Spectrum Reallocation and the National Broadband Plan

I. INTRODUCTION II. THE SPECTRUM REFORM CONSENSUS A. The Spectrum Reform Movement B. The Limits of the Modern Consensus III. THE RISING COSTS OF SPECTRUM INFLEXIBILITY A. The Growing Demand for Wireless Services B. The Effects of Innovation and Market Dynamism IV. THE CHOICES AHEAD A. Repurposing Commercial Spectrum: Flexible Rights and Secondary Markets vs. Administrative Reallocation 1. Costs and Delays of Administrative Reallocation 2. Creating Incentives for Incumbent Licensees to Vacate Underutilized Spectrum 3. Facilitating (or Operating) Secondary Markets 4. Defining Interference Standards 5. Defining Success in Spectrum Reallocation: Market Outcomes vs. Administrative Goals B. Privatizing Government Spectrum C. Other Policy Goals V. CONCLUSION I. INTRODUCTION For more than fifty years, economists and other academics have been calling for a more flexible, dynamic, market-oriented approach to the allocation and assignment of wireless spectrum rights. Policymakers have responded by implementing some meaningful reforms, including the use of auctions for spectrum assignment and the creation of more flexible and tradable licenses to allow spectrum to flow dynamically to its highest value uses. Taken together, the academic literature and the statements (and, to a somewhat lesser extent, the actions) of policymakers suggest the existence of a fairly well-formed and comprehensive consensus about key aspects of spectrum policy. The National Broadband Plan ("NBP" or "Plan"), (1) released in March 2010, emphasizes the importance of spectrum policy, and focuses on the need to reallocate spectrum from less efficient to more efficient uses. The NBP notes in particular that demand for mobile broadband services is growing rapidly, and sets a goal of making 500 MHz of additional spectrum available for mobile broadband uses within the next ten years. (2) The NBP proposes several approaches, including improving market transparency, accelerating the process by which government spectrum is brought to market, increasing flexibility in certain bands (e.g., Mobile Satellite Service, or "MSS"), increasing reliance on unlicensed spectrum, and having the FCC conduct "incentive auctions" to facilitate spectrum repurposing (e.g., of spectrum currently allocated to broadcast television). The details of these proposed policies will be defined in rulemaking proceedings that will affect the markets for mobile broadband and other communications services for years, if not decades, to come. The purpose of this paper is to evaluate the NBP's spectrum policy proposals in the context of the modern spectrum policy consensus. As discussed further below, the key points of the modern consensus include the following: (a) spectrum should be allocated so as to maximize the net economic benefits (public as well as private) flowing from its use; (3) (b) spectrum licenses should be flexible with respect to the technologies used and the services provided, subject to the ability to police interference efficiently; (c) spectrum should be tradable, so that spectrum allocations can adjust dynamically to changes in markets and technologies; and, (d) government users should face the opportunity costs associated with spectrum used for public purposes, and have incentives to transfer underutilized spectrum to the private sector. To be sure, the spectrum reform consensus is neither all-encompassing nor fully complete. For example, the question of how much spectrum should be allocated for exclusive use, as opposed to being managed through an open or "commons" approach, is hotly debated; (4) and, as discussed at length below, there are important unanswered questions about government's proper role in facilitating dynamic spectrum reallocation (i.e., in secondary markets and repurposing). (5) Upon review, the NBP's spectrum reform proposals track closely with the modern consensus in some areas, especially with respect to the Plan's emphasis on the importance of spectrum flexibility and trading. …