Innovation In Spectrum Repurposing: The C-Band As A Principal-Agent Problem
15 Pages Posted: 17 Jun 2020
Date Written: September 1, 2019
A consortium of satellite service providers have proposed to repurpose by private sale a large portion of a 500 MHz swath of mid-band spectrum known as the C-Band. As is common, the plan faces some resistance, with much of the opposition preferring a public auction rather than a private sale. In this BULLETIN, we evaluate the competing methods for repurposing the band by appealing to principal-agent theory where the government is the principal and the consortium of satellite incumbents is the agent. Our analysis demonstrates the following: First, given the private information available to the satellite industry, it makes sense for the government to allow the consortium to serve as an agent in conducting the sale, thereby ensuring the rapid and efficacious repurposing of the band. Second, compensation to the agent for its private information is efficient and not “unjust enrichment.” Third, considering the possibility that the principal may demand compensation from the agent, any such compensation (i.e., a regulatory payment) should take the form of a fixed payment rather than a share of auction proceeds. Fourth, while a public auction may be used to increase the government’s proceeds from repurposing the band, such enrichment is more than matched by a reduction in total economic welfare. Finally, our use of the C-Band as a case study in this paper does not restrict our analysis to the C-Band. If the CBA implements a private sale to repurpose large blocks of mid-band spectrum, then the Commission may use other incumbents as agents to efficiently repurpose other spectrum bands. Just as spectrum auctions were an important innovation in U.S. spectrum policy, conducting auctions or other similar transactions through private agents may be a sensible next step in the efficient allocation and assignment of spectrum rights.
Keywords: telecommunications, spectrum, C-band, principal-agent model
JEL Classification: L96
Suggested Citation: Suggested Citation