Economic growth out of thin air

The benefits of additional wireless capacity are widespread. The FCC estimates that releasing an additional 275 MHz of spectrum by 2014 will save carriers in excess of $120 billion in capital costs. According to former Director of the National Economic Council Lawrence Summers “total surplus from expanding wireless [is] estimated to be $40 to $50 billion every year.” The High Tech Spectrum Association estimates that additional investments in 4G wireless technologies will create 205,000 jobs in the next five years.

The ongoing wireless spectrum repurposing is a fitting semi-centennial for Nobel Prize-winning economist Ronald H. Coase’s 1959 paper “The Federal Communication Commission,” which argued against command-and-control radio spectrum regulation. Coase illustrated how the widespread radio interference preceding the Radio Act of 1927 was a function of poorly defined property rights, rather than proof of the need for public ownership of the radio spectrum and draconian licensing policies. So long as ownership rights were well defined, license holders could bargain among each other in order to maximize spectrum utilization and minimize interference.

Coase’s paper transformed spectrum regulatory policy — not to mention regulatory economics, more generally — and in 1994 the FCC began using auctions rather than hearings and lotteries to assign new radio spectrum to firms. However, the existing spectrum allocations remain governed by regulations with their roots in the 1927 Act. As a result, the predominant regulatory regime assigns specific frequency “bands” for different types of services and then allocates the spectrum to firms, analogous to creating fictive tunnels in the ether.

However, in the modern context, thinking of radio licenses in terms of trains and tunnels overlooks the ability of modern receivers to delineate between different signals based on the frequency of the radio wave, the time of the transmission, the location of the transmitter, and even the direction of the transmission. Many different radio transmissions can exist in the same electrospace without interference. Adopting a more flexible regulatory regime, where incumbents can sell, rent, or share their allotted spectrum would go a long way to maximizing this scarce resource.

Some argue that this ability to send ever more data through the same spectrum bandwidth is reason not to repurpose spectrum from its current uses. This misses the core purpose of regulatory policy, which should be to ensure that spectrum is being put towards its most valuable use. Those firms that have the greatest demand for spectrum will be willing to pay the most; those which can more easily take advantage of the efficiency gains from technology improvement will purchase less, or sell their existing allocation.

However, at the end of the day, the best argument for making more wireless spectrum available is that not doing so slows job creation and weakens the economy. When local television and radio stations are sitting on spectrum that would be worth hundreds of times more if it were repurposed for wireless broadband, everyone loses. Making additional wireless spectrum available is the ultimate public policy magic trick: economic growth out of thin air.

Douglas Holtz-Eakin is the president of the American Action Forum and a former director of the Congressional Budget Office under President George W. Bush.

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