A founding principle of The Hamilton Project’s economic strategy is that long-term prosperity is best achieved by fostering economic growth and broad participation in that growth in a changing global economy. One important way to fulfill the goals of this strategy is to encourage the efficient allocation of our nation’s resources to maximize economic growth and to foster innovation. In a new policy memo, The Hamilton Project considers the economic challenge of more-efficient allocation of wireless spectrum, which is critical to our modern information economy, as well as to national security, defense, and first responders.
Access to wireless spectrum is an essential input for individuals, the wireless industry, and the U.S. economy as a whole. Wireless devices—such as television, cell phones, Wi-Fi networks, car radios, GPS devices, and energy grid controls—use electromagnetic signals in the radio frequency range. This range is known as wireless (or radio) spectrum. The use of wireless systems is also critical to public-sector priorities. Providing public goods like national defense and public safety requires the effective use of wireless spectrum. Military satellites rely on spectrum to send data, police need radio channels to communicate, educational institutions depend on wireless applications, and air traffic controllers use spectrum to track and manage aircraft.
Due to technological limits, today’s wireless devices can operate effectively using only a limited range of frequencies. These technological limits constrain the amount of spectrum available for use at any one time. This presents the classic economics problem of how to efficiently allocate a scarce good, which in this context refers to the rights to operate radio systems. An important goal of policy should be to facilitate the allocation and reallocation of wireless spectrum to realize the massive economic value of usable spectrum.
In our policy memo, we highlight four policy challenges hampering the economic potential of wireless spectrum:
1. Inefficient allocation of spectrum operating rights. The first and most basic economic issue is how to maximize the utilization of wireless spectrum by those who have the right to use it. Under the status quo, vast portions of the wireless spectrum are allocated to entities that allow it to sit unused or underutilized. Some economists characterize spectrum as an infinitely renewable resource because spectrum use today does not diminish its value in the future. As a result, any portion of spectrum left idle can be classified as wasted or inefficiently used. There is opportunity to improve spectrum allocation by ensuring that the rights to use wireless spectrum belong to those who will use it most productively.
2. Underinvestment in high-quality signal transmission and reception technology. Transmissions in a neighboring band can reduce service quality. This creates a situation where signal strength is a “negative externality” since one spectrum operator’s signal is another operator’s interference. Poor receivers also impose a negative externality on those operating in a neighboring band because they force neighbors to operate at low power in order to avoid causing harmful interference. High-quality receivers can compensate for strong signals in an adjacent band; better receivers allow spectrum operators to use wireless spectrum more intensively and derive more economic value from each megahertz of wireless spectrum. In general, the current system of spectrum regulation does not incentivize users or device manufacturers to invest in high-quality receivers, leading to less intensive utilization of spectrum.
3. Reconciliation of government spectrum uses and private sector demand. A third challenge for spectrum policy is how to realize the economic value of spectrum operation for private firms and consumers without compromising key government priorities. Many government agencies hold rights to operate wireless systems, but do not make full use of their spectrum rights allocation. Recent technological developments, however, have rendered possible the “dynamic sharing” of wireless spectrum between commercial users and government users that hold spectrum rights. This allows commercial users to use otherwise idle spectrum without jeopardizing government priorities.
4. Moving beyond “Command-and-Control” to Licensed and Unlicensed Use of Spectrum. A fourth challenge is to determine how to move beyond the command-and-control paradigm and establish the appropriate mix of licensed versus unlicensed spectrum use. Licensing grants the license holder the right to exclude others from operating in that frequency band. Unlicensed spectrum implies a commons model of property, where access to a spectrum frequency is not excludable and anyone can operate in that frequency band so long as the equipment they use meets FCC standards. Traditional users of unlicensed spectrum include cordless telephones and baby monitors. Newer technologies that take advantage of unlicensed spectrum include, for example, Wi-Fi, Bluetooth, and electricity meters. Whereas licensed regimes concentrate the economic benefits of the license in the hands of the license holder, the benefits of unlicensed regimes are diffuse and accrue to anyone who chooses to use unlicensed spectrum. Determining how much spectrum to allocate to unlicensed versus licensed property regimes will likely be an enduring spectrum policy debate with substantial economic stakes.
Wireless operations play a key role in the modern economy, a role that will only increase in importance as innovation delivers new wireless technology. The proliferation of wireless technology and the resulting “spectrum crunch” have called old regulatory paradigms into question. Fresh, new thinking on spectrum policy is required to foster innovation and support greater growth for our technologically dependent economy. With demand for wireless applications showing no signs of slowing its explosive upward trajectory, unlocking the full value of the wireless spectrum has never been a more pressing economic challenge.
The Hamilton Project’s full policy memo, The Economic Promise of Wireless Spectrum is available on our website.
On March 24th, The Hamilton Project will host a forum and release a new policy proposal by authors Pierre de Vries and Phil Weiser. Their proposal aims to improve the allocation and adjudication of wireless spectrum by redesigning regulations and facilitating the trade of spectrum resources through the use of market forces. The new proposal will be available on The Hamilton Project website (www.hamiltonproject.org) at 10:00 a.m. ET on Monday, March 24th.
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