Making Spectrum Decisions More Market-Oriented Is a Tough Challenge for FCC

The FCC’s pending notice of inquiry looking at reallocation of the upper C band demonstrates the problem of ensuring that spectrum is made available for its best possible use, said TPI President Scott Wallsten. Advocates are already preparing their arguments and reports to file in the proceeding (see 2502060062), he said. “It will be a beauty contest, with all the inefficiencies that come with that.”

The challenge of making fundamental spectrum allocation decisions through administrative processes “isn’t going away or getting easier,” Wallsten said. “As spectrum demands grow and uses diversify, the pressure increases to find better ways to make these allocation decisions.”

The FCC’s work on making spectrum available for flexible use with a set of parameters, rather than for a specific use like taxi radios, might be the “the most important market-based mechanism out there,” said Quadra Partners’ Ruth Milkman.

Flexible use allows spectrum to be repurposed following advances in technology and for changing use cases, said Milkman, a former FCC chief of staff and Wireless Bureau chief. To make spectrum more like property, licensees must be able to assume they will hold the spectrum for a defined time period, “long enough to make the investments,” and to transfer it and partition their licenses, she said.

Flexible use, not auctions, was the most important spectrum innovation during the 1990s, agreed Greg Rosston, professor of economics at Stanford University. The best auction would be one with flexible licenses “that raised a dollar,” he said. “That would mean that spectrum wasn’t a scarce resource,” unlike the current reality, where spectrum is scarce and auctions therefore bring in billions of dollars in bids.

Stanford University economist Michael Ostrovsky called for a new way of approaching spectrum allocation, with the FCC creating dual auctions in a single band to develop a market-based approach for deciding its best use. The FCC could offer the same band for exclusive use and on a shared basis, he suggested. The current holder of the spectrum, including federal agencies, would also participate, offering frequencies based on the clearing costs.

Whichever auction generated the highest surplus, “relative to the very different clearing costs,” would then determine whether the spectrum is sold using a sharing model “or the old-school exclusive one,” Ostrovsky said. He laid out his vision for dual auctions in an academic paper released last year.

Evan Kwerel, senior economic adviser in the FCC Office of Economics and Analytics, said Ostrovsky’s model wouldn’t work if one of the goals is to make more unlicensed spectrum available. With unlicensed spectrum, “you get no revenue, but it doesn’t mean that there’s no value,” he said.

Kwerel said the proposal is interesting as a way to use a market mechanism to determine the difference in value of spectrum among uses. “This compares two options, but how are those options determined?” he asked: “I don’t have an answer to that, except that it’s a complex, technical, administrative, political process.”

Another problem is that there just isn’t a way for government users to value spectrum the same way the private sector does, Kwerel said. Agencies can’t keep any of the savings from giving up access to spectrum “and use it for some other purpose,” he said. There’s no way “that I have been able to come up with” to give agencies an incentive to give up spectrum.

Stanford's Rosston said DOD naturally resists giving up spectrum, especially since new military systems are under development, and it's unsure what its spectrum demands will look like in five years.

DOD’s aversion to risk “is right,” Milkman said. She noted that after the Soviet Union collapsed, some thought there would be no more need for NATO spectrum. “We looked at whether we should go after spectrum that was used for NATO, and we didn’t get very far,” she said. “That’s probably a good thing.”

Kwerel has spent decades at the FCC trying to expand the role of markets in managing spectrum. “The only thing I have seen that’s really successful in dealing with the federal government is Congress saying, ‘Hey, you’ve got to give up this amount of spectrum.’” There's always “kicking and screaming” and high cost estimates, he said: “There are always all sorts of negotiations” and areas where bands have to be shared rather than cleared. “I haven’t seen anything else that works.”