All Systems Go: FCC drone proceeding highlights value of markets in spectrum management
R Street has long advocated for flexibility in radio licenses. While the Commission previously allocated and assigned radio operating rights via everything from a first-come first-served basis to so called beauty contests, the Commission now relies heavily on market forces to drive efficient use of radio technology. Because only a limited number of operations can exist at the same time, location and frequency due to harmful interference, inevitably the Commission must decide which operations to exclude. Markets allow those operators who derive the most value from these legal operating rights to literally “put their money where their mouth is.”
However, this reliance on markets only goes so far. Often, the Commission’s procedures and rules add additional transaction costs to the market, distorting the value of these rights and the efficiency of the transactions. For example, the Commission subjects secondary market transfers of licenses to the Commission’s general approval procedures, which creates burdens on the parties and adds additional costs on the purchases. These additional costs create risks and may end up making the purchase unprofitable.
Therefore, as R Street has advocated in the past, the Commission should primarily work to limit these transaction costs, maximizing the efficiency of secondary markets and encouraging all operators to either use their legal operating rights or sell them to a party who values the license more.
Indeed, these market forces can lead to extremely beneficial outcomes.
The 450 MHz band is currently allocated for “provision of radiotelephone service to airborne mobile subscribers in general aviation aircraft.” However, this allocation was designed for two-way telephony service with a relatively limited total bandwidth. This makes it a poor choice for broadband data services and its use has thus been relatively limited, especially in recent years. Worse, the service rules of the band essentially prohibit further development, as new operations can still only provide telephony to planes.
Fortunately, the market has found a better use for the band.
With relatively limited interest from other operators, A2G Communications acquired all but one license in the band, and AURA then entered into a lease agreement to acquire these operating rights. As the owner of the single outstanding license, AURA effectively controls every license in the band. But instead of using it for two-way telephony, AURA began building out a network for a different service: command and control and non-payload communications for drones.
Unfortunately, the outdated service rules effectively prevent AURA from using their licenses for the new purpose, despite no other operators utilizing the band. Fortunately, the FCC has a path forward to remedy this. AURA and A2G have requested that the Commission waive specific provisions of the AGRAS rules, allowing AURA to use their licenses to provide their nationwide drone command network. Further, commenters almost universally supported the waiver request, noting the need for this exact service and the benefits it will provide. This is a perfect example of the market working, and the Commission can signal its willingness to support innovative uses of spectrum.
On the other hand, the Commission could make the same mistakes it has made in the past, forcing AURA to withstand a protracted rulemaking proceeding that could take months or even years to resolve. And in that time, AURA will be unable to receive the necessary approvals from other regulators, further delaying commercialization of their network.
It would be bad enough for the Commission to delay this proceeding in isolation, but it will also affect secondary market transactions generally. Other license holders who may wish to take similar risks will see this decision as a signal: secondary market transactions must undergo significant Commission scrutiny and review. In turn, these transaction costs will ultimately deter similar investments, leading to underutilized bands remaining so.
Therefore, it is critical for the Commission to move quickly and approve the waiver request. By doing so, the Commission will not only allow an innovative service to maximize the efficiency of an underutilized band, but it will also incentivize others to do the same. Markets remain the optimal method of allocating and assigning operating rights, and this is a perfect example of the market doing just that. The Commission must not revert to an outdated mindset of command-and-control spectrum management, and instead allow the market to work freely.
Image credit: Quality Stock Arts