Policy Goals for Spectrum Policy

1
Policy Goals for Spectrum Policy

• Efficiency
• put frequencies and related resources to highest
  value uses
• Issues
• externalities both positive (network
  externalities) and negative ( congestion of
  airwaves)
• transaction costs that are large may prohibit the
  spectrum from being put to optimal use and
  therefore some spectrum may be set aside

2
Policy Goals

• Equity
• goal of seeing that all parties are treated
  fairly
• relevant parties are service providers, consumers
  and the Treasury
• certain categories of firms - rural telephone
  companies, small businesses, and firms owned by
  women and minorities - should win some of the
  licenses

3
Goals

• Revenue maximization
• Governments can replace tax revenues with income
  from auctions
• Less distortionary

4
History of Spectrum Allocation

• Public Resource distributed in the public
  interest
• Comparative hearings were inefficient and costly
• Not efficient because government did not have
  enough information about the value of the
  spectrum to individual service providers
• Impact of lobbying lead to inefficient results,
  goal of protecting rents
• Perhaps easier to assure equity

5
From competitive hearings to lottery (1982)

• FCC encouraging entrepreneurial entry
• Overwhelmed by volume of applications
• Does a lottery meet efficiency and equity goals?

6
Auctions

• Assigns spectrum to those best able to use it
• Would capture part of value of the spectrum for
  the Treasury

7
Key concerns about auction design

• Discouraging collusion
• Encouraging entry
• Discouraging predatory behavior
• Good auction design is mostly good elementary
  economics. (Klemperer)

8
How does the simultaneous ascending auction work?

• Group of related licenses up at one time
• Awarded for 10 years, renewed at negligible
  charge may resell
• Spectrum cap to ensure competition
• Payment schedule
• Designated entities - bidding credits

9
Drawbacks to this type of auction

• Encourages collusion Example Mannesman and
  T-Mobile
• Allows punishment of rivals
• Entry not encouraged
• Winners curse more likely to impact entrants

10
Design Extremely Important to achieving these
goals

• Open bidding is generally better than a single
  sealed bid
• Bidders can bid more aggressively because they
  have better information
• May be more susceptible to collusion
• Sealed bid may lead to winners curse
• Sealed bid may be advantageous to new entrants

11
Performance assessment

• Revenues generated for governments
• Prices approximate market prices, similar prices
  for similar licenses
• Efficient license aggregation