Market Mechanisms for Redeveloping Spectrum Evan Kwerel Office
- Slides: 20
Market Mechanisms for Redeveloping Spectrum Evan Kwerel Office of Strategic Planning and Policy Analysis Federal Communications Commission DIMACS Workshop October 7, 2004
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. Evan Kwerel 2
Only about 7% (185 MHz) of Spectrum in 300 -3000 MHz Range Is Fully Available to Market Today PCS 3% Cellular 2% SMR 1% Evan Kwerel 3
Another 15 % (413 MHz) for Flexible Use in the Pipeline Evan Kwerel 4
But… • Heavily encumbered • Fragmented in geographic and frequency domains • Needs massive restructuring Evan Kwerel 5
TV and DTV Stations that Encumber Channel 67 in EAG-1 Evan Kwerel 6
Evan Kwerel 7
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 • Big bang transition – All highly interdependent spectrum up for sale at the same time – Voluntary for incumbents but see opportunity cost – Incentives for incumbents to participate – Reduces transaction costs and increases liquidity – OSP WP 38 (www. fcc. gov/osp/workingp. html) Evan Kwerel 8
Alternative Big Bang Mechanisms • Auction that includes incumbents’ licenses. Incumbents can bid on their licenses at no net cost. • Auction where incumbents can get vouchers for turning back their licenses • Exchange where incumbents can offer licenses at declining ask prices Evan Kwerel 9
Mechanism 1: 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 Evan Kwerel 10
Mechanism 2: 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 Evan Kwerel 11
Mechanism 2: 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 Evan Kwerel 12
Mechanism 2: FCC Auction with Vouchers for Incumbents (cont’d) • Alternative design with “voluntary” participation – Allow incumbents to opt out and continue in current use. Opt-out spectrum limited to current use for significant period. – FCC can require non-participants to relocate to different part of auctioned band with costs paid from auction revenues or new licensees – Spectrum in cleared portion of band would be fungible in auction. Spectrum in relocation portion would not. Evan Kwerel 13
Mechanism 3: FCC Exchange • Incumbents can offer licenses at declining ask prices • David Parkes investigating alternative designs Evan Kwerel 14
Pros and Cons: Mechanism 1 • 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). Evan Kwerel 15
Pros and Cons: Mechanism 2 • 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 Evan Kwerel 16
Pros and Cons: Mechanism 3 • Pro: Allows incumbents to offer licenses and bid for replacement licenses within single package • Con – Requires developing more complex exchange mechanism – FCC must define area licenses that approximate initial spectrum rights – If we make flexibility conditional on participation, how do we define participation? Evan Kwerel 17
Potential Applications • Accelerated clearing of TV spectrum (700 MHz band) • Restructuring airport landing/takeoff rights (slot auctions) Evan Kwerel 18
Remaining Issues • Best formula for dividing revenues among sellers (FCC and incumbents) – With package bidding no unique price for rights sold by incumbents – Equity – Efficiency of allocation – Incentives for participation in auction – Myerson and Satterthwaite (1983) impossibility theorem: budget balanced, efficient, voluntary Evan Kwerel 19
Thank you! Evan Kwerel Office of Strategic Planning and Policy Analysis Federal Communications Commission Evan. Kwerel@fcc. gov (202) 418 -2045
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