Spectrum Policy International Telecommunications Union Geneva, Switzerland 16 February, 2004 Thomas W. Hazlett Manhattan Institute Washington, D.C. twhazlett@yahoo.com Spectrum Policy Thomas W. Hazlett 1 Thomas W. Hazlett, “Property Rights and Wireless License Values” twhazlett@yahoo.com http://www.manhattan-institute.org/html/hazlett.htm Spectrum Policy Thomas W. Hazlett 2 Spectrum v. Licenses • • • • Status quo: Operating Permits Spectrum allocated administratively Restrictions impose inefficiency Cartel enforcement devices Spectrum Policy Thomas W. Hazlett 3 37 Concerned Economists (Feb. 01) • Full Liberalization • Relax all use restrictions – Services – Technology – Business models • Exhaustively license spectrum – Overlay rights (as in U.S. PCS) – Entry via ‘cheap spectrum’ policy Spectrum Policy Thomas W. Hazlett 4 Two Objections • Windfalls not equitable • A better way to allocate spectrum: unlicensed • Result: No substantial progress in USA Spectrum Policy Thomas W. Hazlett 5 Windfalls vs. Efficiencies • Flexible use => productive – Analog cellular licensees awarded digital rights – Voluntary reallocation of UHF TV spectrum • Property rights = Windfalls Spectrum Policy Thomas W. Hazlett 6 ‘Which Way, Senator Fall?’ • Windfalls: positive or negative – More efficient, more profitable – More efficient rights, less exclusivity • Rights are inter-related – Incremental rights issued to license class – Rights are implicit precedents • License value changes are ambiguous Spectrum Policy Thomas W. Hazlett 7 Empirical Test • • • • Value of Wireless Phone Licenses 42 license auctions in 27 countries (95-02) 1,438 licenses (1,080 USA) Liberal Dummy with extensive wireless property rights – Australia – El Salvador – Guatemala – New Zealand Spectrum Policy Thomas W. Hazlett 8 Control Variables • • • • • • • • • • • • • • Income per capita Population in licensed area Density and Urbanization NASDAQ Index @ auction close Market concentration (HHI) 3G Incumbent dummy Bandwidth allocated to license 800/900 MHz dummy License term Auction type dummy (First price sealed bid = 1) Fixed telco service rates Economic liberty index USA dummy Spectrum Policy Thomas W. Hazlett 9 Log Log Results • • • • • • • • • • • • • • • Income per capita + Population in licensed area + Density Urbanization + NASDAQ Index @ auction close + Market concentration (HHI) + 3G + Incumbent dummy + Bandwidth allocated to license + 800/900 MHz dummy License term Auction type dummy (First price sealed bid = 1) + Fixed telco service rates + (connect)/ - (call) Economic liberty index + USA dummy + Spectrum Policy Thomas W. Hazlett 10 Liberalization Effect • • • • Statistically significant Negative 38% price difference From standard allocation to “full” liberalization reduces license rents Spectrum Policy Thomas W. Hazlett 11 Mean price/MHz/pop v. income per capita (values relative to the sample mean) 10 UK GER ITA NET MOR Price per MHz-pop / Mean BRA PAN BUL CAN JAM PER GUA NIG BOL AUS ARG BRA A AUS CZ MEX 1 US NET GRE AUS GER A SWZ 0.1 ELS NZ AUS 0.01 A = Austria AUS = Australia Spectrum Policy 0.1 1 Income per capita / Mean Thomas W. Hazlett 0.01 10 Non Liberal = Liberal = 12 Implications • Economic Theory: – Helps explain regulatory capture • Public policy: – Equity issues “solved” by extensive liberalization – “Cheap spectrum” policy via property rights – Social gains large, as lower license values reflect that more efficient markets and lower retail prices are anticipated Spectrum Policy Thomas W. Hazlett 13 Look Busy… or Be Busy? • Experiments in spectrum property rights encouraging – Even as momentum lost to “substitute” policies in USA • From Heresy to Passé Orthodoxy… all without ever having been implemented Spectrum Policy Thomas W. Hazlett 14 May 3, 2002 Spectrum Auction Delay Hits Fast Track By Roy Mark Spectrum Policy Thomas W. Hazlett 15