Taxation by Condition: Spectrum Repurposing at the FCC and the Prolonging of Spectrum Exhaust

Phoenix Center Policy Paper Number 44

28 Pages Posted: 24 May 2013

See all articles by Thomas Randolph Beard

Thomas Randolph Beard

Auburn University - Department of Economics

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Michael L. Stern

Auburn University; Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: September 2012

Abstract

In this POLICY PAPER, we show how the Federal Communications Commission’s regulatory process may be used to impede the efficient functioning of a secondary market for commercial spectrum. In particular, we show that imposing (and threatening to impose) significant conditions when firms seek to repurpose spectrum from a low-value to a higher-value use acts as a “tax” and thus reduces the incentives of firms to exchange spectrum in the secondary market. As a result, “taxation by condition” will discourage the larger scale transactions necessary to resolve spectrum exhaust, though we may still observe many deals of a less material nature that will attract less attention and thus fewer conditions. Our analysis also reveals that in many cases the arguments to condition spectrum licenses based on “market power” concerns are misguided. Market power does not over-motivate licensees to repurpose spectrum. In fact, economic theory shows that a monopolist will repurpose spectrum to a degree less than or equal to a benevolent “social planner.” Accordingly, under the constant threat of spectrum exhaust, “taxing” efforts to repurpose spectrum is perhaps the worst of all policies. Instead, if the Commission is serious about alleviating exhaust for commercial spectrum, then barring legitimate competitive or interference concerns, the agency should expeditiously approve efforts to repurpose spectrum without extraneous conditions.

Keywords: Broadband, Mobile, Wireless, Cellular, Regulation, Spectrum

JEL Classification: L96

Suggested Citation

Beard, Thomas Randolph and Ford, George S. and Spiwak, Lawrence J. and Stern, Michael L., Taxation by Condition: Spectrum Repurposing at the FCC and the Prolonging of Spectrum Exhaust (September 2012). Phoenix Center Policy Paper Number 44. Available at SSRN: https://ssrn.com/abstract=2209867

Thomas Randolph Beard

Auburn University - Department of Economics ( email )

415 W. Magnolia
Auburn, AL 36849-5242
United States

George S. Ford (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

HOME PAGE: http://www.phoenix-center.org

Michael L. Stern

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

Phoenix Center for Advanced Legal & Economic Public Policy Studies

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

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