Market Mechanisms and the Efficient Use and Management of Scarce Spectrum Resources
Beard, T. Randolph, Ford, George S., Spiwak, Lawrence J., Stern, Michael, Federal Communications Law Journal
Table of Contents I. INTRODUCTION II. BACKGROUND III. INEFFICIENT USE OF SPECTRUM BY GOVERNMENT A. Economics of Inefficient Use B. Pricing Spectrum to Improve Efficiency--Or Not IV. THE EFFICACY OF EXISTING PROPOSALS TO IMPROVE GOVERNMENT'S EFFICIENT USE OF SPECTRUM A. The "GSA Model" B. Setting the Efficient Level of Spectrum Use 1. Treating Spectrum as an Asset 2. A Failure in Accountability C. Spectrum Currency as a Ghost Market Mechanism D. Other Options V. GOVERNMENT INEFFICIENCY AND SPECTRUM ALLOCATION BETWEEN PUBLIC AND PRIVATE USERS A. Formal Economic Model of Spectrum Allocation Between Private and Public Sectors B. Market Management of All Spectrum C. Caveats VI. Conclusion
In light of the rapid growth of demand for data transmission on mobile wireless networks, the Federal Communications Commission's ("FCC") 2010 National Broadband Plan proposed to increase the amount of spectrum available for flexible commercial use by 500 MHz by 2020, with 300 MHz of this additional spectrum available for mobile broadband use by 2015. (1) The National Broadband Plan proposes to increase significantly the amount of spectrum used for mobile communications service in the hopes of postponing the effects of spectrum exhaust in the U.S. mobile wireless industry. (2) Given the near total absence of fallow spectrum in the frequency bands useful for mobile broadband, satisfying the mobile wireless industry's appetite for spectrum will necessarily require a repurposing and reallocation of already-assigned spectrum. (3) While the National Broadband Plan identified some arguably low-hanging fruit, (4) the search for high-quality spectrum for commercial users continues. As a consequence, eyes are fixed on the federal government, whose agencies are assigned about half (1,687 MHz) of the "beachfront" spectrum between 225 MHz and 3.7 GHz. (5)
Although federal agencies need spectrum to carry out their mission-critical duties such as national defense and homeland security, public sector users have very weak incentives--if any--to use their spectrum efficiently. As one recent government-sponsored study concluded, "[federal users currently have no incentives to improve the efficiency with which they use their own spectrum allocation...." (6) Inefficiency in spectrum use implies that the same output could be produced using less of the scarce spectrum resource. Therefore, improving spectral efficiency in the public sector makes it possible to repurpose some government spectrum for commercial use while continuing to support essential public services. In light of the need for more spectrum resources in the commercial wireless sector, improving efficiency in the government's use and management of spectrum is a significant policy issue both in the United States and in other countries. (7) A number of studies have offered proposals aimed at increasing efficiency while continuing to meet the critical wireless communications needs of federal users.
The purpose of this Article is twofold. First, we turn to the standard production theory of economics to clarify what is normally meant by efficiency in the context of spectrum use. Using the same conceptual framework, prior studies, including several conducted by agencies of the U.S. government, have uniformly pointed to the efficiency of market outcomes as the gold standard for spectrum policy. Consequently, many of the proposals to improve the spectral efficiency of government users involve government agencies paying a market price, or a pseudo-market price, for the spectrum they use. Given our analysis, we are skeptical that such proposals--especially those calling for spectrum "markets" within the government--will ultimately lead to significant or long-term improvements in the public sector's efficiency in using its spectrum.
Second, we detail a theory of spectrum allocation across public and private users. …