	Background

The radio frequency spectrum is the resource that makes possible  wireless communications and supports a vast array of government and  commercial services. FCC and NTIA, with  direction from Congress and the President, jointly determine the amount  of spectrum allocated for federal, nonfederal, and shared use. Twelve agencies previously  operated communication systems in this band, including DOD. The report found, for example, that clearing and vacating federal users  from certain bands was not a sustainable basis for spectrum policy largely  because of the high cost to relocate federal agencies and disruption to  the federal missions. 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. Although 11 of the 12 agencies plan to spend the same amount or more  than they estimated, DOD expects to complete the 1710-1755 MHz  transition for about $275 million, or approximately $80 million less than its  cost estimate. DOD officials told us that the relocation of  systems from the 1710-1755 MHz band has been less expensive than  originally estimated because many of its systems were simply re-tuned to  operate in the 1755-1850 MHz band. Auction Revenues Appear to Exceed Agency Relocation Costs

The 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. As mentioned above, NTIA reports that it  expects agencies to complete the relocation effort between 2013 and  2017; therefore, the final net revenue amount may change. 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

DOD’s Office of Cost Assessment and Program Evaluation (CAPE) led  the effort to prepare the department’s preliminary cost estimate portion of  its study to determine the feasibility of relocating its 11 major radio  systems from the 1755-1850 MHz band. These  characteristics of cost estimates help minimize the risk of cost overruns,  missed deadlines, and unmet performance targets:
A comprehensive cost estimate ensures that costs are neither omitted  nor double counted. However, some programs did not list all the  discrete tasks required for relocation, and not all the individual  programs had evidence of cost-influencing ground rules and  assumptions. Well-documented—Substantially Met: We found that management  reviewed and accepted the estimate, the estimate was consistent with  the technical baseline data, and documentation for the majority of  programs was sufficient that an analyst unfamiliar with the program  could understand and replicate what was done. Accurate—Partially Met: We found that DOD properly applied  appropriate inflation rates and made no apparent calculation errors. In  addition, the estimated costs agreed with DOD’s prior relocation cost  estimate for this band conducted in 2001. However, no confidence  level was specifically stated in DOD’s cost estimate to determine if the  costs considered are the most likely costs, which is required to fully or  substantially meet this characteristic. However, some  sensitivity analyses and risk assessments were only completed at the  program level for some programs, and not at all at a summary level. As the Assumptions Supporting DOD’s Cost Estimate for Relocating from the 1755-1850 MHz Band Change, Costs May Also Change

Even though DOD’s preliminary cost estimate substantially met some of  our best practices, as the assumptions supporting the estimate change  over time, costs may also change. According to DOD officials, any  change to key assumptions about the bands to which systems would  move could substantially change relocation costs. 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 by CBO,  FCC, NTIA, or OMB for a potential auction of the 1755-1850 MHz band  licenses, but some estimates might be prepared once there is a greater  likelihood of an auction. The study assumed that  the 1755-1850 MHz band would be generally cleared of federal users. A Variety of Factors Could Influence Auction Revenues

Like all goods, the price of licensed spectrum, and ultimately the auction  revenue, is determined by supply and demand. In 2010, the President directed NTIA to work with FCC to make  500 MHz of spectrum available for use by commercial broadband  services within 10 years. 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.
Why GAO Did This Study

Radio frequency spectrum is the resource that makes possible wireless communications. Balancing competing industry and government demands for a limited amount of spectrum is a challenging and complex task. In 2006, FCC completed an auction of spectrum licenses in the 1710-1755 MHz band that had previously been allocated for federal use. As part of an effort to make additional spectrum available for commercial use, DOD assessed the feasibility of relocating 11 major communication systems from the 1755-1850 MHz band. In September 2011, DOD found that it would cost about $13 billion over 10 years to relocate most operations from the 1755-1850 MHz band.
GAO was asked to review the costs to relocate federal spectrum users and revenues from spectrum auctions. This testimony addresses our preliminary findings on (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 Office of Management and Budget officials and industry stakeholders; and analyzed the extent to which DOD's preliminary cost estimate met best practices identified in GAO's Cost Estimating and Assessment Guide (Cost Guide).

What GAO Found

Actual costs to relocate federal users from the 1710-1755 megahertz (MHz) band have exceeded the original $1 billion estimate by about $474 million as of March 2013, although auction revenues appear to exceed relocation costs by over $5 billion. Actual relocation costs exceed estimated costs for various reasons, including unforeseen challenges and some agencies not following the National Telecommunications and Information Administration's (NTIA) guidance for preparing the cost estimate. In contrast, the Department of Defense (DOD) expects to complete relocation for about $275 million or approximately $80 million less than its $355 million estimate. According to DOD officials, the relocation of systems from this band has been less expensive than originally estimated because many systems were simply re-tuned to operate in the adjacent 1755-1850 MHz band. The auction of the 1710-1755 MHz band raised almost $6.9 billion in gross winning bids. NTIA expects agencies to complete the relocation effort between 2013 and 2017; therefore, final net auction revenue (auction revenue less relocation costs) may change.
DOD's preliminary cost estimate for relocating systems from the 1755-1850 MHz band substantially or partially met GAO's best practices, but changes in key assumptions may affect future costs. Adherence with GAO's Cost Guide helps to minimize the risk of cost overruns, missed deadlines, and unmet performance targets. GAO found that DOD's estimate substantially met the comprehensive and well-documented best practices. For instance, it included complete information about systems' life cycles and documentation for the majority of systems was sufficient. However, not all programs had evidence of cost-influencing ground rules and assumptions, and some of the source data were insufficient. GAO also determined that DOD partially met the accurate and credible best practices. For example, DOD applied appropriate inflation rates and its estimated costs generally agreed with its 2001 cost estimate for this band. However, DOD did not develop a confidence level, making it difficult to determine if the costs considered are the most likely costs, and DOD only completed some sensitivity analyses and risk assessments at the program level for some programs. DOD officials said that changes to key assumptions could substantially change its costs. Most importantly, decisions about which spectrum band DOD would relocate to are still unresolved. Nevertheless, DOD's cost estimate was consistent with its purpose--informing the decision to make additional spectrum available for commercial wireless services.
No government revenue forecast has been prepared for a potential auction of licenses in 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 licenses in this 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. The price of spectrum, and ultimately 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.