From Volume 79, Number 3 (March 2006)
The traditional U.S. spectrum allocation system has long been criticized – even by regulators – as overly rigid. To unleash innovative wireless technologies, the Federal Communications Commission (“FCC”) has gradually loosened government restrictions on airwave use. But the path to liberalization leads in alternative directions. One policy reform paradigm, championed by leading economists such as Ronald Coase, allows markets to allocate exclusively assigned spectrum use rights. A rival approach, advanced by advocates of an “open spectrum” such as Lawrence Lessig, favors allocating greater bandwidth for unlicensed use. In such bands, there is free entry by wireless users, provided they use regulator-approved devices that comply with protocols (including power limits) established by the government.
The FCC’s November 2002 Spectrum Policy Task Force Report called for greater reliance on both the exclusive and unlicensed models. Yet, considered in historical context, the FCC’s analysis veered decidedly toward more intense use of “spectrum commons,” abandoning previous agency goals to expand licensed allocations. Citing the “tremendous success” of unlicensed use of cordless phones and Wi-Fi access points, regulators have since argued that advanced wireless technologies create a new policy imperative. Because modern radios use sophisticated techniques for sorting out competing signals, “block allocations” are outdated.
The FCC sees the “spectrum commons” regulatory paradigm as suited to the new opportunities in wireless. In the wake of the spectrum report, it allocated additional 5 GHz bands for unlicensed use, and pursued several regulatory initiatives to dramatically expand bandwidth available for unlicensed devices. In contrast, new allocations for exclusively assigned, flexible-use spectrum rights (analogized as “property rights”) have stalled.
The FCC states that advanced wireless technologies yield valuable new opportunities to share radio spectrum on an unlicensed basis. Yet, the same advances increase opportunities for using exclusively assigned bands, where market data reveal that the most intense and complex frequency sharing actually occurs. Exclusive rights allow coordination of frequency use by competitive network operators; consumers generally find this a superior form of organization than that provided through regulated protocols, and overwhelmingly value marginal allocations of exclusively assigned rights more highly.
This Article examines tradeoffs in allocating spectrum for exclusive rights versus unlicensed use, focusing on an ongoing FCC rulemaking to create an “interference temperature.” This policy would permit unlicensed users to share bandwidth, including frequencies “exclusively” allocated to licensees, according to FCC rules. Our aim is to demonstrate that standard economic principles illuminate the path to proconsumer rules.