Anti-Competitive Behaviour in Spectrum Markets

Abstract

Maximising the opportunities for spectrum-using industries requires that spectrum be fully used rather than hoarded, and that no firm is able to use market power in spectrum licences to foreclose or limit competition in end-user markets. The development in recent years of the use of market methods, permitting change of use and secondary trading, to allocate and assign spectrum in place of more traditional administrative methods, has focussed attention on the risks of anti-competitive conduct in the newly created spectrum markets. This paper provides an overview of the risks. It first describes how traditional administrative approaches to spectrum have dealt with the problems of hoarding and barriers to entry associated with spectrum management (Section 1). Section 2 then looks at the degree to which first access to spectrum in general and then access to particular frequencies is indispensable for the provision of particular services in downstream end-user markets. The activities addressed in the paper produce electronic communications services, including mobile and wireless voice and data services (to which most of the analysis is directed), fixed links, broadcast transmission and satellite services.2 The focus in section 2 is on technical possibilities- what technologies or which radio frequencies are realistically capable, according to the laws of physics and economics, of producing the services in question. The further and considerable impact of regulatory restrictions, made by human intervention, is considered in Section 3.

The general conclusion from this analysis is that the opportunities for the strategic creation of barriers to entry via spectrum markets are likely to derive not so much from spectrum markets themselves, but (as is often the case in other contexts) from regulatory restrictions on the operation of the marketplace, particularly restrictions on changes of spectrum use, which balkanise markets and permit one or- more frequently- a small number of firms to restrict entry into downstream services. This reflects the general proposition that markets are an ‘increasing returns to scale’ allocation mechanism- the more agents and goods and services are involved, the better they work and the more competitive they are. This suggests that if many of the above-noted regulatory restrictions are transitory, the problem of anti-competitive conduct may diminish. Where competition problems do arise, a number of interventions are possible. Section 4 considers the options, including subjecting trades to scrutiny on competition grounds before they are accomplished, explicit restrictions on hoarding (including ‘use it or lose it’ rules), and spectrum caps, including caps on the stock of frequencies any firm can hold or on the amount any firm can acquire in the course of a new award. Section 5 contains a summary and conclusion.