Supply and Demand in Search of a Market:

The Case of Secondary Spectrum Markets

Scott Wallstenscott@wallsten.net

June 2, 2011Spectrum Markets: Challenges Ahead

What are ?And What’s Their Role in Promoting Efficiency?

wrong

How much trading should there be?

Auctions ensure newly released spectrumgoes to most efficient use.

But then what?

Cellular

700 M

HzAWS-1 PC

S

EBS/B

RS

Availab

le for

mobile

broad

band

Incen

tive au

ctions

0

100

200

300

400

500

600M

Hz

Potentially available for secondary trades.

What are secondary spectrum markets?What’s our objective?

Ensure that spectrum can flow to its highest-value use.

What are secondary spectrum markets?

Any market transaction after the initial allocation

except

those involving retail sales by initial leaseholder to end users.

Wholesale spectrum and network access

Wholesale spectrum and network access

Secondary Trades in Spectrum Licenses

Federal Radio Act: Declared spectrum a public resource

1927 1934

comparative hearings

1982

Lotteries

FCC created, given right to assign spectrum

1994

auctions

1959

Ronald Coase suggests using property rights to assign spectrum

2000

FCC begins laying the groundwork for secondary markets.

Spectrum Allocation Methods in the U.S.

Spectrum license trades and leases

FCC first attempted to promote secondary market with a policy statement in 2000 defining necessary framework:

1. Clearly defined economic rights

2. Easy entry and exit

3. Full information on prices and products

4. Mechanisms for bringing buyers and sellers together

5. Many buyers and sellers

How are we doing?

1. Clearly defined economic rights?

orYES NO

≠- Peter Cramton (paraphrasing)

2. Easy entry and exit?

3. Full information on prices and products?

Information probably not a binding constraint.

4. Mechanisms for bringing buyers and sellers together?

Website in December 2009

Website June 2011

5. Many buyers and sellers?

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

500

1,000

1,500

2,000

2,500

3,000

3,500

Number of Spectrum License Trades by Year

Cellular mobile Other

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

5

10

15

20

25

30

35

Cellular Mobile Trades in Billions of MHz-Pops

2004 2005 2006 2007 20080

100

200

300

400

500

600

700

Number of Spectrum Leases

What do those numbers mean?

How to measure latent demand?

1995 19961997 19981999 20002001 20022003 20042005 20062007 20082009 20100

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

requests granted

Number of STA Requests and Grants

Demand and supply curves?

Secondary trades come in many forms.License sales and leases are common.We don’t know what a working market should look like.Importance of secondary markets grows with each auction.Minimize costs associated with all types of transactions, not just license transfers.

Thank you!