Interlicense Competition

policy paper | August 01, 2003

    Analysis Group Inc. Michael Rothkopf Professor Rutgers Business School; Coleman Bazelon Vice President

The right to use US radio frequency spectrum is extremely valuable. Unlike most property rights, licenses to use radio spectrum are granted for limited terms and carry significant restrictions on how the radio spectrum is used. Economic efficiency suggests that existing license rights should be expanded to give users the flexibility to redeploy spectrum to its most valuable use and to trade licenses or unused capacity on secondary markets. Distributing these expanded rights to use radio spectrum raises questions of both efficiency and equity. This paper proposes an auction mechanism for distributing additional usage rights: interlicense competition. Derived from an auction procedure used by the Interior Department for the auction of mining leases, this mechanism grants license relaxation rights using competition, while ensuring that the government still obtains the fair value of the licenses it is granting. Interlicense competition overcomes the fact that the holders of existing usage rights have a strong competitive advantage over any challengers. This auction mechanism could be a useful addition to the arsenal of tools available to the FCC. Its availability means that it is not necessary to give away spectrum to incumbents to gain the advantages of fully flexible license rights.

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