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Working Paper

A Proposal for a Rapid Transition to Market Allocation of Spectrum

Evan Kwerel and John Williams

OSP Working Paper 38 (Nov 2002) proposes a methodology for efficiently restructuring a large amount of encumbered spectrum.  To facilitate the rapid transition from administrative allocation of spectrum to market allocation, the authors propose that the FCC (1) reallocate restricted spectrum to flexible use; (2) conduct large-scale, two-sided auctions of spectrum voluntarily offered by incumbents together with any unassigned spectrum held by the FCC, and (3) provide incumbents with incentives to participate in such “band restructuring” auctions by immediately granting participants flexibility and allowing them to keep the proceeds from the sale of their spectrum. Incumbents choosing not to participate would be allowed to continue current operations and would receive full flexibility in 5 years.

Auction participants would stand to benefit from the increased value of their spectrum due to immediate flexibility and efficient restructuring. An incumbent would not be required to sell to get flexibility as long as it participates in the auction.  Even if a license is not sold, the simple act of including the spectrum in the auction would make the opportunity cost of holding a license more apparent.  By ensuring that most interdependent spectrum is up for sale at the same time, this proposal would facilitate a rapid and efficient restructuring of spectrum rights and use.  The authors propose an initial implementation that in as little as 2 years could restructure 438 MHz of this most valuable spectrum, increasing the total available for market allocation from 7 percent to 23 percent.

Issued: November 2002
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