Introduction

The Information Technology and Innovation Foundation files this letter as a comment and opposition to petitions to deny the applications in the above-captioned proceedings.[1] Sound economics supports greater reliance on secondary markets for spectrum usage rights, and the Commission should encourage, not bog down, such transactions.

The Commission Should Enable a Secondary Market in Spectrum Licenses

The goal of spectrum policy is to increase the productivity of spectrum.[2] Because the most productive use is not obvious in advance and changes over time, secondary markets are essential to ensuring spectrum licenses do not get stuck in the hands of those who cannot use them productively. Markets internalize both the opportunity costs and benefits of holding spectrum usage rights such that the incentives of current licensees and potential buyers are aligned with the most productive use of spectrum. For example, if the spectrum rights held under the license of company A would be more productive in the hands of company B, then company B will be willing to pay more for the license than the amount at which company A values it. The willingness of both parties to make that deal is strong evidence that it would enhance productivity since both sides have financial skin in the game: if the buyer cannot make more money by employing spectrum rights than it pays for them, then it will make a loss. Since the chief way of making money from spectrum is to provide valuable services over it, the buyer’s profit will come in tandem with societal benefits from productive use of spectrum.

This ideal outcome will not occur, however, if transaction costs erase the delta between the value of spectrum rights in the hands of company A vs. company B. Transaction costs often come in the form of cumbersome Commission approval processes that can include conditions or outright denial of the transfer. The Commission should keep those transaction costs as low as possible. Instead, it should enable efficient secondary market transactions to enhance the productivity of the spectrum.

The EchoStar Sales are in the Public Interest

The transfer of spectrum licenses held by EchoStar to AT&T and SpaceX are examples of productivity enhancing market transactions. Apart from any lack of deployment, EchoStar’s willingness to sell the licenses for an agreed price demonstrates its preference for that money rather than the licenses and demonstrates AT&T and SpaceX’s preferences for the licenses rather than the money. Given EchoStar’s preference for money instead of licenses, it is unlikely it turned down better offers. In other words, were the Commission to revoke EchoStar’s licenses and re-auction them, AT&T and SpaceX would likely win in that auction. Therefore, the proposed transactions before the Commission are the market-based solution to the economic problem of how to assign these licenses. And, because the market drives spectrum toward more productive uses given sufficiently low transaction costs, permitting these transactions would enhance the productivity of the spectrum governed by these licenses. Since maximizing spectrum productivity is in the public interest, these transactions are in the public interest.

Calls by commenters for the Commission to deny approval of these transactions see the Commission as responsible for orchestrating market structure of facilities-based competition between terrestrial mobile carriers and thus chastise the Commission for prioritizing “spectrum efficiency.”[3] This conception of the Commission’s mandate is contrary to the public interest. The Commission should enact policies that incentivize productive use of spectrum, not decide based on licensee’s “contributions to competition.”[4]

To be sure, efficiency is a dynamic, not static, phenomenon, but PK and OTI understate the scope of the dynamic inquiry.[5] Enabling the secondary market for spectrum rights promotes dynamic efficiency better than Commission micromanagement. The Commission’s judgment of the proper competitive landscape today will be stale tomorrow. It is a more dynamic system for parties to exchange and alter spectrum rights (subject to the technical rules of the license) in real time in response to economic and technological changes, rather than having to run to the Commission for permission to sell rights to those who can use them better. Indeed, even a few years ago, few would have expected a satellite operator to be a major part of secondary markets for terrestrial mobile licenses. Indeed, the convergence of various broadband technologies questions whether the number of facilities-based terrestrial mobile carriers is a useful category for the overall broadband market today. These kinds of unforeseen developments have major impacts on efficiency and competition that the Commission would miss if it focused only on choosing the right number and type of competitors under today’s conditions. Free markets for those rights can respond more dynamically to changes in technology and consumer preferences.

Conclusion

Rather than heed calls to erect more transaction costs in secondary spectrum markets, the Commission should continue down the path of enabling productivity-enhancing spectrum deals without cumbersome Commission processes or conditions.

Endnotes