A Policy Framework for Spectrum Allocation in Mobile Communications

Article excerpt

I.   INTRODUCTION
II.  FROM DE JURE TO DE FACTO SPECTRUM CAPS
III. ANALYTICAL FRAMEWORK
     A. Theoretical Model
     B. Illustrations of the Theory
IV.  "MORE" SPECTRUM DOES NOT AFORTIORI MEAN "MORE"
     FIRMS
     A. Theoretical Evidence
     B. The Historical Evidence
V.   CONCLUSIONS

I. INTRODUCTION

Across the globe, the mobile communications revolution is well under way. From advanced economies such as the United States, to developing economies like India, mobile telecommunications, in both voice and data forms, is quickly becoming the communications technology of choice. In the United States, it took less than fifteen years for wireless telephones to move from a thinly consumed service to effective ubiquity. (1) In 2009, there were 285.6 million wireless accounts in the United States, which translates to roughly 1.1 accounts for every person over ten years of age or more. (2) Mobile communications has evolved well beyond voice technology to now include enhanced communications services such as text messages, e-mail, and broadband connectivity, which are, in fact, quickly becoming the dominant source of consumer value for mobile service. In the not-so-distant future, it is expected by some that mobile appliances, like the iPhone, will replace traditional computers for many consumers. (3) For many individuals and households, mobile broadband may be the Internet connection of choice. (4)

This rise in wireless connections, as well as the rapidly increasing demand for data services over such connections, is a mixed blessing. On the one hand, it provides an enormous economic boon to consumers, businesses, and providers; on the other hand, however, it is beginning to test the capacity of networks to provide such services. As a result, the supply of available quality commercial spectrum is rapidly becoming exhausted. (5)

Fortunately, this fact has not gone unrecognized by policymakers. FCC Chairman Julius Genachowski recently observed that "America is facing a looming spectrum crunch" (6) because "the United States does not have nearly enough spectrum to meet its medium- and long-term mobile broadband needs." (7) Perhaps the single most important proposal in the National Broadband Plan is to make 500 megahertz (MHz) of additional spectrum available by 2020 for the provision of mobile broadband services, with ideally 300 MHz of that spectrum being made available by 2015, (8) a vision that President Obama formally endorsed by Presidential Memorandum. (9)

Allocating more spectrum to advanced mobile services (such as broadband) is widely viewed as a sensible, if not a necessary, public policy. (10) However, merely stating that more spectrum is to be allocated to commercial mobile services leaves some highly relevant details unresolved. There are (at least) two important questions that must be answered when increasing the supply of spectrum: (1) how much new spectrum is to be allocated; and, more importantly, (2) who gets it? (11) On the first question, as noted a moment ago, the FCC has proposed to increase substantially the spectrum available for mobile services. On the other hand, the FCC has sent clear signals that it is concerned with increasing industry concentration (despite the fact that it approved every auction and wireless merger to date) and, by implication, that it would prefer to allocate any new spectrum primarily to new entrants and possibly smaller incumbents, rather than the largest incumbent providers, in order to "deconcentrate" the industry. (12)

The allocation of spectrum among firms is a complex issue for which economic theory can provide key insights. To this end, we provide in this Article a theoretical analysis of some of the relevant tradeoffs involved in allocating spectrum among service providers. Informally, our analysis contemplates two (theoretical) states of the world. In the first, a fixed amount of spectrum is divided among many firms so that each firm has a "little" spectrum. …