OSP Working Paper 28 (Nov 1992) examines the cost structure of proposed personal communications services (PCS) to assess the potential spectrum requirements of these new services. The cost model developed for this report estimates the costs of building and operating a new PCS network, as well as the costs of providing PCS using existing infrastructure such as the telephone, cable television, and cellular telephone networks.
Based on these estimates, Reed finds 1) there are economies of scope between PCS and each of these services, 2) there is no justification for limiting the number of licenses to the PCS spectrum allocation size to implement low-cost PCS systems. He recommends that, because 20 MHz may not be enough spectrum for all PCS applications or in those areas where high densities of incumbent microwave users exist, PCS license holders should be permitted to consolidate licenses up to a 40 MHz limit.
Reed also finds that, because of the economies of scope that can be achieved, consumers could benefit from allowing cellular and local telephone companies to hold at least some PCS spectrum if a sufficient number of PCS competitors exist. He therefore recommends that cellular operators be permitted to acquire up to 10 MHz of spectrum from new PCS licensees, an amount that was found to be sufficient for cellular providers to realize these economies of scope.