NTIA manages  spectrum for federal government users and acts for the President with  respect to spectrum management issues as governed by the National  Telecommunications and Information Administration Organization Act. Some Agencies Underestimated 1710- 1755 MHz Band Relocation Costs, Although Auction Revenues Appear to Exceed Those Costs

		Some Federal Agencies Underestimated Relocation Costs

Actual costs to relocate communications systems for 12 federal agencies  from the 1710-1755 MHz band have exceeded original estimates by  about $474 million, or 47 percent, as of March 2013. OMB and NTIA officials expect the final relocation cost to  be about $1.5 billion compared with the original estimate of about   $1 billion. In addition, NTIA expects agencies to complete the relocation  effort between 2013 and 2017. In December 2006, NTIA reported that DOD’s  estimate to relocate systems would be about $355.4 million. Both NTIA and OMB are taking steps to ensure that agencies improve  their cost estimates for a future relocation from the 1755-1850 MHz band. Auction Revenues Appear to Exceed Agency Relocation Costs

The Advanced Wireless Services auction of the 1710-1755 MHz band  raised almost $6.9 billion in gross winning bids from the sale of licenses  to use these frequencies.actual relocation costs suggests that the auction of the 1710-1755 MHz  band raised $5.4 billion for the U.S. Treasury. DOD’s Preliminary Cost Estimate Substantially or Partially Met GAO’s Identified Best Practices, but Changes in Assumptions May Affect Future Costs

		DOD’s Preliminary Cost Estimate for Relocating from the 1755-1850 MHz Band Substantially or Partially Met GAO’s Identified Best Practices

To prepare the preliminary cost estimate portion of its study to determine  the feasibility of relocating DOD’s 11 major radio systems from the 1755- 1850 MHz band, DOD officials said the agency implemented the following  methodology:
DOD’s Cost Assessment and Program Evaluation (CAPE) groupthe effort and provided guidance to management at the respective  military services regarding the data needed to support each system’s  relocation cost estimate and how they should be gathered to maintain  consistency across the services. Overall, we found that DOD’s cost estimate was consistent with the  purpose of the feasibility study, which was to inform the decision making  process to reallocate 500 MHz of spectrum for commercial wireless  broadband use. As noted in the table above, we  observed that DOD’s estimate included complete information about  systems’ life cycles and was generally well-documented. We found that DOD properly applied appropriate inflation  rates and made no apparent calculation errors, and that the estimated  costs agree with DOD’s prior relocation cost estimate for this band  conducted in 2001. However, DOD did not fully or substantially meet the  accurate and credible characteristics because it was not clear if the  estimate considered the most likely costs and because some sensitivity  analyses and risk assessments were only completed at the program level  for some programs, and not at all at the summary level. According to DOD officials, any  change to key assumptions about the bands to which systems would  move and the relocation start date could substantially change relocation  costs. For example:
Relocation bands: Decisions about which comparable or alternate  spectrum bands federal agencies, including DOD, should relocate to  are still unresolved. No Government Revenue Forecasts Exist for a Potential Auction of the 1755- 1850 MHz Band, and a Variety of Factors Could Influence Auction Revenues

		Federal Agencies Have Not Produced a Revenue Forecast for the 1755-1850 MHz Band

No official government revenue forecast has been prepared for a potential  auction of 1755-1850 MHz band licenses, but some estimates might be  prepared once there is a greater likelihood of an auction. For example, it assumed  that the band would generally be cleared of federal users. A Variety of Factors Ultimately Influence Auction Revenue

Like all goods, the price of licensed spectrum, and ultimately the auction  revenue, is determined by supply and demand. FCC and NTIA, with direction from Congress and the President,  jointly influence the amount of spectrum allocated for federal and  nonfederal users, including the amount to be shared by federal and  nonfederal users. This represents a significant increase in the  supply of spectrum available for licensing in the marketplace. Demand. The expected, potential profitability of a spectrum license  influences the level of demand for it. FCC agreed  with the report’s findings, and Commerce, DOD, and FCC provided  technical comments that we incorporated as appropriate. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to examine (1) the differences, if any,  between estimated and actual federal relocation costs and auction  revenues from the 1710-1755 MHz band; (2) the extent to which the  Department of Defense (DOD) followed best practices to prepare its  preliminary cost estimate for vacating the 1755-1850 MHz band, and any  limitations of its analysis; and (3) what government or industry revenue  forecasts for the 1755-1850 MHz band auction exist, if any, and what  factors, if any, could influence actual auction revenue. To determine the extent to which DOD followed best practices to prepare  its preliminary cost estimate for vacating the 1755-1850 MHz band, we  assessed DOD’s preliminary cost estimate against the best practices in  GAO’s Cost Estimating and Assessment Guide (Cost Guide), which has  been used to evaluate cost estimates across the government.
Why GAO Did This Study

Allocating radio-frequency spectrum is a challenging task because of competing commercial and government demands. In 2006, FCC auctioned spectrum licenses in the 1710-1755 MHz band that had previously been allocated for federal use. To meet the continued demand for commercial wireless services, NTIA assessed the viability of reallocating the 1755-1850 MHz band to commercial use; this band is currently assigned to more than 20 federal users, including DOD. In March 2012, NTIA reported that it would cost $18 billion over 10 years to relocate most federal operations from the band, raising questions about whether relocating federal users is a sustainable approach.
GAO was directed to review the costs to relocate federal spectrum users and revenues from spectrum auctions. This report addresses (1) estimated and actual relocation costs, and revenue from the previously auctioned 1710-1755 MHz band; (2) the extent to which DOD followed best practices to prepare its preliminary cost estimate for vacating the 1755-1850 MHz band; and (3) existing government or industry forecasts for revenue from an auction of the 1755-1850 MHz band. GAO reviewed relevant reports; interviewed DOD, FCC, NTIA, and OMB officials and industry stakeholders; and analyzed the extent to which DOD's preliminary cost estimate met best practices as identified in GAO's Cost Estimating and Assessment Guide (Cost Guide). FCC agreed with the report's findings and DOD, FCC, and NTIA provided technical comments that were incorporated as appropriate.

What GAO Found

Some federal agencies underestimated the costs to relocate communication systems from the 1710-1755 megahertz (MHz) band, although auction revenues appear to exceed relocation costs by over $5 billion. As of March 2013, actual relocation costs have exceeded estimated costs by about $474 million, or 47 percent. The National Telecommunications and Information Administration (NTIA) expects agencies to complete the relocation effort between 2013 and 2017, with a final relocation cost of about $1.5 billion. Actual relocation costs have exceeded estimated costs for various reasons, including unforeseen challenges and some agencies not following NTIA's guidance for developing cost estimates. However, the Department of Defense (DOD) expects to complete its relocation for about $71 million less than its estimate of about $355 million. NTIA and the Office of Management and Budget (OMB) are taking steps to ensure that agencies improve their cost estimates by, for example, preparing a cost estimation template and guidelines for reporting reimbursable costs. The auction of spectrum licenses in the 1710-1755 MHz band raised almost $6.9 billion.
DOD's preliminary cost estimate for relocating systems out of the 1755-1850 MHz band substantially or partially met GAO's best practices for cost estimates, but changes in key assumptions may affect future costs. Adherence with GAO's Cost Guide reduces the risk of cost overruns and missed deadlines. GAO found that DOD's preliminary estimate of $12.6 billion substantially met the comprehensive and well-documented best practices. For instance, it included complete information about systems' life cycles, and the baseline data were consistent with the estimate. However, GAO found that some information on the tasks required to relocate some systems was incomplete. GAO also determined that DOD's estimate partially met the accurate and credible best practices. For example, DOD applied appropriate inflation rates and made no apparent calculation errors. However, DOD did not complete some sensitivity analyses and risk assessments at the program level, and not at all at the summary level. DOD officials said that changes to key assumptions could substantially change relocation costs. Most importantly, decisions about which spectrum band DOD would relocate to are still unresolved, and relocation costs vary depending on the proximity to the 1755-1850 MHz band. Nevertheless, DOD's preliminary cost estimate was consistent with its purpose--informing the decision-making process to make additional spectrum available for commercial wireless services.
No government revenue forecast has been prepared for a potential auction of the 1755-1850 MHz band, and a variety of factors could influence auction revenues. One private sector study in 2011 forecasted $19.4 billion in auction revenue for the band, assuming that federal users would be cleared and the nationwide spectrum price from a previous auction, adjusted for inflation, would apply to this spectrum. Like for all goods, the price of spectrum, and ultimately the auction revenue, is determined by supply and demand. The Federal Communications Commission (FCC) and NTIA jointly influence the amount of spectrum allocated to federal and nonfederal users (the supply). The potential profitability of a spectrum license influences its demand. Several factors would influence profitability and demand, including whether the spectrum is cleared of federal users or must be shared.