Coase and WiFi: The Law and Economics of Unlicensed Spectrum

January 12, 2015
A mix of unlicensed and licensed spectrum is well grounded in Ronald Coase's economic pragmatism.

In 1959, economist Ronald Coase argued for innovative and needed change to the system of spectrum allocation, challenging the prevailing “command and control” model in favor of one based on property rights and auctions. Today, many continue to not only rely on Coase’s insights to support spectrum auctions over command and control, but also invoke Coase’s writings as almost sacred texts opposing any use of spectrum for unlicensed purposes. We believe that this is an inappropriate reading of Coase and that his economic insights provide strong support for unlicensed, as well as licensed, spectrum. Indeed, Coase was primarily attacking a model of governmental command and control that was in dire need of modernizing. But Coase surely never intended his work to be used to support rigid and doctrinaire thinking about spectrum.

This paper examines the support for a new interpretation of Coase, concluding that a mix of both unlicensed and licensed spectrum is well grounded in Coase’s economic pragmatism. There is a wide range of possible ways to define rights in spectrum use; we should craft those rights in such a way that minimizes the costs of arranging the most socially beneficial outcome. Given the tremendous benefits of both licensed and unlicensed applications, we need a spectrum policy grounded in Coasean pragmatism, not Coasean doctrine. 

Policy makers should not take an overly-narrow focus on one particular type of efficiency (allocative efficiency) of one particular input (radio spectrum).  Using this to focus only on auctions gives short shrift to the obvious and growing value of unlicensed services all around us. Services utilizing unlicensed spectrum are valuable contributors to the economy and should not get short shrift based on misunderstood doctrine.

It is common to think of unlicensed as a gap-filler, as an efficient way to fill guard bands with low-power devices that are unlikely to cause interference to licensed services. While this can be a great opportunity to maximize the use of spectrum, offering up only narrow slices of spectrum is not what unlicensed services deserve. Policy makers should consider new, dedicated unlicensed bands where possible. 

The potential for economic growth through new unlicensed platforms, services, and devices is greatest when large, contiguous blocks of harmonized spectrum with simple service rules are available. Wherever possible, we should avoid creating specialized rules to protect particular incumbents from interference, allowing for simpler, cheaper equipment. All and all, this offers the best potential to maximize spectrum use, which is what professor Coase was really after.