![Page 1: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/1.jpg)
Spectrum Markets are Robust, When You Remember to Feed Them
Thomas W. Hazlett
Professor of Law & EconomicsGeorge Mason University
Spectrum Markets: Challenges AheadConference @ the Kellogg School of
ManagementNorthwestern University
June 2-3, 2011
![Page 2: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/2.jpg)
Killer App of 2007
June 2, 2011Kellogg Conf. * Spectrum Markets 2
![Page 3: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/3.jpg)
Steve Buys Spectrum• contracts with carriers
• carriers’ liberal control rights in CMRS enable
• not “exclusive use” but intensely shared • right to exclude protects network
investment
• purchase spectrum + network access• efficient bundles• vertical integration of tight complements• naked license sales - tip of the iceberg
June 2, 2011Kellogg Conf. * Spectrum Markets 3
![Page 4: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/4.jpg)
Spectrum Secondary Markets
Nascent?• Spectrum an input into network
services
• Wireless services two-sided output market• subscribers• vendors (devices, services, apps)• piggyback networks (MVNO, M2M)
June 2, 2011Kellogg Conf. * Spectrum Markets 4
![Page 5: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/5.jpg)
Robust Secondary Markets
June 2, 2011Kellogg Conf. * Spectrum Markets 5
![Page 6: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/6.jpg)
Exhaustive Rights for Markets?
• FCC: yes, rights need to be clearly and exhaustively defined for markets to work
• FCC: we have never defined “harmful interference,” the key border condition
• FCC: mobile markets work great, bring innovation & growth to the economy
June 2, 2011Kellogg Conf. * Spectrum Markets 6
![Page 7: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/7.jpg)
Rights Definition Minimalism
• TUFs (titulo de usufructo de frecuencia) in Guatemala specify
• (1) frequency band • (2) hours of operation • (3) maximum power transmitted • (4) maximum power emitted at the border
of adjacent frequencies • (5) geographic territory • (6) duration of right (beginning and ending) • the market works
June 2, 2011Kellogg Conf. * Spectrum Markets 7
![Page 8: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/8.jpg)
3G Coverage in Central America
(courtesy of Amazon Kindle)
http://client0.cellmaps.com/viewer.html?cov=1
![Page 9: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/9.jpg)
October 20102G coverage light purple3G coverage dark purple
![Page 10: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/10.jpg)
Great Advantages
• liberal use rights let parties bargain
• free entry
• quick adjudication of border issues • time limits and arbitration procedures
specified
• transparency
June 2, 2011Kellogg Conf. * Spectrum Markets 10
![Page 11: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/11.jpg)
Spectrum Contours “Hard”?
• stochastic emissions
• uncertainty in identifying conflicts
• like land, IP, water, fish or oil deposits?
• irrelevant claim• difficult line drawing for administrators,
too• Coase 1959 • costs of the “price system” vs. regulation
June 2, 2011Kellogg Conf. * Spectrum Markets 11
![Page 12: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/12.jpg)
Simple Rights (C. Jackson
2005)
June 2, 2011Kellogg Conf. * Spectrum Markets 12
![Page 13: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/13.jpg)
Difficult (overlapping complements)
June 2, 2011Kellogg Conf. * Spectrum Markets 13
![Page 14: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/14.jpg)
Anti-commons Tragedy
• a rights assignment failure
• fragmentation produces excessive t-costs
• can be solved ex ante by regulators
June 2, 2011Kellogg Conf. * Spectrum Markets 14
![Page 15: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/15.jpg)
Ownership Integration
June 2, 2011Kellogg Conf. * Spectrum Markets 15
![Page 16: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/16.jpg)
Alternatively, Administrative Restrictions
June 2, 2011Kellogg Conf. * Spectrum Markets 16
![Page 17: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/17.jpg)
Canadian White Space
June 2, 2011Kellogg Conf. * Spectrum Markets 17
![Page 18: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/18.jpg)
Killer App of 1952
June 2, 201118Kellogg Conf. * Spectrum Markets
![Page 19: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/19.jpg)
Anti-commons Tragedies
June 2, 2011Kellogg Conf. * Spectrum Markets 19
![Page 20: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/20.jpg)
2.5 GHz (ITFS/MMDS
EBs/BRS)
June 2, 2011Kellogg Conf. * Spectrum Markets 20
![Page 21: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/21.jpg)
XM-WCS (2006)
June 2, 2011Kellogg Conf. * Spectrum Markets 21
![Page 22: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/22.jpg)
XM buys WCS licenses
• July 14, 2005
• NAB letter• The proposed transaction is part of a
longstanding pattern of deception by the satellite radio industry. In 2003, while publicly claiming it had no plans to insert local content on its network of terrestrial repeaters, XM spent months seeking a patent for technology to do just that.
• FCC blocked merger
June 2, 2011Kellogg Conf. * Spectrum Markets 22
![Page 23: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/23.jpg)
Efficient Rights• standard templates – e.g., CMRS
• don’t worry about exhaustive perfection
• large band allocations• combinatorial auctions help efficient
aggregation
• no service, technology, business restrictions
• overlays for bands littered with incumbents and white spaces
June 2, 2011Kellogg Conf. * Spectrum Markets 23
![Page 24: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/24.jpg)
T-costs and the Nirvana Fallacy
• hold-outs and bargaining costs are positive
• everywhere
• analysis: overlays v. gov’t reallocation
• remembering: market t-costs highly sensitive to policy rules
June 2, 2011Kellogg Conf. * Spectrum Markets 24
![Page 25: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/25.jpg)
U.S. CMRS
• 50,866 licenses (2003)
• 1,122 (AWS 2006)
• 1,099 (700 MHz)
• 734 cellular markets
• 493 BTAs
• 51 MTAs
June 2, 2011Kellogg Conf. * Spectrum Markets 25
![Page 26: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/26.jpg)
50,000+ deals later (Stifel Nicolaus 4.15.08)
June 2, 2011Kellogg Conf. * Spectrum Markets 26
![Page 27: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/27.jpg)
Emptying the Spectrum (TV Band) Warehouse One Box at a Time • 1953
• 81 channels (486 MHz)
• 1982 needed bandwidth for cellular• 67 channels (402 MHz)
• 2009 needed bandwidth for 3G/4G licenses• 49 channels (294 MHz)
• 2015 need bandwidth for ‘mobile data tsunami’• 29 channels (174 MHz)
June 2, 2011Kellogg Conf. * Spectrum Markets 27
![Page 28: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/28.jpg)
Case-by-Case is a Long March
June 2, 2011Kellogg Conf. * Spectrum Markets 28
FCC, National Broadband Plan (March 2010), Chapter 5.
![Page 29: Spectrum Markets are Robust, When You Remember to Feed Them Thomas W. Hazlett Professor of Law & Economics George Mason University thazlett@gmu.edu Spectrum](https://reader038.vdocuments.net/reader038/viewer/2022110206/56649cdc5503460f949a781f/html5/thumbnails/29.jpg)
Standardized Overlays
•auction secondary rights using liberal template •vest incumbents•buy-outs, partnerships eliminate border wars •rights enable capex to create band clearing
•side payments for alternative solutions•cable/satellite carriage to move TV stations
•overlay licensees internalize cost of delay•efficient alternative to administrative process
June 2, 2011Kellogg Conf. * Spectrum Markets 29