Use the market to allocate spectrum

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But under the legacy rules that apply, current holders of the broadcast spectrum cannot simply switch their spectrum to more valuable uses or sell it to others who could.  There is no market mechanism available to reallocate the broadcast spectrum to higher-valued uses.  The legislation would provide such a mechanism.
 
One threat to the success of these incentive auctions, however, is a push by some advocacy groups and technology companies to designate for “unlicensed” uses a significant portion of the spectrum freed-up by an incentive auction.  This would represent a big step backward and would greatly diminish the benefits of incentive-auction legislation.
 
Purchasers of spectrum through an FCC auction receive an “exclusive license” allowing them to use the spectrum for whatever purpose they want, so long as they don’t interfere with other licensees.  Those uses can change as new technologies emerge—e.g., as subscription TV overtakes over-the-air TV.  This is why this market-based system is flexible and can be expected to achieve an efficient allocation over time.  Moreover, these quasi-property rights are necessary for providers to invest the tens of billions of dollars necessary for advanced wireless services.
 
Under the unlicensed model, the FCC establishes rules—such as power limits for approved devices—under which any device and any user can operate.  While this approach has yielded benefits—WiFi most notably—as with the legacy command-and-control model, there is no market mechanism in an unlicensed regime to move spectrum to its highest-valued uses.  It is also extremely difficult to determine the opportunity cost of allocating spectrum to unlicensed uses, and no way—other than relative lobbying clout—to determine how much, if any, should be so allocated.
 
Proponents of the unlicensed model claim that more unlicensed spectrum is needed for the development of new technologies and, moreover, unlicensed spectrum must be set aside by fiat because it is not feasible for every user of these products to purchase his or her tiny sliver of spectrum.  This argument is a straw man.  
 
In a licensed regime, end users do not need to purchase spectrum.  Instead, service providers buy it.  Similarly, if companies that build devices using unlicensed spectrum saw a potentially large market, they could bid for spectrum and allow unlicensed devices to operate in it.  In principle, several such companies could bid collectively, just as many cable companies did to buy a swath of licensed spectrum.

Consumers would simply purchase the device, which would incorporate the right to utilize the necessary spectrum, as they do now.  The important point is that a licensed regime is perfectly capable of bringing about the types of innovations that have been introduced in the unlicensed spectrum simply because it is available. 
 
Finally, setting aside spectrum for unlicensed uses would impose significant budgetary costs, which would run counter to the current deficit-cutting focus in Congress.  The Congressional Budget Office estimates that incentive auctions would yield about $16 billion assuming proposals on the table to allocate spectrum and money to a public safety network are adopted.  The net contribution of incentive auctions to deficit reduction would be reduced substantially if any significant part of the spectrum is not auctioned and instead is set aside for unlicensed uses.
 
So, the decision before Congress is really quite simple:  if it wants to maximize both economic efficiency and deficit reduction, it will reject calls to increase the amount of unlicensed spectrum.  Congress can best ensure continued innovation in wireless communications by supporting the allocation of spectrum through the marketplace.
 
Thomas M. Lenard is president of the Technology Policy Institute.