Brattle Economists Propose Spectrum Based Fee to Incentivize Federal Users to Allocate Spectrum More Efficiently
Economists at The Brattle Group released a report today in which they analyze the impact of different spectrum sharing schemes and propose implementing a spectrum based fee that would incentivize federal users to adjust their usage to more efficiently allocate this scarce resource and reduce costs.
As demand for more complex wireless technologies increases, so does the demand from both commercial and government users for spectrum suitable for wireless broadband services. Sharing between federal and commercial users will be a key component of the strategy to meet growing demands for spectrum. The authors identify several different types of spectrum sharing currently proposed or in use:
- Geographic sharing;
- Predictable and random temporal sharing;
- Coordinated sharing; and
- Rule-based sharing.
Allocating shared spectrum efficiently, however, requires balancing competing demands to assign the spectrum use rights to the user(s) who value(s) them most. To do this, policy makers and market participants must have a clear understanding of how the value of spectrum to individual users is affected by spectrum sharing. To illustrate the impact of sharing on spectrum value, the authors use a series of examples, both hypothetical and grounded in CSMAC recommendations. For instance, they show that for the 1695 MHz – 1710 MHz band, excluding 12% of the population in the currently proposed exclusion zones could reduce the value of the band by 16%, but relocating some of the exclusion zones from urban to rural areas would only reduce the value of the band by 7%.
According to the report, federal users currently have little incentive to use spectrum efficiently, because they do not internalize the costs associated with their spectrum use. Imposing a spectrum based fee would incentivize federal users to use the spectrum more efficiently. The authors propose that the appropriate fee should be based on the commercial value of spectrum. By tying the fee to spectrum’s commercial value, federal users would be incurring the foregone economic value or opportunity cost of the spectrum in deploying these federal services.
“Spectrum is a highly valued, scarce resource. The spectrum fee we have proposed will create incentives for efficient spectrum use, in part by shining a light on the costs of spectrum use by federal users,” said Coleman Bazelon, a Brattle principal and co-author of the report. “Additionally, the fee setting process that we have proposed should generate good, accurate information about the value of federal spectrum use—information policymakers can utilize in more direct spectrum management decisions.”
The report, funded by Verizon, was authored by Brattle Principal Coleman Bazelon and Associate Giulia McHenry with contributions from Brattle Research Analysts Maura Coughlin and Katie Lee. The report, “Spectrum Sharing: Taxonomy and Economics,” and its executive summary is available for download below.