1 Secondary Markets in Radio Spectrum FCC Forum May 31, 2000 Washington, D.C.

2 The Wireless Craze, The Unlimited Bandwidth Myth, The Spectrum License Faux Pas, and the Punchline to Ronald Coase’s ‘big joke’ Thomas W. Hazlett University of California, Davis American Enterprise Institute

3 The Wireless Bandwidth Market Challenge, Redux In 1959 the FCC invited future Nobel economist Ronald Coase to testify about his proposal for market allocation of spectrum. First question --

4 “Is this all a big joke?”

5 “I know of no country on the face of the globe -- except for a few corrupt Latin American dictatorships – where the ‘sale’ of the spectrum could even be seriously proposed.” -- Referee’s Report on Coase (Rand Study with W. Meckling & J. Minasian, circa 1960)

6 The Road To Bandwidth Markets Public Interest Allocation Property Rights Bandwidth Markets

7 Policy should worry about Traversing the Regulatory Gauntlet (a hazard-strewn political Line of Death from Public Interest Allocation to Property Rights)

8 Policy should not worry about Spontaneous Combustion in the Marketplace Property Rights to spectrum will spark Bandwidth Markets w/o a rule making –Wireline bandwidth exchanges popping up everywhere –Fiber pipes create private property rights in spectrum

9 Deconstructing Property Rights flexible use (service definition) flexible technology (standards) flexible divisibility transferability (including liability) right to use unoccupied bands

10 Unleash the Cornucopia Full property rights for spectrum users Restrictions limited to interference contours Burden of proof shifts to those opposing entry –Liability rules –Streamlined standards, technical adjudication Generic antitrust, not by band classification

11 Plausible? Liberalization benefits consumers –Spectrum reforms since 1964 –PCS overlay rights –AM/FM sub-carrier frequency use –Long distance telephone microwave links –UHF Channels (1992 OPP paper) Miles to Go –TV Band (1952 technology in transition) –Blocked technologies such as UWB –“Crowded” spectrum vastly under-utilized

12 No. OrdenNo. Registro LA SUPERINTENDENCIA DE TELECOMUNICACIONES DE GUATEMALA Con base en el Artículo 57 del Decreto 94 ‑ 96 del Congreso de la República extiende Título de Usufructo de Frecuencia Banda o Rango de Frecuencias: Horario de Operación: Potencia máxima efectiva de radiación: Máxima intensidad de campo eléctrico o potencia máxima admisible en el contorno: Area Geográfica de influencia: Fecha de Emisión: Fecha de Vencimiento:

13 Policy Reforms to Encourage Markets

14 1. Spectrum Registry Easy to use spectrum allocation database Actual use (and users) defined Possible to decipher w/o counsel Public access

15 2.Voluntary Reallocation Overlay Rights –Shift spectrum reallocation to the market –Speed services to the public –Rules can help structure negotiation Underlay Rights –Low-power zones for emerging technologies –Entrants assume liability for interference –Cooperative or competitive market structure

16 3. Private provision of public goods –Competitive bidding for enterprise- or market-level communications systems –Price, terms & conditions (á la data processing contracts) –Band manager emerges with spectrum resources and obligation to serve (Nextel)

17 4. Privatize Rulemakings Set time table for Allocation Rival consortia submit NPRMs –Liability and Adjudication addressed FCC and other parties Comment “Best” Orders submitted by applicants Comments by non-FCC parties FCC selects Best of the Best Auction conducted for rights (if necessary)

18 Proposed Schedule for UWB Rulemaking in 2000 Draft NPRMsAug. 1 Comments (non-FCC)Sept. 1 Comments (FCC)Oct. 1 Final NPRMs submittedNov. 1 Comments (non-FCC)Dec. 1 FCC selection Dec. 24