Brent Skorup

Sweeten the Deal: Transfer of Federal Spectrum Through Overlay Licenses

The largest challenge in wireless telecommunications policy is transferring spectrum from inefficient legacy operators such as the federal government to bandwidth-hungry wireless broadband operators. Delay results in annual consumer welfare losses totaling hundreds of billions of dollars. One solution would be to auction overlay licenses to commercial bidders and give spectrum incumbents a clearing deadline. Overlay licenses reorder property rights and give incumbents the ability to sell the possessory rights to their frequencies. An alternative reform proposal from a 2012 President’s Council of Advisors on Science and Technology report recommends relying on complex spectrum-sharing technologies in order to avoid clearing agencies from their spectrum. Such a proposal would take decades to implement, would not encourage efficient government use of spectrum, and would likely degenerate into regulatory failure. In contrast, the PCS and AWS-1 auctions by the FCC show that overlay licenses permit commercial deployment of wireless technologies in encumbered spectrum within a few years.

Natural Experiments in Mobile Phone Regulation: Estimated Effects of Prohibiting Handset Bundling in Finland and Belgium

Vertical restrictions have theoretically ambiguous efficiency effects. Marketplace evidence is therefore required to reveal the presence of anti-competitive foreclosure. The bundling of mobile phones with cellular network service offers one such market test. Two European nations — Finland and Belgium — prohibited tying arrangements for mobile service and mobile devices (handsets) in wireless broadband (3G) markets. These rules were abandoned in 2006 and 2010, respectively, creating natural experiments.This article compares 3G subscribership in European countries from 2003 through 2012. Finland and Belgium, while banning bundles, exhibited 3G penetration levels only about a third of the EU 15 average. Following their respective regime switches, relative 3G penetration levels improved markedly in these countries — Finland, in fact, became an EU leader. Regressions adjusting for market specific factors quantify the effects. The data are consistent with the view that carrier handset subsidies, which are strongly supported by bundling services with hardware, help internalize network effects that, if unsupported by the network carriers, may go unrealized. Vertical integration here appears to assist in productive ecosystem creation, not anti-competitive foreclosure.