A report released today by Brattle principal Coleman Bazelon demonstrates how regulatory uncertainty governing wireless spectrum has the potential to directly impact the value of spectrum licenses.
The report contends that maintaining regulatory certainty and minimizing regulatory risk is essential in conserving the value of spectrum licenses. In order to ensure that spectrum licenses attain their highest possible value, Dr. Bazelon explains that they must meet two criteria: (1) that they are easily transferrable and (2) that the bundle of rights associated with a spectrum license does not face contingent impairment from future changes in regulatory policy. As an example of potential regulatory uncertainty, Dr. Bazelon discusses how the GPS industry has recently called for the Federal Communications Commission (FCC) to revoke LightSquared’s authority to build a terrestrial network in the L-Band and to move LightSquared out of the L-Band entirely, even after LightSquared has already made considerable investments to merge its existing satellite services with a nationwide 4G LTE network in the L-Band. In his report, Dr. Bazelon uses a simple cash flow model to calculate how the value of any spectrum license may change if regulatory uncertainty is introduced. The results from his analysis show that an additional five percent probability that the FCC would revoke a license and terminate a license spectrum after two years decreases the value of the spectrum by 10 percent. Dr. Bazelon explains that the effects from regulatory uncertainty and decreased spectrum value directly impact the wireless broadband industry and the U.S. economy. Reduced expected returns from spectrum licenses amid regulatory uncertainty could hinder the future of wireless broadband investment projects, leading to stalled projects and slower economic growth. The report cites that “a dollar of investment in wireless broadband results in up to $7 to $10 of higher GDP.”
Dr. Bazelon’s report, “Cost of Regulatory Risk for Wireless Spectrum Values,” was sponsored by LightSquared and is available for download below.