rules governing the First Phase are set out in Sections 4.3.1 to 4.3.39 of the draft Notice.

Second Phase

During the Second Phase of the Auction, bidding for the five WT Act Licences (A, B, C, D
and E) takes place in a series of Rounds. In each Round, Bidders make bids simultaneously
(rather than sequentially). Bidders may only bid for one nominated WT Act Licence at a time.
The highest bid on each WT Act Licence at the end of a Round is deemed to be the “Current
Price”. Each Bidder holding a Current Price bid (a “Current Price Bidder”) on a WT Act Li-
cence is required to remain inactive in the following Round.

Chapter IV - D                                                               Spectrum Auctions

                    3. Implementing a Market-Based Spectrum Policy
                                    Arthur De Vany
                         41 J. Law & Econ. 627 (October, 1998)

     The success of the recent spectrum auctions is a triumph of law-and-economics scholar-
ship and auction theory. Leo Herzel proposed selling spectrum licenses, Ronald Coase went a
step further and proposed a market for spectrum based on property rights, and De Vany et al.
took the next step toward a market system by defining spectrum property rights that solved
the technical problems of interference and provided the appropriate institutional basis for the
exchange and enforcement of spectrum property rights. Auction theorists and analysts at the
Federal Communications Commission (FCC) designed and implemented the auction mecha-
nism that achieved a high degree of allocational efficiency while revealing the enormous
value of the spectrum.
    The auctions have brought Herzel’s and Coase’s proposals closer to reality. But we are
not quite there. Spectrum policy has only just caught up to federal policy in oil and gas drill-
ing rights, where auctions have been used to allocate leases on federal lands for decades. The
spectrum auctions signal new and more open criteria for allocating licenses as well as a new
flexibility in the use of spectrum. Licenses are issued to the highest bidder in place of the
complex hearings and political competition used in the past. But they are only a first step to-
ward a market-based spectrum policy. If the medium of the information age is bandwidth,
then how spectrum bandwidth is to be used and allocated are the most important issues to be
solved in the information age. Much remains to be done to implement the vision that Herzel
and Coase had of a flexible and efficient market for spectrum bandwidth.
     We can see better where spectrum is in its progress toward a market system by comparing
it to the capital market. The spectrum auctions are rather like an initial public offering of
stock—licenses are “new issues” of spectrum offered to the highest bidder. There is a spec-
trum aftermarket in the sense that FCC licenses are implicitly traded whenever radio or TV
stations are sold, but this aftermarket is encumbered by the illiquidity created by the bundling
of spectrum with the assets that use it. We have none of the sophisticated trading instruments
and low transactions cost that give the capital market its flexibility and liquidity. Only when
we have unbundled spectrum and broadcasting assets to create deep and liquid markets in
spectrum bandwidth and its derivatives will we capture the full promise of spectrum markets
that Herzel and Coase contemplated.
    In this article I take stock of how far along the way to the Herzel-Coase vision of a spec-
trum market we are and try to see what tasks remain. I make some concrete proposals to move
the process along. The discussion is focused on five key issues:

•   creating an aftermarket,
•   refining the instruments of spectrum trading,
•   moving spectrum to market,
•   preventing interference under a market system, and
•   opening access to spectrum bandwidth.

    The recent spectrum auctions might suggest that markets are beginning to operate to allo-
cate the electromagnetic spectrum. That is only partly true, because auctioning licenses
changes little about how spectrum is allocated after the auction. Though some licenses are
granted more flexibility than in the past, there are only a few degrees of freedom for trades in
the aftermarket to reallocate spectrum flexibly among different uses or users. In addition, the
auctioned spectrum largely has been confined to unoccupied bands (or those occupied with

Chapter IV - D                                                                Spectrum Auctions

relatively low-valued microwave broadcasting) and there is at this time no established mecha-
nism for bringing occupied bands of spectrum to the auction block (there ought to be one and
I close with a proposal to bring more spectrum to the auction block).
     Auctioning broadcast licenses is not equivalent to privatizing the spectrum. A broadcast
license is not a property right in spectrum; it is a license to operate a transmitter of a given
design, power, and frequency with an antenna configured and located in a particular way.
Once licenses are set, there are few degrees of freedom left for reallocating spectrum or using
it in different ways. n8 Moreover, because licenses can be revoked, all the first amendment
objections to government content control and censorship of broadcasting remain.
     For the situation in the United States, you have to imagine a securities market where there
is a market for new issues but no aftermarket to price and reallocate the securities once they
are sold. The spectrum auctions put the “new issue” broadcast licenses into private hands, but
these allocations are relatively fixed thereafter. Trading licenses improves spectrum allocation
by moving it to users who value it more, but it can do little to change the technology, the in-
puts, or the output mix produced. The auctions surely are a better way to issue licenses than
the arbitrary ways of the past, but they have not given us the flexibility and incentives that are
the prime advantages of a market over an administered system.
     Most modern markets in adapting to technological innovation or deregulation have
evolved to a form of “commoditization” or “securitization.” A transition to a commoditized
market is profound; it is a transition in market structure from a closed to an open system.
Such changes have occurred in markets for foreign currency, financial derivatives, air travel,
parts of telecommunications, personal computers, natural gas, petroleum, and power. In each
of these industries, use expanded and prices declined after open markets developed. The next
step in spectrum is to follow a path similar to these other industries, while remaining consis-
tent with the technological attributes of spectrum use.
    As markets are opened,

•   a commodity is unbundled from other products and services,
•   a process of price discovery and dissemination begins,
•   a form of product standardization facilitates price discovery,
•   price dissemination promotes arbitrage, which brings liquidity to the market, and
•   contracts and derivative markets develop to separate price risk from the physical asset.

Chapter IV - D                                                              Spectrum Auctions

4. In the Matter of Spectrum Policy Task Force, DA 02-1211, ET Docket No. 02-

         Comments Of The Consumer Federation Of America to the FCC
                               July 8, 2002

The FCC Should Not Auction The Nation’s First Amendment Assets To Media
Moguls And Communications Conglomerates

     Auctioning off the nation’s First Amendment Assets to media moguls and communica-
tions conglomerates is disastrous for consumers and citizens. Radio spectrum is recognized as
a public resource that is vital to the First Amendment in modern America. Communications
and computing technologies are making it increasingly possible to free the spectrum from the
tyranny of licensing. Increasingly, citizens can use this asset in an unrestricted manner that
does not impose a licensee between speakers or listeners and the means of communications.
Expanding the reliance on unlicensed spectrum would promote both consumer and citizen
interests by stimulating vigorous, atomistic competition in the economy and unfettered de-
mocratic discourse in the polity. Creating quasi-property rights in spectrum through auctions
is exactly the wrong thing to do.
     The aspiration of the Supreme Court under the First Amendment for achieving the “wid-
est possible dissemination of information from diverse and antagonistic sources” makes it
clear that the should be treated first, and foremost as a forum for democratic discourse. To
put the matter simply, the needs of citizens cannot be reduced to the needs of consumers. The
objective of the commercial marketplace is to improve efficiency and produce profit. The ob-
jective of the forum for democratic discourse (often called the marketplace of ideas) is to
promote diversity and antagonism that produces participation, understanding and “truth.”
     The moment spectrum is auctioned, the private economic interests of the license holder
comes into conflict with the citizen interest. Once the airwaves are sold-off – “propertized” or
“monetized” in current jargon –new owners will decide who gets to use it and how it is used.
If you have enough money, you get to speak, if you do not, you are out of luck. In the com-
mercial model, the popular, mainstream, middle of the road ideas will almost certainly find a
voice, one that is likely to be very loud, but unpopular, unique, and minority points of view
will not. Profit maximization in increasingly centralized, commercial media conglomerates
promotes standardized, lowest common denominator products that systematically exclude
minority audiences, eschew controversy, and avoid culturally uplifting but less commercially
attractive content.
    A small number of giant corporations interconnected by ownership, joint ventures, and
preferential deals now straddle broadcast, cable and the Internet. Access to the means of
communications is controlled by a small number of entities in each community and distribu-
tion proprietors determine what information the public receives. Licensing more spectrum and
creation of quasi-property right creates barrier to participation in civic discourse, where none
need to exist.
    Ironically, given the current state of technological developments, “monetizing” the radio
spectrum through a huge auction would not even be the best way to maximize its economic
value. Exactly the same technologies and institutional factors that created the dynamic Inter-
net are coming to bear on radio spectrum. Enhanced hardware and software, distributed at the
edges of a communications network are revolutionizing the way we think about spectrum.
    Selling the radio spectrum closes the door on an extremely promising opportunity to ex-

Chapter IV - D                                                               Spectrum Auctions

tend this dynamic information environment into the broadband Internet. Control of the trans-
mission medium has always been a focal point for challenges to the Internet principles. Fore-
gone positive externalities are only half the problem. The auctioning of spectrum is likely to
reinforce existing market power. Dominant incumbents have the resources and the incentive
to win the bids to protect their existing market power or to capture economies of scale and
scope. In pursuing their interests, proprietary facility owners restrict the use of communica-
tions networks suppressing innovation. It would be the height of foolishness to create private
ownership or control over the spectrum where it does not exist, which would then invoke the
newly minted quasi-property rights to strangle the Internet.
     Rather than rush to sell off the radio spectrum, the FCC should rationalize current uses
and expand the space for unrestricted use. Because there are parts of the spectrum that have
not been licensed to anyone and technologies are increasingly able to utilize unoccupied space
in the spectrum, the agency has the opportunity to immediately establish this principle of un-
restricted use in parts of the spectrum without confronting a conflict between new uses and
old private interests.
     This does not mean we should not manage the current uses of the spectrum more effi-
ciently by allowing more flexible licenses, but we must not confuse the reform of licensing of
currently occupied spectrum with the best use for newly “discovered” or unlicensed spectrum.
The FCC should maximize the unrestricted use of the spectrum. Presently unlicensed space
should remain so. Non-interference rules to facilitate unlicensed use should be developed.
Expanding unlicensed space should be a top priority. This means granting licenses for short
periods of time. Whenever spectrum becomes available, first priority should go to unlicensed
use. If there is congestion in unlicensed space, the newly available spectrum should be made
set aside for unlicensed use. If there is no congestion in unlicensed space, the newly available
spectrum should be re-licensed subject to auctions.
    Where licenses are auctioned, the use should not be specified. The license holder should
be allowed to devote the spectrum that he or she has rented from the public to the use he or
she deems of highest value, given the length of the license. When re-licensing the spectrum,
there should be no “bias” in favor of incumbents.
     Going in the opposite direction would better serve the public, reinforcing the dynamic en-
vironment of the Internet and supporting a far richer civic discourse. Building the next gen-
eration of the Internet on an open transmission network that is in the public domain would
finally free the Internet from the specter of centralized control and enclosure that’s haunted it
throughout its existence. Reconstructing the open communications platform of the Internet on
the foundation of publicly owned spectrum and thereby freeing it from the constant threat of
enclosure by private interests is a profoundly historic to advance the interest of consumers and
      I.      Once Money Talks, Nobody Else Can
     In these comments the Consumer Federation of America (CFA)31 shows that proposals to
auction off the airwaves (radio spectrum) ignore the First Amendment value of a vital asset
that Congress and the Courts have correctly deemed to be a public trust.32 While parts of the
     The Consumer Federation of America (CFA) is the nation's largest consumer advocacy
      group, composed of two hundred and eighty state and local affiliates representing con-
      sumer, senior, citizen, low-income, labor, farm, public power and cooperative organiza-
      tions, with more than fifty million individual members. CFA is online at
     As A.J. Liebling lamented, “freedom of the press belongs to the man who owns one.” We
      suspect he would find it especially troublesome for government to create ownership rights
      through auctions that would further restrict the freedom to publish

Chapter IV - D                                                               Spectrum Auctions

spectrum should be licensed, for a fee, for short periods of time, public policy should be gen-
erally heading in the opposite direction. Communications and computing technologies are
making it increasingly possible to free the spectrum from the tyranny of licensing. Increas-
ingly, citizens can use this asset in an unrestricted manner that does not impose a licensee be-
tween speakers or listeners and the means of communications. Thus, in order to execute its
role as administrator of the spectrum trust and promoter of the public interest under the
Communications Act, the FCC should manage the spectrum to maximize its unlicensed use.
     One of the reasons that CFA embraced the decentralized, open communications principles
of the Internet long before its dramatic commercial success is the fact that it supports vigor-
ous, atomistic competition in the economy and unfettered democratic discourse in the polity.
Reconstructing this open communications platform on the foundation of publicly owned spec-
trum and thereby freeing it from the constant threat of enclosure by private interests is a pro-
foundly historic to advance the interest of consumers and citizens. Creating quasi-property
rights in spectrum is exactly the wrong thing to do. This opportunity should not be squan-
dered by taking a narrowly economic, short-term view of a remarkably valuable, long-lived
    Section I shows that ‘propertizing’ the spectrum to maximize economic value for licen-
sees is neither the only nor the best measure of the value of the spectrum. The aspiration of
the Supreme Court under the First Amendment for achieving the “widest possible dissemina-
tion of information from diverse and antagonistic sources” is a dramatically different goal
than maximizing commercial use. Spectrum should be treated first, and foremost as a forum
for democratic discourse.
     Section II shows that with the convergence of communications and computing technolo-
gies which gave rise to the dramatic growth of the Internet, “monetizing” the spectrum by
selling it off is not even its best “economic” use. Because spectrum is a communications in-
frastructure, it can support much more dynamic innovation if it is not encumbered by licensee
or owner preferences and controls. Allowing owners or licensees to enclose the transmission
core of this communications platform would destroy vast positive externalities that never en-
ter into the private economic calculations of license holders. Consequently, it reduces the
total societal economic value of the spectrum to its owners – the public. This point is demon-
strated by examining the superior economic performance of open communications platforms
interacting with the end-to-end principle of the Internet. Spectrum has vastly greater value as
an open communications platform to support decentralized economic activity.


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