Spectrum Policy Wonderland

Prepared for delivery at the
Telecommunications Policy Research Conference
George Mason University School of Law, Arlington, VA
September 30, 2006.  

Abstract

A debate has raged in the telecommunications policy literature over the comparative merits of the property rights and commons models of spectrum management. In this debate, the property rights model has been treated as essentially identical to the licensed model, and the commons model as essentially identical to the unlicensed model. But in making this linkage the debate has been poorly specified. There are in fact two types of property rights models—an unlicensed and licensed one—with the unlicensed model overlapping with the commons model.

The debate moving forward should shift focus from the virtues of the property rights vs. commons models to the licensed vs. unlicensed property rights models. The key question to answer in this new debate is whether spectrum is an asset that is complementary to or independent of the possession of tangible property. If it is complementary to, then the appropriate model for spectrum management is the unlicensed property rights model; if it is independent of, it is the licensed property rights model.

Beginning with the creation of its unlicensed rules in 1938, the FCC has developed unlicensed policy in an ad hoc way in response to practical considerations. The result has been a system of unlicensed regulation that implicitly follows the unlicensed property rights model based on the recognition that at least some spectrum rights should be linked to the possession of tangible property. Only recently has the FCC attempted to apply property rights and commons theory to its allocation of spectrum. The theory was brilliant and powerful but it was misapplied to the FCC’s regulatory framework, which was based on a distinction between licensed and unlicensed spectrum. History may reveal that the empirically driven engineers rather than the theory driven economists had a better intuitive grasp of the fundamental economics of spectrum.

The distinction between the unlicensed and licensed property rights models would matter little if it weren’t for the fundamental economic forces leading to the proliferation of low power wireless devices. This change makes the economic case for the unlicensed property rights model increasingly compelling. Moreover, if the costs of transitioning between two types of property rights regime are quite substantial, it matters how the initial property rights regime is set up. Property rights theorists who argue that the costs are negligible haven’t marshaled the evidence necessary to make their case in this particular context.

One way to seek an efficient balance between the unlicensed and licensed property rights models is to allocate spectrum underlays following the unlicensed property rights model and spectrum overlays following the licensed property rights model. Whereas unlicensed property rights have conventionally been treated as secondary to licensed property rights, this regulatory regime would place them on a co-equal basis.

To the extent that an unlicensed property rights regime is desirable, management of such spectrum rights should transfer from the federal government to state and local governments. In particular, keeping enforcement in the hands of the federal government may be highly inefficient.