# Presentation: 043322

## A Proposal for an FCC Spectrum Exchange

- Evan Kwerel
- Office of Strategic Planning and Policy Analysis
- Federal Communications Commission
- John Williams
- Spectrum Guru, Ret.

- Third Combinatorial Auction and Exchange  Conference
- Wye River, MD
- November 21-23, 2003

## Disclaimer

- The opinions expressed in this talk are those of the authors and do not necessarily represent the views of the FCC or any other members of its staff.

## Only about 7% (185 MHz) of Spectrum in 300-3000 MHz Range Is Fully Available to Market Today

**Cellular 2%**

**PCS 3%**

**SMR 1%**

## Another 15 % (413 MHz) for Flexible Use in the Pipeline 

## But...

- Heavily encumbered
- Fragmented in geographic and frequency domains
- Needs massive restructuring

## TV and DTV Stations that Encumber Channel 67 in EAG-1

## Percent of MHz-Pops Encumbered on TV Channels 60-69 in Northeast EAG

- C

- D

## Three or More TV Stations Encumber All Blocks in the 700 MHz Band in NYC

- D2

- C2

- PS

- PS

- C1

- D1

- 746

- 806

- 762

- 777

- Channel 59-69 TV Incumbents Within 100 Miles of New York City

- 792

- 752

- 747

- 782

- 60

- 61

- 62

- 63

- 64

- 65

- 66

- 67

- 68

- 69

- 59

**WBNE**

**WBPHTV**

**WPPX**

**WTICTV**

**WRNNTV**

**WACI**

**WMBCTV**

**WHSPTV**

**WHSITV**

**WHSETV**

**WFMZTV**

- Spectrum encumbered by:
- One station:
- Two stations:
- Three or more:

**WEDY**

## How to End the Spectrum Drought

- Property rights and markets
- Define flexible*, *exclusive and exhaustive spectrum rights
- Use markets to move spectrum to its highest value use
- FCC spectrum exchange during transition
- Simultaneous market mechanism to restructure fragmented spectrum
- Wholly voluntary for incumbents
- Incentives for incumbents to participate
- Reduces transaction costs
- Increases liquidity

## Proposal for Rapid Transition

**Flexibility**: reallocate restricted spectrum to flexible, exclusive use
**FCC spectrum exchange**: conduct series of large-scale, two-sided simultaneous auctions of spectrum *voluntarily* offered by incumbents together with any unassigned spectrum

## Proposal (continued)

**Incentives to participate**
- Immediately grant participants flexibility
- Allow participants to keep the proceeds from the sale of their spectrum
- Participating incumbents share in increased value from flexibility and value created by a rapid and efficient restructuring of the spectrum

**Notes:**
Provide incumbents with incentives to participate in FCC spectrum exchange

## Proposal (continued)

- Incumbents not harmed
**Non-participants:** allowed to continue current operations and would receive full flexibility in 5 years.
**Participants:** not required to sell to get immediate flexibility. Can buy back their licenses.
- Expect incumbents to participate
- Participation costs are low, nothing else to lose
- No flexibility withheld
- Participation serves efficiency by making explicit the opportunity cost of keeping spectrum.

## Initial Implementation

- 413 MHz in the 300 to 3000 MHz range
- Reduce current spectrum shortages for high demand uses

## Removing Barriers to Flexible Use Isn’t Enough

- Unassigned spectrum needs to be available for flexible use
- Need to reconfigure existing spectrum into tradable property rights
- Redefine interference limits in terms of outputs
- Some licenses dissolve into flexible overlay licenses

## Removing Barriers to Flexible Use Isn’t Enough (cont’d)

- Need to address coordination problem
- Put all highly interdependent spectrum up for sale at the same time
- Mechanism to combine spectrum into efficient packages
- Incentive problems may prevent efficiency-enhancing trades
- Interests of spectrum managers vs. interests of firm as a whole
- Incumbents with incentives to strategically hold out

## Who Runs the Exchange? 

- Why not a purely private spectrum exchange?
- Who sells FCC held spectrum?
- The FCC is in the best position to solve the coordination problem
- FCC holds unencumbered spectrum
- Little cost to adding licensed spectrum
- FCC has established credibility in conducting transparent auctions for spectrum rights

## Who Runs the Exchange?

- The FCC is in the best position to solve incentive problems of ensuring participation and mitigating hold-out problems
-  FCC regulatory authority over spectrum gives it more carrots (e.g., conditional flexibility) and sticks than private parties
- Solving the coordination problem helps solve the participation problem

## Remaining Issues

- Design of exchange mechanism
- Incumbents can bid on (and buy back) own licenses in in band-restructuring auction
- Exchange with rising bids and falling ask prices
- Role of FCC as seller of spectrum
- Defining flexible spectrum rights to promote liquidity in the spectrum exchange

## Remaining Issues

- Application of exchange to specific exclusively allocated bands
- Promoting efficient use of spectrum not exclusively assigned to private parties
- Public safety spectrum
- Public broadcasting spectrum
- Federal government spectrum
- Non-exclusive (e.g., private land mobile)
- Unlicensed spectrum (part 15)

## Slide 20