I would like to thank the members of this committee for holding this hearing and for inviting me to testify before you. This is a timely topic for our Department of Defense and our nation. We all share the same goal, to ensure that our troops are uniquely prepared to fight and win to protect freedom-loving people throughout the world. During operation "Iraqi Freedom", the success we have been witnessing in our military operations is to a large extent attributable to our technologically advanced and superior systems, all of which are heavily dependent on the frequency spectrum. Without the wireless connections made possible by access to spectrum, we would not have been able to pinpoint and accurately target enemy leadership, find and destroy enemy air defense systems, minimize friendly fire casualties through greater situational awareness and rely on networks and information like never before. Our unfolding success on the battlefield should serve as a reminder to everyone on the need to secure and protect the frequency spectrum used by the military.

Because access to frequency spectrum is a core enabler and a vital resource for the Department of Defense, we must ensure that all issues associated with spectrum relocation, including today's topic of reimbursement, are dealt with in a manner that supports that goal. Spectrum is one of the most critical media of modern military operations, and the Spectrum Relocation Fund proposal under consideration could be instrumental in ensuring continued access to it. The Spectrum Relocation Fund can establish the means for DoD operations to be transitioned smoothly, without interruption or degradation of our mission capabilities, whenever DoD operations are relocated to new spectrum bands to make way for commercial uses.

The Administration retransmitted to Congress a draft bill to create a Spectrum Relocation Fund and to revise the reimbursement procedures and Congressman Upton recently reintroduced the Commercial Spectrum Enhancement Act. We look forward to working with the Committee in crafting legislation to create a Spectrum Relocation Fund. We urge the committee to ensure that it contains key elements that are necessary for it to function as designed to enhance the ability of spectrum auctions to advance the efficient and effective use of spectrum by helping to maintain the Federal Government's capability.

Reform of Spectrum Management

I believe it is difficult to view the Spectrum Relocation Fund proposal outside of the context of overall spectrum management reform. As many of you know, those who have responsibility for spectrum in the federal government have been working extremely hard on improving our spectrum management practices - and in our view should be commended for these efforts.

This work was kicked off at the NTIA Spectrum Summit last spring. It has continued apace with the recent FCC Spectrum Task Force Report and the GAO's work in this area. Additionally, many in government and industry attended and contributed to meetings of the Center for Strategic & International Studies (CSIS) Commission on Spectrum Management. Within DoD we continue to evaluate and improve our own internal management structures and processes. On December 3, 2002 Deputy Secretary of Defense Wolfowitz approved and signed DoD's Strategic Plan for Department of Defense Spectrum Management. This was a very significant step within the Pentagon, formally highlighting the importance of spectrum issues for DoD and setting up an internal plan and process to implement it. As Deputy Secretary Wolfowitz said, "Without assured access to the spectrum our forces will not be able to meet the requirements of our operational goals in the near term, including those that directly support the Homeland Security mission, nor will we be able to realize the promise of military transformation.A fundamental component of achieving the goals..is sound management of the spectrum to which DoD has access."

Development of spectrum efficient technologies is a key component of any spectrum management solution. We are moving forward in developing what we consider to be the cutting edge of spectrum use: DARPA's neXt Generation spectrum program, known as XG. XG capitalizes on one of the factors identified by the FCC Spectrum Task Force: access to spectrum is the key limiting factor in using spectrum. In other words, spectrum may be available but there is no way to access it. XG will allow the dynamic management of spectrum use by defining access based on the dimensions of time, frequency and location. Current spectrum users routinely differentiate on the basis of frequency and location only. Enabling spectrum users to differentiate on the basis of time will allow more users to access the spectrum. This will help change the antiquated zero-sum characteristics of current spectrum allocations. When XG and other technological initiatives come to fruition, it will allow us move from a "use rights model" of spectrum use, to a "dynamic access model." This will be good for our military, other government users, and industry.

These are just some of the recent and ongoing efforts in the spectrum management domain. I look forward to discussing these initiatives with the committee at an appropriate time.

Spectrum Relocation in General

It is critical to the national security that when pursuing any process leading to possible relinquishment of spectrum by the Department of Defense, careful and serious consideration be given to essential national defense needs.

There's a real tendency to think that there's no problem in reallocating federal government spectrum, because it has been done in the past--as part of OBRA 93 and BBA 97--and the military is still performing its missions in an exemplary manner. This notion of "painless reallocations" is misguided. It is vitally important to ensure that DOD has the spectrum access it needs for readiness and the overall capability of our military. Any relocation or loss of spectrum that is essential to military capability costs the Nation either in readiness or that capability, or in lost opportunity to make other use of funds that now must be devoted to trying to figure out how to maintain the readiness or capability. Loss of needed spectrum access yields an increased expenditure of time, funds, and other resources to develop, test and implement alternative capabilities or work-arounds which may be less effective than what they replace. Loss of needed spectrum access may yield a degradation of military readiness while alternative capabilities are developed and compensatory training requirements are generated. Each time we are forced to move, we throw into turmoil interoperability with coalition partners, many of who have purchased equipment designed specifically to interoperate with ours.

Each time we are forced to "adjust" training in the United States away from operational norms to accommodate domestic frequency restraints, our training realism and effectiveness suffers. The loss of spectrum access requires DOD to expend other resources to compensate. These expenditures do not advance our cause but only allow us to tread water. Part of the answer of why the impacts of past reallocations have been absorbed lies with the work of our dedicated and talented spectrum managers. They are capable of amazing things. For example, the coordination necessary to put up fighter cover over New York City on September 11th took only two hours. But we cannot expect miracles from them on a regular basis.

In simple terms, spectrum relocations raise many issues for our military. Cost is an important element, but not the only one. In some ways, from DoD's perspective, it is the most straightforward to solve and therefore we commend your efforts to solve it. My goal is to take cost reimbursement off the table as an issue in spectrum relocation debates and a Spectrum Relocation Fund is one mechanism to achieve that goal.

Spectrum Relocation Fund

Set within this context, the Spectrum Relocation Fund has the potential to benefit both the Department of Defense, and other affected federal agencies, and commercial industries slated to use that spectrum.

Current legislation (the National Telecommunications and Information Administration Organization Act, as amended by the National Defense Authorization Act FY 1999) provides that commercial users will pay DoD in advance for the costs of relocating operations to the replacement spectrum, including the costs of any modification, replacement or reissuance of equipment, facilities, operating manuals, or regulations. Thus, the successful bidder is responsible for paying into the General Treasury the amount of its bid and for paying relocating Federal entities a separate amount for relocation costs. At the time of auction, bidders will have available only an estimate of Federal entities' relocation costs. Moreover, the statutory provision requires negotiations between successful auction bidders and relocating federal entities to establish the final amount paid to relocating federal entities. DoD would be required to negotiate, either directly or indirectly, with all auction winners for repayment of relocation costs. During auctions, blocks of spectrum may be assigned in hundreds of service areas around the country. Reallocating and auctioning spectrum for some consumer services may involve negotiating with numerous license-holders in many different locations. This could quickly become an unwieldy, costly, time-consuming, and uncertain process for all parties. On the other hand, under the Administration's proposal, Federal Government entities are provided funds out of a fund drawn from a pool of auction receipts and thus would eliminate the requirement for these repetitive negotiations.

The purpose of spectrum auctions is to maximize allocative efficiency in spectrum use. Therefore, the overriding goal of a Spectrum Relocation Fund must be to enhance the effective and efficient use and management of our nation's spectrum. In order to accomplish that core goal, the Spectrum Relocation Fund must provide for full and timely reimbursement for all costs associated with relocating military systems to comparable spectrum bands. A well-designed Spectrum Relocation Fund will simplify the reimbursement process and afford incumbent users a higher degree of predictability and certainty of timely receipt of all costs associated with spectrum relocations.

New legislation should put incumbents at ease regarding reimbursement so that they can focus on the other aspects of relocation, such as, for DoD, ensuring that military capabilities are not degraded, that we can continue to interoperate with coalition partners, and that we will be able to continue to train our troops in realistic settings. A trustworthy Spectrum Relocation Fund will, in practical terms, encourage federal entities to come to spectrum relocation battles with less trepidation than would otherwise be the case. If a Spectrum Relocation Fund meets these objectives, then it will advance the nation's interest in efficient spectrum allocation.

Commercial users, too, would receive benefits from greater efficiency associated with a Spectrum Relocation Fund that provides for full and timely reimbursement of displaced users. Instead of having to separately negotiate relocation costs with the government following the auction, the commercial licensees would need only to concern themselves with license payments and they would have certainty at the time of auction as to the cost of the spectrum being auctioned. No other transaction would be necessary. They would only need to assess their bid price and the cost of build out.

DoD Protections in Spectrum Relocation Fund Legislation

The Department supports the idea of a Spectrum Relocation Fund for Reimbursement in general and specifically supports the Administration's proposal, which includes protections that DoD requires in order to accomplish our mission, at the level of effectiveness that the American public expects and that our men and women in uniform deserve. Any such statutory change, however, must ensure that existing statutory protections are maintained. Section 1062(b) of the National Defense Authorization Act for Fiscal Year 2000, provides that "[i]f, in order to make available for other use a band of frequencies of which it is a primary user, the Department of Defense is required to surrender use of such band of frequencies, the Department shall not surrender use of such band" until several conditions are met. First, the NTIA must make available to DOD "for its primary use, if necessary, an alternative band or bands of frequencies as a replacement for the band to be so surrendered." Second, the Secretaries of Defense and Commerce, and the Chairman of the Joint Chiefs of Staff, must jointly certify to the congressional armed services and commerce committees that "such alternative band or bands provides comparable technical characteristics to restore essential military capability that will be lost as a result of the band of frequencies to be so surrendered." This certification takes into account whether the replacement spectrum for different DoD systems has suitable technical characteristics and similar regulatory status so that the displaced function can be performed with no degradation in capability.

DoD does support a Spectrum Relocation Fund and our view is that if it is to work as designed, and maintain government capabilities, it should contain provisions for the following:

Full reimbursement - DoD must be fully reimbursed for all relocation costs for a Spectrum Relocation Fund to be viable. Under the Administration's proposal and under H.R. 1320, an auction would be invalidated if the proceeds were less than 110% of the estimated relocation costs. This would help to prevent the government from having to fund relocation costs out of pocket if the auction did not attract bids sufficient to cover the costs of relocation. There is some risk inherent in the 110% threshold. It is possible that estimates of relocation costs may be too optimistic, resulting in a shortfall of funds to cover the relocation. In this situation, the auction would be completed before the Federal Government entity discovered that the estimates of relocation costs were too low. Under the Administration's proposal, this is dealt with by allowing reimbursement from all of the assets available in the fund-not just the assets available from that particular auction. Furthermore, the auction receipts would remain in the fund for a period of ten years before reverting to the general treasury. This is necessary because of the difficulty in accurately predicting relocation costs as many as five to six years in advance of actual payment of costs and reimbursement and the possibility that some costs might not be apparent until much later. Inaccurate cost estimates might result from flawed calculations, but they might just as easily stem from a change in economic circumstances that would make a particular good or service required for relocation more expensive for the government to procure. For example, a critical part, such as a semiconductor chip, might no longer be manufactured on a regular basis domestically yet, for security purposes, we might need to special order such a part from a domestic concern. This might significantly add to the costs in a way that could not have been anticipated 5 years earlier when the original cost estimate was made. We should not allow DoD capabilities to suffer due to these inherently uncertain projections. The reduction in risk to DoD provided by the ability to be reimbursed from all the assets available in the fund is a very important component of the Administration bill for DoD.

Definition of Relocation Costs - A broad definition of relocation costs, such as the definition of relocation costs in the Administration's proposal and in H.R. 1320, is necessary for reimbursement legislation to protect our spectrum dependent national security systems. These costs should obviously include the modification or replacement of equipment. There are also some additional requirements that are less obvious but are still vital for a Federal Government entity to relocate and maintain its existing capabilities. These include providing for new software, training (including training manuals), construction, site acquisition, transaction costs, and outside consultants. All these bear costs to DoD-and ultimately, to the taxpayer.

Any Federal entity will incur costs to complete engineering studies and economic analyses required to estimate relocation costs. These should be covered as well, along with any other reasonable expenses incurred in estimating relocation costs. Furthermore, if a Federal Government entity needs to accelerate the introduction of systems and equipment to relocate earlier than anticipated to accommodate an auction winner, the costs of doing so should also be covered.

There may be a period of time after an auction, and before the Federal entity completes the relocation, when the Federal entity still holds a primary allocation. If sharing with the auction winner is required at this time, a one-time cost of modification of equipment to accommodate sharing would be necessary. This should also be covered.

Sufficient Time Lines for Cost Estimates and Relocation - DoD and all federal entities must have sufficient time in advance of an auction in order to develop pre-auction cost estimates. Agencies will generally receive notice of an auction from the FCC after one or more allocation rulemakings to make the particular spectrum to be auctioned available and after replacement spectrum has been identified. However, it is important that nothing unnecessarily restricts the time between announcement of an auction and the time that agencies must provide cost estimates to the FCC.

The timeframes to prepare for the upcoming 1710-1755 MHz auction of spectrum for advanced wireless services illustrate the complex and lengthy process that will be necessary. Intense work by Executive branch agencies, led by NTIA, by the Federal Communications Commission and by the private sector took place from the autumn of 2000 until July 2002 to identify appropriate bands for 3G services. It was not until the last two months of the Viability Assessment process that alternative spectrum for most government systems to be relocated was identified. NTIA began work shortly after the July Viability Assessment to develop cost estimates for relocating federal agencies. The Department of Defense has started an intra-agency group, made up of all the relevant experts, including comptroller, acquisition, program, and spectrum offices, to develop the most reliable cost estimates possible by February 2004 for the auction tentatively planned for next year. Also prior to the auction, we anticipate that the Secretaries of Defense and Commerce and the Chairman of the Joint Chiefs of Staff will be able to make the "comparable spectrum" certification discussed above and preserved by both the Administration's proposal and HR 1320.

DoD and all federal entities must also have sufficient time for relocation of equipment. These time lines should not be based simply on an auction schedule, but must follow the time required for DoD to move to identified comparable spectrum. Failure to allow sufficient time for DoD to move increases the risk of harming DoD capabilities. Newly installed systems will need to be fully tested to ensure reliability of operation to meet mission standards and requirements before the use of existing systems is terminated. Furthermore, forcing a quick relocation will increase costs because of procurement difficulties-having to pay for expensive work-arounds and modifications due to insufficient planning time.

No Separate Appropriations Process-One of the concerns regarding current law is that the relocation payments must be appropriated before agencies can spend them, which could significantly delay the relocation process. With the Relocation Fund, the Administration and H.R. 1320 propose providing agencies with mandatory spending authority so that they can begin the relocation process as soon as the auction receipts are paid into the Fund. In our view, specific appropriations should not be necessary because the authorizing legislation will make sufficiently clear what funds may be spent for and for what purposes for appropriate controls to be maintained. Estimated costs would be available well in advance of any expenditures from the Spectrum Relocation Fund and, under the Administration's proposal, if a Federal entity were to spend more than 110% of the estimated costs, it would be required to fully justify the additional costs to OMB and to report expenditures so approved to both the authorizing and appropriating committees.

Protection From Harmful Interference-As you know, interference in radio transmissions between users can be a serious problem and can jeopardize DoD capabilities. Therefore, both the Administration's proposal and H.R. 1320 contain language calling for the FCC to condition licenses on compliance with rules forbidding the licensee from causing harmful interference with an incumbent Federal entity, during the relocation period. This will allow the commercial user to begin operations in the band before the Federal entity is entirely relocated out of it. At the same time, this provision would still provide interference protection for federal entities during the relocation transition.

Exemption from Sequestration-Another useful protection for Federal entities in the Administration's proposal is that in the event of sequestration under the Balanced Budget and Emergency Deficit Act of 1985, the Spectrum Relocation Fund would be exempt. This is necessary because if the Fund were to be sequestered, DoD would be unable to complete relocations. The resolution of the resulting logjam would likely be difficult and costly for all parties.

Conclusion

Thank you for holding this hearing to discuss the Spectrum Relocation Fund. The idea has great promise and could greatly enhance the way we manage spectrum. Removing obstacles to reallocating spectrum will have benefits for the government, industry and consumers. However, we must remember that finding appropriate comparable spectrum will remain a difficult task. I look forward to working with the committee in developing legislation that creates an effective Relocation Fund and ensures full protection for DoD's essential operations.