Market Mechanisms for Redeveloping Spectrum Evan Kwerel Office of Strategic Planning and Policy...

Market Mechanisms for Redeveloping Spectrum

Evan KwerelOffice of Strategic Planning and Policy Analysis

Federal Communications Commission

March 11, 2004Harvard University

Evan Kwerel WP_38_Presentation.3.11.04

2

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.


3

Only about 7% (185 MHz) of Spectrum in 300-3000 MHz Range Is Fully Available to Market Today

Cellular 50 MHz

PCS 120 MHz

SMR 15 MHz

Other 2545 MHz

Cellular 2%PCS 3%

SMR 1%


4

Another 15 % (413 MHz) for Flexible Use in the Pipeline

From Gov't, MSS and

others (145 MHz)

5%

From TV Channels

52-69 (78 MHz)

3%

From MDS/ITFS (190 MHz)

6%


5

But…

• Heavily encumbered

• Fragmented in geographic and frequency domains

• Needs massive restructuring


6

Northeast EAG - 1

Great Lakes EAG - 4

Mid-Atlantic EAG - 2

676767676767676767676767676767676767

676767676767676767

676767676767676767

676767676767676767

676767676767676767676767676767676767

666666666666666666

666666666666666666666666666666666666

666666666666666666666666666666666666

666666666666666666666666666666666666

666666666666666666

686868686868686868

686868686868686868

686868686868686868

686868686868686868

686868686868686868

686868686868686868686868686868686868

Federal Communications CommissionOffice of Engineering and Technology

Melvin C. Del Rosario

April 18, 2000

TV and DTV Stations on Channel 67 (Buffered)

Service

DTTV

TV and DTV Stations that Encumber Channel 67 in EAG-1


7

Percent of MHz-Pops Encumbered on TV Channels 60-69 in Northeast EAG

Percent of Pops Encumbered in EAG1 (Northeast) on Paired Channels 60-69 (buffered).

Total Pops in Area = 41,569,094

65.53

77.30

85.0382.39

74.88

0

10

20

30

40

50

60

70

80

90

100

60/65 61/66 62/67 63/68 64/69

C D


8

D2C2PS PSC1 D1

746 806

762 777

Three or More TV Stations Encumber Parts of All Blocks in the 700 MHz Band in NYC

Channel 59-69 TV Incumbents Within 100 Miles of New York City792752747 782

60 61 62 63 64 65 66 67 68 6959

WBNE

WBPHTV

WPPX

WTICTV

WRNNTV

WACI

WMBCTV

WHSPTV

WHSITV

WHSETV

WFMZTV

Spectrum encumbered by:

One station:

Two stations:

Three or more:

WEDY


9

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

• FCC spectrum exchange during transition– Simultaneous market mechanism to restructure

fragmented spectrum– Wholly voluntary for incumbents– Incentives for incumbents to participate– Reduces transaction costs– Increases liquidity


10

Proposal for Rapid Transition

• Flexibility: reallocate restricted spectrum to flexible, exclusive use

• FCC spectrum exchange: conduct series of large-scale, two-sided simultaneous auctions of spectrum voluntarily offered by incumbents together with any unassigned spectrum


11

Proposal (continued)

• Incentives to participate– Immediately grant participants flexibility – Allow participants to keep the proceeds from

the sale of their spectrum– Participating incumbents share in increased

value from flexibility and value created by a rapid and efficient restructuring of the spectrum


12

Proposal (continued)

• Incumbents not harmed– Non-participants: allowed to continue current

operations and would receive full flexibility in 5 years. – Participants: not required to sell to get immediate

flexibility. Can buy back their licenses.

• Expect incumbents to participate– Participation costs are low, nothing else to lose– No flexibility withheld– Participation serves efficiency by making explicit the

opportunity cost of keeping spectrum.


13

Initial Implementation

• 413 MHz in the 300 to 3000 MHz range

• Reduce current spectrum shortages for high demand uses


14

Removing Barriers to Flexible Use Isn’t Enough

• Unassigned spectrum needs to be available for flexible use

• Need to reconfigure existing spectrum into tradable property rights– Redefine interference limits in terms of outputs– Some licenses dissolve into flexible overlay

licenses


15

Removing Barriers to Flexible Use Isn’t Enough (cont’d)

• Need to address coordination problem– Put all highly interdependent spectrum up for sale at the

same time – Mechanism to combine spectrum into efficient

packages

• Incentive problems may prevent efficiency-enhancing trades– Interests of spectrum managers vs. interests of firm as a

whole– Incumbents with incentives to strategically hold out


16

Who Runs the Exchange?

• Why not a purely private spectrum exchange?– Who sells FCC held spectrum?

• The FCC is in the best position to solve the coordination problem– FCC holds unencumbered spectrum

– Little cost to adding licensed spectrum

– FCC has established credibility in conducting transparent auctions for spectrum rights


17

Who Runs the Exchange?

• The FCC is in the best position to solve incentive problems of ensuring participation and mitigating hold-out problems– FCC regulatory authority over spectrum gives

it more carrots (e.g., conditional flexibility) and sticks than private parties

– Solving the coordination problem helps solve the participation problem


18

Remaining Issues

• Design of exchange mechanism– Incumbents can bid on (and buy back) own

licenses in in band-restructuring auction– Exchange with rising bids and falling ask prices– Role of FCC as seller of spectrum

• Defining flexible spectrum rights to promote liquidity in the spectrum exchange


19

Remaining Issues

• “Special” categories of exclusively licensed bands– Public safety spectrum

– Public broadcasting spectrum

– Federal government spectrum

• Spectrum not exclusively licensed to private parties– Non-exclusive (e.g., private land mobile)

– Unlicensed spectrum (part 15)


20

Current Focus:MDS/ITFS Band Restructuring

• 200 megahertz of spectrum below 3 GHz– 2500-2690 MHz and 2150-2162 MHz– More total spectrum than cellular and PCS– International 3G band

• Mostly in low value uses, e.g., one-way video services• Spectrum highly fragmented

– In geography - Small geographic and site licenses (geography splintered)

– In frequency - Interleaved licensing

• Most ITFS spectrum leased to MDS • Secondary markets active, but limited by transactions cost


21

A1 A2 A3 A4

B1 B2 B3 B4

C1 C2 C3 C4

D1 D2 D3 D4

E1 E2 E3 E4

F1 F2 F3 F4

G1 G2 G3 G4

H1 H2 H3

A

J band

K

bandB C D E F H GA B C D E F G

Current Channel Plan

Coalition Band Plan

resp.

16.5 megahertz blocks 16.5 megahertz blocks

Alternative Band Plans


22

MDS/ITFS Exchange Proposal

• Give incumbents new spectrum rights as defined in coalition proposal

• Hold a simultaneous spectrum exchange for “white space” and the new rights held by incumbents

• Nobody moves until after the exchange closes


23

MDS/ITFS Issues with Exchange Proposal

• Incentive to participate

• Lease arrangements – who is authorized to sell rights?

• Market liquidity and holdouts

• License areas –crazy quilt pattern based on service areas of ITFS site licenses

• Auction design


24

MDS/ITFSBand Clearing Vouchers

• Incumbents turn in their spectrum licenses in exchange for vouchers

• Incumbents could opt out of voucher plan and receive a 6 MHz high power channel that closely matches their current service area. ITFS opt outs get moving costs from auction winners.

• FCC creates new, unencumbered geographic area licenses suited to new uses


25

MDS/ITFSVoucher Valuation

• Vouchers equal to auction value of spectrum “attributed” to incumbents under new band plan– Each incumbent attributed spectrum quantities

(MHz-Pops) based on Coalition plan or a modified plan

– Voucher value equal to MHz-Pops attributed to incumbent multiplied by the auction prices per MHz-pop in incumbent’s service areas


26

MDS/ITFSVouchers Equivalent to Cash

• Vouchers could be used to pay winning bid in MDS/ITFS or any subsequent auction

• Vouchers are transferable and divisible• Vouchers allow incumbents that no longer

want to maintain spectrum holdings to fund educational and communications needs (consistent with Commission’s original intent in allowing ITFS leasing)


27

MDS/ITFSVoucher Proposal Auction Design

• FCC holds simultaneous auction w/ package bidding for all MDS/ITFS spectrum

• 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


28

Benefits of Voucher Proposal Compared to Exchange Proposal

• Clears all spectrum designated for low power use– Puts all the spectrum in low power segments of band in

market at the same time– Allows FCC to choose efficient new license areas

better suited to low power cellular-like uses

• Eliminates leases and associated bargaining issues• Eliminates strategic hold-out problems• Increases market liquidity w/ fungible spectrum• Can use one-sided auction mechanism


29

Costs of Voucher Proposal Compared to Exchange Proposal

• Not voluntary

• Incumbents may not be able to precisely replicate current service areas

• Requires FCC to determine metric for spectrum rights


30

Thank YouFor More Information

• OSP Working Paper No. 38 www.fcc.gov/osp/workingp.html

• [email protected]

http://www.fcc.gov/osp/workingp.html

Market Mechanisms for Redeveloping Spectrum Evan Kwerel Office of Strategic Planning and Policy...

Documents

Transcript of Market Mechanisms for Redeveloping Spectrum Evan Kwerel Office of Strategic Planning and Policy...