Market Mechanisms for
Redeveloping Spectrum
Evan Kwerel
Office of Strategic Planning and Policy Analysis
Federal Communications Commission
DIMACS Workshop
October 7, 2004
Disclaimer
• The opinions expressed in this talk are those of
the author and do not necessarily represent the
views of the FCC or any other members of its
staff.
• Talk is based on joint work with John Williams.
Evan Kwerel
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Only about 7% (185 MHz) of
Spectrum in 300-3000 MHz Range Is
Fully Available to Market Today
PCS 3%
Cellular 2%
SMR 1%
Cellular 50 MHz
PCS 120 MHz
SMR 15 MHz
Other 2545 MHz
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Another 15 % (413 MHz) for
Flexible Use in the Pipeline
From TV
Channels
52-69
(78 MHz)
3%
From
MDS/ITFS
(190 MHz)
6%
From Gov't,
MSS and
others
(145 MHz)
5%
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But…
• Heavily encumbered
• Fragmented in geographic and frequency
domains
• Needs massive restructuring
Evan Kwerel
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TV and DTV Stations that Encumber Channel 67 in EAG-1
TV and DTV Stations on Channel 67 (Buffered)
Service
DT
TV
68
66
6668
68
68
66
66
Northeas t EAG - 1
67
67
66
66
66
66
66
66
68
68
67
67
Great Lakes EAG - 4
67
67
67
67
68
68
68
68
Mid-Atlantic EAG - 2
68
68
April 18, 2000
Evan Kwerel
67
67
66
66
67
67
67
67
Federal Communications Commission
Office of Engineering and Technology
Melvin C. Del Rosario
6
TV Stations That Encumber Upper 700 MHz Spectrum
(TV Channels 60-69) Within 100 miles of NYC
746 MHz
806 MHz
TV Ch. 59
60
WBNE
62
PS
63
WRNNTV
WBPHTV
64
782
C2
65
D2
66
67
WHSPTV
WMBCTV
WPPX
792 794
Guard Band
D1
61
776 777
Guard Band
C1
762 764
Guard Band
Guard Band
747 752
PS
68
69
WHSETV
WHSITV
WEDY
WFMZTV
WTICTV
WACI
Notes:
1.
Frequency range 746 MHz to 806 MHz contains TV channels 60-69 that have been reallocated for
other uses subject to not causing interference to existing TV stations.
2.
Arrows indicate frequency range encumbered because of potential co-channel or adjacent channel
interference to the indicated TV station over some portion of the area within 100 miles of NYC.
3.
Shaded rectangles on the upper bar graph are the two paired commercial spectrum blocks (10 MHz
block C1/C2 and 20 MHz block D1/D2).
4.
Blocks labeled “PS” are reserved for public safety use.
5.
The “Guard Bands” comprise a total of 6 MHz in four bands designated for commercial use subject
to special technical and operational restrictions to protect the public safety bands.
Evan Kwerel
John Williams
Revised: 9/7/2004
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How to End the Spectrum Drought
• Property rights and markets
– Define flexible, exclusive and exhaustive spectrum
rights
– Use markets to move spectrum to its highest value
use
• Big bang transition
– All highly interdependent spectrum up for sale at
the same time
– Voluntary for incumbents but see opportunity cost
– Incentives for incumbents to participate
– Reduces transaction costs and increases liquidity
– OSP WP 38 (www.fcc.gov/osp/workingp.html)
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Alternative Big Bang Mechanisms
• Auction that includes incumbents’ licenses.
Incumbents can bid on their licenses at no net
cost.
• Auction where incumbents can get vouchers for
turning back their licenses
• Exchange where incumbents can offer licenses
at declining ask prices
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Mechanism 1: FCC Auction that
Includes Incumbent Licenses
• Simultaneously auction spectrum voluntarily offered by
incumbents together with any unassigned spectrum. Use
package bidding.
• Participants
– Get immediate flexibility
– Can keep the proceeds from the sale of their licenses
– Can buy back their licenses at no net cost – but can’t resell
immediately
• Non-participants
– Do not receive full flexibility for significant time (e.g., 5
years)
– Allowed to continue current operations
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Mechanism 2: FCC Auction with
Vouchers for Incumbents
• Incumbents given auction vouchers in exchange
for turning back their licenses
• Value of vouchers determined in auction
– Incumbents attributed spectrum quantities (MHzPops) based on licenses turned back
– Voucher value = attributed MHz-Pops X auction
prices/MHz-Pop of new licenses covering area of
incumbent’s licenses
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Mechanism 2: FCC Auction with
Vouchers for Incumbents (cont’d)
• Vouchers equivalent to cash
– Can be used to pay winning bid in current or any subsequent
auction
– Transferable and divisible
• Allows FCC to create new, fungible geographic area
licenses suited to new uses – if mandatory or all
incumbents participate voluntarily
– No need to create licenses (geographic areas, frequencies)
based on legacy rights
– Bidders would bid on spectrum with certain characteristics
(location, bandwidth, low power or high power), not specific
frequencies, minimizing opportunity for destructive strategic
behavior in auction
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Mechanism 2: FCC Auction with
Vouchers for Incumbents (cont’d)
• Alternative design with “voluntary” participation
– Allow incumbents to opt out and continue in current
use. Opt-out spectrum limited to current use for
significant period.
– FCC can require non-participants to relocate to
different part of auctioned band with costs paid from
auction revenues or new licensees
– Spectrum in cleared portion of band would be
fungible in auction. Spectrum in relocation portion
would not.
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Mechanism 3: FCC Exchange
• Incumbents can offer licenses at declining ask
prices
• David Parkes investigating alternative designs
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Pros and Cons: Mechanism 1
• Pro: Incumbents can maintain status quo – “voluntary”
• Pro: Uses “simple” one-sided auction mechanism
• Con: FCC must define area licenses that approximate
initial spectrum rights
– Difficult, especially when encumbered areas overlap
– May not be able to define usable area licenses based on
incumbents rights for certain services, e.g. microwave
– Allows bidding only on specific frequencies (not fungible
rights).
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Pros and Cons: Mechanism 2
• Pro: Allows FCC fresh start in defining and
assigning spectrum rights
– Clears entire band of incumbents
– Can define new rights (geographic areas and frequency
blocks) without regard to crazy-quilt pattern of legacy rights
– Can design highly competitive auction for fungible spectrum
rights
– Minimizes strategic holdouts by incumbents to extent have
liquid market for fungible rights
• Pro: Uses “simple” one-sided auction
mechanism
• Con: Not voluntary, can’t maintain status quo
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Pros and Cons: Mechanism 3
• Pro: Allows incumbents to offer licenses and bid
for replacement licenses within single package
• Con
– Requires developing more complex exchange
mechanism
– FCC must define area licenses that approximate
initial spectrum rights
– If we make flexibility conditional on participation,
how do we define participation?
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Potential Applications
• Accelerated clearing of TV spectrum (700 MHz
band)
• Restructuring airport landing/takeoff rights (slot
auctions)
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Remaining Issues
• Best formula for dividing revenues among
sellers (FCC and incumbents)
– With package bidding no unique price for rights sold
by incumbents
– Equity
– Efficiency of allocation
– Incentives for participation in auction
– Myerson and Satterthwaite (1983) impossibility
theorem: budget balanced, efficient, voluntary
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Thank you!
Evan Kwerel
Office of Strategic Planning and Policy Analysis
Federal Communications Commission
Evan.Kwerel@fcc.gov
(202) 418-2045