Market-Based Approach to Spectrum Governance Defended
Auctioning spectrum licenses of limited duration and flexible use is the most rational approach to spectrum governance, according to Princeton U. Prof. William Baumol, whose study was debated by economists at an AEI- Brookings Joint Center event in Washington Tues. Baumol said the govt. should give spectrum holders flexibility to rent or sell unused frequencies to other entities. He said although the FCC had embraced auctioning licenses and other decentralized market mechanisms, administrative restrictions still covered much of the spectrum. Baumol also said spectrum licenses should be “limited in duration for a clearly specified period” of 10-15 years, and renewable only through an “unbiased” auction.
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The advocated approach has several benefits, Baumol said. For example, he said, it would accommodate any unpredictable future changes in the nature of spectrum utilization. By making licenses temporary, the govt. would prevent creation of vested interests -- “the greatest source of resistance to change in any regime.” Baumol also said the approach would lead to a “straightforward modification” of the current regime, minimizing transition problems. It would also help prevent interference through direct control of spectrum “crowding” by limiting the number of licenses used, he said.
In contrast, a “commons approach” has “severe shortcomings,” Baumol said. Commons supporters advocate that with introduction of new interference-avoiding technology, licensing becomes unnecessary and impractical. But Baumol disagreed: “While technological changes have worked to reduce spectrum crowding, there is no guarantee that it will continue to do so and won’t work in the other direction.” For example, he said, creators of the automobile didn’t foresee traffic jams.
Economists on the panel generally agreed on the validity of the market-based approach featuring exclusive rights of flexible use of spectrum. But they said the paper had a few inconsistencies. U. of Pa. Prof. Gerald Faulhaber said he disagreed with Baumol’s: (1) Rejection of non-interfering easements. Faulhaber said he supported the ability of wireless users that could use available spectrum without interfering with existing licensees to obtain an easement right to use that spectrum. He said he would prefer those easements to be negotiated by participants, but said in some cases, such as UWB, it would be appropriate for the FCC to authorize such right. (2) Acceptance of limited-term licenses. “The big problem is that it doesn’t get rid of regulators and thus doesn’t get rid of rent seeking,” Faulhaber said: “Regulators will respond to lobbying pressure to make adjustments in 15 years… We are not solving any problems.”
Manhattan Institute Senior Fellow Thomas Hazlett said he was “concerned” with the idea of term limits on spectrum licenses. “This contradicts everything else in the paper,” he said: “You want to keep the competitive market in control of the license,” rather than taking it away and returning the property right to the FCC. Licenses should be renewed without auctions, he said, adding that license reauctioning would involve costs and “would disrupt rational investment in wireless telecom infrastructure.” Another Hazlett concern is that regulations create white spaces that could otherwise be used for productive wireless communications, he said.
“I think we are ready to move past the debate between property rights and the commons approach,” said Rutgers U. Assoc. Prof. Ellen Goodman: “The property rights folks have won on this and it’s now time to think about how it works in practice.” Goodman said 3 things should be done before moving to the property rights regime: (1) “Come up with a base line that entitlement holders can negotiate around which user takes precedence.” (2) “There should be a rule that signals have to be identified so it’s easier to identify -- if there is an interfering user -- where it is coming from.” (3) “We need to develop a dispute resolutions system… to deal with interference after that fact.”