Executive Summary

• The House Energy and Commerce and Senate Commerce Committees each recently held hearings concerning, in part, the possibility of using the renewal of radio spectrum auction authority – and therefore the revenues generated from selling licenses at auction – as a pay-for in the upcoming reconciliation bill.
• The details of a spectrum auction authority renewal could drastically affect the allocation of radio operating rights, and it is thus not surprising that stark disagreements about whether to include a pipeline for future auctions and to what extent federal incumbents need to retain rights to critical mid-band frequencies.
• This primer explains the current spectrum allocation positions and the important considerations for lawmakers should they choose to develop a proposal to include in reconciliation.

Introduction

As Congress moves on crafting its budget – and finding revenue for its reconciliation bill – spectrum auction authority has once again become a topic of interest. Spectrum auctions have long been considered the most efficient way of assigning radio operating rights, but the Federal Communications Commission’s (FCC) authority to auction licenses lapsed almost two years ago. Because the revenues generated through these auctions go to the Treasury, Congress could use reauthorizing auction authority as a pay-for in the upcoming reconciliation bill. While this may seem like a win-win for both Congress and market participants, in practice it isn’t so simple.

Congress could pass a clean reauthorization that simply states the FCC has the authority to assign spectrum rights through competitive bidding. A clean reauthorization is attractive, but it is not a comprehensive fix because, in addition to the renewal of its spectrum auction authority, the FCC will need available spectrum to be reallocated to commercial use. Currently, most critical mid-band spectrum is held in government hands, and the FCC cannot force these agencies to give up or share their spectrum allocations.

If Congress doesn’t pass a clean spectrum reauthorization, it could pair auction authority with specific spectrum bands to be auctioned. This would essentially require the agencies to allow commercial operations access to the allocated bands and would theoretically generate more revenue because of the certainty provided. But this approach also raises challenges. By including specific bands for auction, a so-called “pipeline” bill could limit the FCC’s ability to develop new sharing regimes or make some of these bands available for unlicensed uses such as Wi-Fi or Bluetooth. Further, this approach would force the federal agencies to relinquish control of specific bands, which may jeopardize important defense operations.

Finally, Congress could pass legislation that would require the federal government to make available a certain target bandwidth for commercial use. This would theoretically give both incumbents and the FCC more flexibility in identifying appropriate bands for commercial use. Unlike an actual pipeline, however, federal incumbents could theoretically fail to identify the required bandwidth, resulting in more delays and disagreements. Further, early versions of the bill specifically required large portions of the identified spectrum to be cleared for auction, leading to concerns about balance between licensed and unlicensed uses.

This primer provides an overview of key spectrum challenges, as well as the relative trade-offs of differing approaches to auction renewal. Ultimately, no one disagrees on the merits of renewing auction authority, but the specifics will be critical for a comprehensive and efficient spectrum future.

Background: Spectrum Basics

This section describes the basic terminology and concepts of spectrum management. First, it broadly lays out the difference between licensed and unlicensed spectrum allocations. Second, it considers concepts of sharing. Finally, it explains the dynamics of federal versus non-federal spectrum use and the challenges at play in making federal spectrum available for commercial use.

Licensed Versus Unlicensed Allocations

Two types of spectrum allocations are relevant to this discussion: flexible-use commercial licenses for 5G mobile wireless and unlicensed access mainly used by Wi-Fi and Bluetooth, though not exclusively.

To prevent harmful interference – caused by receivers failing to filter out undesired signals – the FCC has historically licensed different operations for different purposes. In these allocations, the FCC can set service rules that govern the power levels at which the radio can broadcast, the geographic range, the time a radio can operate, and a wide variety of other parameters. In recent years, the FCC has shifted toward more flexible-use licenses that allow the licensees more freedom with how they operate and are critical for next generation 5G networks. As long as the license holder operates within these parameters, the license holder can expect it will operate without harmful interference.

On the other end of the spectrum, the FCC can also allocate bands for unlicensed use. These bands are essentially innovation bands because operators do not need to seek FCC approval before operating, as long as the devices comply with the FCC’s rules. Generally, these unlicensed bands have lower power limits and come with no interference protections, but these parameters allow many more devices to operate in the field. Through unlicensed operations, a variety of wildly successful wireless standards have been developed such as Wi-Fi and Bluetooth.

A major point of contention among industry is the correct balance between licensed and unlicensed spectrum. These allocations serve different purposes, as consumer devices have different needs. Exclusive-use licenses for mobile networks provide higher power and a legal right to operate without harmful interference, allowing mobile networks to work over a wider geographic range so consumers can travel without losing coverage. Unlicensed devices, such as Wi-Fi routers, operate at much lower power levels and have no such interference protection, but the design allows for more individual networks to concurrently operate in individual locations.

Both licensed and unlicensed allocations are critical to the seamless connectivity Americans currently enjoy, but advocates for both argue significantly more bandwidth is necessary to handle future increases in traffic. A study from the wireless trade association CTIA suggests that anticipated demand will require 400 megahertz (MHz) of spectrum by 2025 and 1400 MHz by 2032. And the cable trade association NCTA has argued that next-generation Wi-Fi networks will need much larger channels, citing that 86 percent of mobile device traffic is offloaded onto Wi-Fi networks. Ultimately, a key challenge for lawmakers will be finding the appropriate balance between the services.

Harmful Interference and Sharing Spectrum

Spectrum management is all about allowing radios to co-exist without harmful interference. While every signal causes noise, harmful interference only occurs when one signal causes the degradation of another service, such as an FM radio broadcast having static that disrupts the latest Taylor Swift song. Therefore, the FCC manages radio use to balance the risk of harmful interference with the benefit of maximizing the number of concurrent radio operations. This is done via sharing.

Spectrum can be shared in three dimensions: space, time, and frequency.

• Space: Sharing in space means geographically separating radios. If one radio broadcasts in New York and one broadcasts in San Francisco, these two radios will likely cause no harmful interference because the signal loses power as it travels.
• Time: Sharing in time means temporally separating radio broadcasts. If a radio broadcasts in the morning and another broadcasts at night, the two will not cause harmful interference because there are no concurrent signals to be picked up by a receiver.
• Frequency: Radios operate at specific frequencies, and receivers are tuned to pick up those specific frequencies. If a radio operates at 100 MHz and another at 24 GHz, the receiver can likely adequately filter out the noise and only pick up the desired signal.

As technology improves, spectrum sharing is becoming more dynamic. Sharing systems, such as the automated frequency coordination in 6 GHz or the spectrum access system in 3.5 GHz can be used to allow different levels of priority between uses. For example, a sharing regime could allow unlicensed use as long as no licensed operations were occurring at a specific time, and a dynamic spectrum coordination system can scan and detect higher priority uses. At the same time, these dynamic sharing regimes often come with lower power levels for the incumbent operators, increased costs, and a higher risk of harmful interference, and thus licenses in these regimes have traditionally been valued less than those with exclusive, full-power operating rights.

Government Use

In a quirk of historical happenstance, federal and non-federal users are managed by different agencies. As a result, disagreement on the appropriate allocations for a particular band can produce conflict between federal agencies and the FCC, which regulates commercial use. Currently, many of the critical mid-band frequencies that both 5G networks and next-generation unlicensed technologies are in the hands of federal agencies, particularly the DOD. Because the FCC lacks authority over these agencies, it cannot force them to clear a band or share the band with commercial operations. Therefore, it will take direct action by Congress or strong leadership from the White House to require agencies to allow commercial use in bands agencies do not want to share.

Reconciliation: Potential Paths Forward

Recent auctions have generated billions of dollars in revenue, most notably $81 billion in the C-band auction and $22 billion in the 3.45 GHz auction. In response, some in Congress have floated the idea of using spectrum auction reauthorization as a pay-for in the upcoming reconciliation package. The estimated revenue alone, however, will not provide the whole picture, and each proposal has relative benefits and costs that policymakers should weigh when considering the proposals.

Clean Reauthorization

The most straightforward path is simply to pass a clean reauthorization for five to 10 years. A clean reauthorization would once again allow the FCC to assign spectrum rights through auctions and would provide the most flexibility to the agency to allocate and assign spectrum bands to best suit the needs of industry and the properties of a given band.

But while a clean reauthorization may seem like a straightforward option, it could actually limit the ability for the FCC to hold new auctions. This is because, in addition to the renewal of its spectrum auction authority, the FCC will need available spectrum to be sold. Currently, most spectrum is held in government hands, and merely trying to sell this without inducing those agencies to clear or share the band would produce harmful interference. As a result, if Congress were to simply reauthorize the FCC’s auction authority, it could result in 10 more years without any meaningful reallocation of spectrum to commercial use.

Therefore, this approach would have two negative results for the reconciliation process.

First, the estimated revenue could be lower. When the Congressional Budget Office (CBO) scores a spectrum auction bill, it considers the available bands, the likelihood of a completed auction for those bands, and the potential revenue that an auction of respective bands may generate. If there is little recourse for the FCC to make DOD-controlled spectrum available for auction, for example, the likelihood of that auction occurring is lowered and therefore the score will be lower.

Second, once the auction authority is extended, all potential auctions are scored, and therefore subsequent bills that may designate specific bands for auction would likewise score lower: The auction has already been factored into the baseline. Therefore, if Congress passes a clean reauthorization with no additional bands designated for auction, the political incentive to make more spectrum bands available (and thus generate revenue) will be diminished and could stifle subsequent action from Congress to make more government spectrum available for commercial use.

Spectrum Pipeline

Some of the largest mobile wireless companies have strongly advocated for a reauthorization that is paired with a spectrum pipeline that specifically designates bands for auction. This has two main purposes.

First, and most important, it necessarily means that spectrum bands would be made available for commercial use, specifically flexible-use 5G licenses. This would help fill the demand that wireless networks currently have for additional bandwidth. Second, it could increase the revenue estimate of the bill. If a reauthorization bill specifically designates a band for auction, the likelihood of that auction actually occurring increases, thereby increasing the amount of revenue CBO estimates the bill would yield, although the costs of clearing the bands could offset the additional revenue.

A spectrum pipeline bill is not without criticism, however.

First, by specifically designating spectrum bands for auction, and in particular licenses designed for 5G networks, the bill would limit the FCC’s flexibility to consider potential band plans or alternative allocations that could, theoretically, provide more economic value, albeit less revenue, at auction. Most notably, bands specifically designated for auction would likely not be available for any sort of unlicensed use, raising concerns about the need for additional bandwidth for Wi-Fi networks.

Second, the bands largely being considered, notably lower 3 GHz and 7 GHz, have important incumbent operations. A pipeline bill that forces the incumbents to clear out of the band would limit the FCC’s ability to work with these incumbents to develop sharing models and service rules that could theoretically allow for these incumbents to maintain existing operations while allowing new operations. It would also essentially force the incumbents to vacate the band, and the costs of relocation would likely come out of auction revenue. Ultimately, if these costs are excessive, it could lower the score of the auction. A spectrum pipeline could also theoretically develop a sharing regime with these incumbent operations, but that would likely lower the value to mobile wireless providers, meaning they will pay less for these licenses at auction.

Spectrum Reallocation Target

Finally, Congress could reauthorize spectrum auction authority with specific bandwidth allocations for commercial use that must be made available from existing government allocations. Representative Rick Allen (R-GA) has introduced the Spectrum Pipeline Act, a bill introduced in the last Congress by Senators Ted Cruz (R-TX) and John Thune (R-SD), that would make available 2,500 MHz of mid-band spectrum that can be reallocated from federal use to non-federal or shared use in the next five years. In the current version of the bill, 1,250 MHz would be allocated to 5G wireless licenses and 125 MHz would be allocated to unlicensed services. The rest of the bandwidth would be left to the discretion of the FCC.

This approach has some benefits. First, by not specifying any particular band for auction, the bill would give flexibility to incumbents and the FCC to find appropriate bands to make available for commercial use. As a result, incumbent operations may be better protected while still clearing large amounts of spectrum for commercial use. Second, while the Spectrum Pipeline Act did make 1250 MHz available specifically for auction, over 1000 MHz would be left to FCC discretion for different sharing regimes or unlicensed use. This can allow the FCC to specifically target the best bands for each use.

But despite these advantages, this approach has some significant challenges as well.

First, the bill would be difficult to enforce. For years, interested parties have been working with the DOD and other federal agencies – with little success – to make additional bandwidth available. If federal users simply do not reach the target, the bill would not create much recourse for the FCC or industry to force them to do so outside of oversight or another bill from Congress specifically designating the bands to reallocate moving forward. Therefore, for any reallocation target bill approach to work, it would require leadership from the White House to actually drive agency action.

Second, much like with the pipeline bill, there are concerns that the current balance in the bill favors 5G networks and not enough to unlicensed use or more dynamically shared uses. While a valid concern, this is a point that can be resolved through negotiations on the appropriate balance to include and not an inherent flaw with the general approach. Theoretically, a reallocation target bill could also bypass the specific uses once the spectrum is identified entirely, leaving all 2,500 MHz up to the FCC and incumbents to figure out the appropriate uses.

Conclusion

The combined need for Congress to renew the FCC’s authority to auction spectrum licenses and to find revenue for the reconciliation bill could spur action on spectrum auction authority. The to-be-determined specifics of such action, however, could have a dramatic impact on the future of spectrum management.