Cellular Competition and the Weighted Spectrum Screen

Abstract

If one or two cellular carriers gain control of enough spectrum, they may be able to prevent current and potential rivals from getting the spectrum needed to compete effectively. Thus, regulators typically attempt to protect competition through some form of limit on how much spectrum any one carrier can hold in the form of a spectrum cap or a spectrum screen. The amount of spectrum a carrier holds in a given market has been determined by simply adding the bandwidths of all licenses held in that market, and ignoring the frequency associated with each license. However, the physical properties of spectrum depend on frequency, and this greatly affects the costs a carrier must incur for infrastructure and the quality of its coverage. Thus, a policy that considers bandwidth but not frequency is problematic, and likely to become more so as spectrum at higher and higher frequencies become available to cellular carriers. This paper proposes the idea of measuring the amount of spectrum held by a carrier in a given market with a weighted sum of the bandwidths of all licenses held, where weights are a function of frequency. The motivation for adopting such an approach is explored from both a technical and economic perspective. Engineering-economic analysis shows that frequency has a tremendous impact on infrastructure cost in regions where population density is low, and a more modest impact in regions where population density is greater. The importance of frequency is also reflected in spectrum auction prices. Today, an appropriate weighting scheme would give significantly higher weights to lower frequencies. Should radios ever become sufficiently flexible that the number of bands in which a device operates has negligible impact on cost, regulators might consider establishing different weighting functions for different markets.

Keywords: spectrum, cellular, competition, spectrum screen, spectrum cap, market concentration

JEL Classification: L96, D43, L41, L51, L13, K21, K23