Satisfying the rapid demand growth for additional commercial spectrum presents challenges the Federal Communications Commission. While the Commission has conducted numerous spectrum auctions in recent years, it lacks a ready source for the much-needed spectrum in the low- and mid-bands.
By far, the largest, most promising source of mid-band spectrum suitable for repurposing to mobile wireless use is the C-Band, a 500 MHz swath of mid-band spectrum (3.7-4.2 GHz band) presently allocated for the provision of satellite communications. Satellite service providers, operating through the C-Band Alliance (“CBA”) consortium, have indicated that a large portion of this band could be quickly repurposed through a private sale. As is common, the plan faces some resistance, with much of the opposition preferring a public auction by the FCC rather than a private sale.
Missing in the C-Band debate is a cohesive economic framework to help policymakers think about the problem. To fill this gap, the economic staff at the Phoenix Center recently released a paper entitled Innovation In Spectrum Repurposing: The C-Band As A Principal-Agent Problem in which they appeal to principal-agent theory. The analysis considers whether the government, as the agent, should use the consortium of satellite incumbents, the agent, to conduct a private sale for the purpose of repurposing large portions of the C‑Band? And, if so, how should the agent compensate the principal?
Viewing the problem through this prism, their analysis demonstrates the following:
First, given the private information available to the satellite industry, it makes sense for the government to allow the consortium to serve as an agent in conducting the sale, thereby ensuring the rapid and efficacious repurposing of the band.
Second, compensation to the agent for its private information is efficient and not “unjust enrichment.”
Third, considering the possibility that the principal may demand compensation from the agent, any such compensation (i.e., a regulatory payment) should take the form of a fixed payment rather than a share of auction proceeds.
Fourth, while a public auction may be used to increase the government’s proceeds from repurposing the band, such enrichment is more than matched by a reduction in total economic welfare.
Satisfying the ever-increasing demand for mobile wireless services will require innovation, but such innovative activity must not be restricted to private parties. Chairman Ajit Pai once said, and disapprovingly so, that “it’s sometimes hard for government to be on the side of innovation.” Nonetheless, the government also must innovate, even if at the behest of private actors. As the authors contend, “privatizing a spectrum auction is an innovation—a new, efficient, and faster way to repurpose spectrum. It seems reasonable that when repurposing spectrum, the Commission should embrace the most efficient methods. The Commission now faces an opportunity to encourage an innovative approach to spectrum allocation and assignment; perhaps it should embrace it.”
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Lawrence J. Spiwak is the President of the Phoenix Center for Advanced Legal & Economic Public Policy Studies (http://www.phoenix-center.org), a non-profit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.