The Question of Spectrum: Technology, Management, and Regime Change

There is general agreement that the traditional command-and-control regulation of radio spectrum by the FCC (and NTIA) has failed. There is no general agreement on which regime should succeed it. Property rights advocates take Ronald Coase’s advice that spectrum licenses should be sold off and traded in secondary markets, like any other assets. Commons advocates argue that new technologies cannot be accommodated by a licensing regime (either traditional or property rights) and that a commons regime leads to the most efficient means to deliver useful spectrum to the American public. This article reviews the scholarly history of this controversy, outlines the evolution of FCC thinking, and parses the question of property rights vs. commons into four distinct parts: new technology, spectrum uses, spectrum management, and the overarching legal regime. Advocates on both sides find much to agree about on the first three factors; the disagreement is focused on the choice of overarching regime to most efficiently and effectively make spectrum and its applications available to the American public. There are two feasible regime choices: a property rights regime and a mixed licensed/commons regime subject to regulation. The regime choice depends upon four factors: dispute resolution, transactions costs, tragedies of the commons and anticommons, and flexibility to changing technologies and demands. Each regime is described and analyzed against these four factors. With regard to pure transactions costs, commons may hold an advantage but it appears quite small. For all other factors, the property rights regime holds very substantial advantages relative to the mixed regime. I conclude that the choice comes down to markets vs. regulation as mechanism for allocating resources. * Professor, Business and Public Policy, Wharton School, University of Pennsylvania, Philadelphia, PA 19104. This research has been undertaken while the author is on scholarly leave at the Penn Law School. The author would like to thank Professor Gideon Parchomovsky (Penn Law) for his expert and very generous guidance in matters of legal scholarship, as well as Professor David J. Farber (Carnegie Mellon University), Professor Jason Johnston (Penn Law), Polk Wagner (Penn Law), Thomas Hazlett (Manhattan Institute), Evan Kwerel and John Williams (Federal Communications Commission). The Honorable Stephen F. Williams (DC Circuit Court of Appeals), Professors Chris Sanchirico (Penn Law), Phillip Weiser (UC Boulder Law), Dale Hatfield (UC Boulder Interdisciplinary Telecoms), Ellen Goodman (Rutgers-Camden Law) and the participants at the “Digital Broadband Migration: Rewriting the Telecom Act” conference at UC Boulder, Feb 13-14, 2005 contributed comments both significant and helpful, for which I am appreciative. The usual disclaimer applies.