Property Rights and Wireless License Values
56 Pages Posted: 1 Apr 2004
Date Written: March 2004
Property rights to provide wireless services are severely truncated, with licenses typically defining services, technologies, and business models. Economists have long advocated liberalization, allowing wireless operators to optimize inputs and outputs subject only to airwave interference limits. This extension of rights promotes efficiency, but also prompts equity questions regarding windfalls. Additional rights allow greater productivity which, by itself, increases licensee profits. Yet reforms that grant flexibility to multiple licensees simultaneously reduce entry barriers. The net windfall may be positive or negative. This paper tests the direction of license value changes for regimes that decisively shift toward property rights in radio spectrum by analyzing prices paid in cell-phone license auctions since the mid-1990s. This unique data set encompasses over 1,400 licenses assigned by competitive bidding in 42 auctions held in 27 countries. Licenses awarded by regimes with expansive spectrum property rights generate winning bids 38% less than other licenses, adjusting for supply and demand factors. This evidence of negative licensee windfalls suggests that liberalization strongly enhances wireless competition, lowering expected retail prices, and reducing entry barriers in communications markets.
Keywords: property rights, wireless regulation, economic liberalization, wireless licenses, spectrum allocation, spectrum auctions, telecommunications policy
JEL Classification: L5
Suggested Citation: Suggested Citation