Working Paper No. 10-19:
The Case for Liberal Spectrum Licenses: A Technical and Economic Perspective

Author(s):

Thomas Hazlett, Evan Leo

Date Posted: April 2010

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Abstract:

The traditional system of radio spectrum allocation has inefficiently restricted wireless services.  Alternatively, liberal licenses ceding de facto spectrum ownership rights yield incentives for operators to maximize airwave value.  These authorizations have been widely used for mobile services in the U.S. and internationally, leading to the development of highly productive services and waves of innovation in technology, applications and business models.  Serious challenges to the efficacy of such a spectrum regime have arisen, however.  Seeing the widespread adoption of such devices as cordless phones and wi-fi radios using bands set aside for unlicensed use, some scholars and policy makers posit that spectrum sharing technologies have become cheap and easy to deploy, mitigating airwave scarcity and, therefore, the utility of exclusive rights.  This paper evaluates such claims technically and economically.  We demonstrate that spectrum scarcity is alive and well.  Costly conflicts over airwave use not only continue, but have intensified with scientific advances that dramatically improve the functionality of wireless devices and so increase demand for spectrum access.  Exclusive ownership rights help direct spectrum inputs to where they deliver the highest social gains, making exclusive property rules relatively more socially valuable.  Liberal licenses efficiently accommodate rival business models (including those commonly associated with unlicensed spectrum allocations) while mitigating the constraints levied on spectrum use by regulators imposing restrictions in traditional licenses or via use rules and technology standards in unlicensed spectrum allocations.