Transitioning to a Market Allocation of Spectrum

Evan Kwerel Office of Strategic Planning and Policy Analysis

Federal Communications Commission

Spectrum Policy in Guatemala and Latin AmericaFrancisco Marroquin University

Guatemala City, GuatemalaJune 9-10, 2005

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Disclaimer

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

• Talk is based on joint work with John Williams.

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Traditional Structure of Spectrum Rights

• Limited to specific uses (broadcasting)• Limited to specific technologies (no cellular in

700 MHz guard bands)• Limited to specific users (defense, public safety,

education)• Some spectrum not available to any users

(“white space” where not area-licensed)• Fragmented in geographic and frequency

domains

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Northeast EAG - 1

Great Lakes EAG - 4

Mid-Atlantic EAG - 2

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Federal Communications CommissionOffice of Engineering and Technology

Melvin C. Del Rosario

April 18, 2000

TV and DTV Stations on Channel 67 (Buffered)

Service

DTTV

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

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D2C2C1 D1

806 MHz762 777

TV Stations That Encumber Upper 700 MHz Spectrum (TV Channels 60-69) Within 100 miles of NYC

792752747 782

60 61 62 63 64 65 66 67 68 69TV Ch. 59

Notes:1. Frequency range 746 MHz to 806 MHz contains TV channels 60-69 that have been reallocated for

other uses subject to not causing interference to existing TV stations. 2. Arrows indicate frequency range encumbered because of potential co-channel or adjacent channel

interference to the indicated TV station over some portion of the area within 100 miles of NYC. 3. Shaded rectangles on the upper bar graph are the two paired commercial spectrum blocks (10 MHz

block C1/C2 and 20 MHz block D1/D2). 4. Blocks labeled “PS” are reserved for public safety use.5. The “Guard Bands” comprise a total of 6 MHz in four bands designated for commercial use subject

to special technical and operational restrictions to protect the public safety bands.

WBNE

WBPHTV

WPPX

WTICTV

WRNNTV

WACI

WMBCTV

WHSPTV

WHSITV

WHSETV

WFMZTVWEDY

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and

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rd B

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rd B

and

John WilliamsRevised: 9/7/2004

764 776 794746 MHz

PSPS

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and

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Property Rights Model

– Markets determine spectrum use and users– Exclusive licenses, clear rights and obligations– Exhaustively assigned (all areas, all spectrum)– Rights easily transferable, divisible, aggregatable– Flexible choice of services and technology– Competition in market for spectrum

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Transition: Assigning “White Space”Flexible Overlay Licenses

• Exhaustively assign area-wide blocks with interference protection for incumbent uses: “license the Swiss cheese, protect the holes”

• Licenses should be exclusive, flexible and transferable

• Define interference limits between overlay licensees in terms of out of band emissions, out of area emissions and in band power limits

• Protect incumbents against actual interference by setting limits on overlay licensees emissions at incumbents’ receivers

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Transition: Alternative Policies Towards Incumbents

• Give incumbents the right to stay– Limited to current narrowly defined rights (but if cleared

license dissolves into flexible overlay licenses), OR– Provide for flexible rights on spectrum currently encumbered

(OPP WP No. 27, 1992)• Give incumbents right to stay, but provide incentives to

leave– “Big Bang” proposal (OPP WP No. 38, 2002)

• Require incumbent to move after some time– With compensation (by whom & how much)

• By overlay licensees – PCS model (JLE, Oct. 1998)• From auction revenues – voucher proposal, AWS trust fund

– Without compensation – microwave on DBS, DTV?

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Big Bang: FCC Auction that Includes Incumbent Licenses

• Simultaneously auction spectrum voluntarily offered by incumbents together with any unassigned spectrum. Use package bidding.

• Participants – Get immediate flexibility– Can keep the proceeds from the sale of their licenses– Can buy back their licenses at no net cost – but can’t resell

immediately• Non-participants

– Do not receive full flexibility for significant time (e.g., 5 years)

– Allowed to continue current operations

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Vouchers: FCC Auction with Vouchers for Incumbents

• Incumbents given auction vouchers in exchange for turning back their licenses

• Value of vouchers determined in auction– Incumbents attributed spectrum quantities (MHz-

Pops) based on licenses turned back– Voucher value = attributed MHz-Pops X auction

prices/MHz-Pop of new licenses covering area of incumbent’s licenses

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Vouchers: FCC Auction with Vouchers for Incumbents (cont’d)

• Vouchers equivalent to cash– Can be used to pay winning bid in current or any subsequent

auction– Transferable and divisible

• Allows FCC to create new, fungible geographic area licenses suited to new uses – if mandatory or all incumbents participate voluntarily– No need to create licenses (geographic areas, frequencies)

based on legacy rights– Bidders would bid on spectrum with certain characteristics

(location, bandwidth, low power or high power), not specific frequencies, minimizing opportunity for destructive strategic behavior in auction

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Pros and Cons: Big Bang

• Pro: Incumbents can maintain status quo – “voluntary”• Pro: Uses “simple” one-sided auction mechanism• Con: FCC must define area licenses that approximate

initial spectrum rights– Difficult, especially when encumbered areas overlap– May not be able to define usable area licenses based on

incumbents rights for certain services, e.g. microwave– Allows bidding only on specific frequencies (not fungible

rights).

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Pros and Cons: Vouchers

• Pro: Allows FCC fresh start in defining and assigning spectrum rights – Clears entire band of incumbents– Can define new rights (geographic areas and frequency

blocks) without regard to crazy-quilt pattern of legacy rights– Can design highly competitive auction for fungible spectrum

rights – Minimizes strategic holdouts by incumbents to extent have

liquid market for fungible rights• Pro: Uses “simple” one-sided auction

mechanism• Con: Not voluntary, can’t maintain status quo

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Possible Barriers to Change

• Telecommunications lawyers and lobbyists– Diminished value of knowledge of administrative

process• Incumbents with flexible spectrum (PCS,

Cellular)– Some may lose from increased competition– Some may gain from lower cost of additional

spectrum

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Possible Barriers to Change

• Incumbents with restricted spectrum– Principal-agent problem– “Don’t let me sell my birthright”

• “Public interest” groups– Oppose “windfalls” to incumbents who clear

• Treasury (OMB, Congress, CBO)– May lose revenue from increasing supply of flexible

spectrum– May increase revenue from increasing value of

licenses by clearing incumbents more quickly

Thank you!Evan Kwerel

Office of Strategic Planning and Policy AnalysisFederal Communications Commission

Evan.Kwerel@fcc.gov