The goal of economic activity is to provide goods and services to end users – whether they are bought in the market place or provided to citizens by governments.In defining high-level objectives for spectrum policy, it is thus sensible to take as a starting point the maximisation of value of outputs produced by the spectrum available, including the valuation of public outputs provided by the government or other public authorities.
Some important conclusions follow from this objective.Suppose a given quantity of spectrum is available for use in only two sectors, mobile communications and commercial broadcasting.How should it be divided between the two uses? Because end-users derive benefit from both services, allocating the entire spectrum exclusively to one or the other use may create an artificial shortage of spectrum. Some kind of compromise is required which reflects the value end-users place on both services, the cost of providing them and the amount of spectrum they require. In turn, relating use to value pressures all users, private and public, to make more efficient use of their allocated spectrum, thereby freeing up more spectrum for use generally.This is set out more formally in the accompanying practice note: Allocating Spectrum Efficiently.
Unfortunately, the problem of finding the most efficient allocation of spectrum is made harder by the complex interrelations among frequencies and their different uses. It requires the spectrum manager to have knowledge, or access to knowledge, about the relationship between providing an additional MHz of spectrum to a service and the net economic benefit of doing so.There are additional considerations to be taken into account including the following:
- In practice, many frequencies (subject to international agreement) can be used for more than two specific uses; hence using traditional approaches the spectrum manager will be making three or four - way splits, not just dividing particular frequencies between two uses;
- Uniform allocations of spectrum on a global basis benefits users since manufacturers of radiocommunications equipment are able to realize economies of scale sooner;
- Conversely, most services can be provided using a variety of frequencies, even if some are more accessible than others. This introduces more flexibility in spectrum management, but varying margins of substitution complicate the problem;
- It is often possible to replace spectrum in the provision of a service by other inputs – e.g. replacing spectrum base stations in a mobile telephony network.The technologies which use spectrum to provide services, the nature of these services, and their costs, are in many ways difficult to accurately predict.
This might be taken as implying that a spectrum manager must be omniscient to maximise the economic benefits (public and private) of spectrum use.Yet this is not necessarily so, for two contrasting reasons:
On one hand, means are available to harness the knowledge and opinions of all spectrum users (as well as those of the spectrum manager), and find a reasonably good solution to the problem. This involves the use of market pricing and information mechanisms to refer allocation issues to those with the best knowledge of the potential of spectrum to meet consumers’ needs for service. These means are discussed in Section 1.6.
On the other hand, if the manager chooses to rely on administrative methods to allocate spectrum, the considerations set out above offer useful pointers:
In allocating spectrum, priority should initially be given to services which are highly valued by end-users, with end-users expressing the value to them directly by making individual purchasing decisions. In some cases, the government might express that value on citizens’ behalf by providing the service publicly;
- However, this does not mean that certain services should be deprived of spectrum altogether. The aim is to equalise the benefit of an additional MHz in each competing use;
- As demand for services changes, it may be desirable (for example) to switch some services to higher frequencies and reform the spectrum for better-suited new services; and
- Adopting these principles can improve spectrum allocation considerably.Even if imperfectly done on the basis of incomplete information, the benefit can be considerable.
- A final implication follows from the approach of maximising economic benefits from an inexhaustible resource. Where spectrum is available, it should be put to use in the most productive way possible. Deliberately withholding spectrum in order to raise its price, or licensing a single monopolist to provide a service where that monopolist will withhold services to end-users in order to raise their price, deprives those end-users of the benefits which they would otherwise receive. The harm they will suffer will always exceed the extra revenue the government can derive from spectrum allocation or the extra profit the monopolist will make.
There is thus a strong case that spectrum should be made available to those firms prepared to use it efficiently.