Policy Studies

How to reduce transaction costs in spectrum markets

Author

Joe Kane
Former Fellow, Technology & Innovation

Key Points

The efficiency of spectrum markets is hampered by transaction costs which are often the result of overly restrictive FCC policy.

Transaction costs can be lowered by setting initial license areas that are relatively large and based on natural population centers.

Innovative market designs can also decrease transaction costs by making it easier for potential spectrum buyers and sellers to find each other and agree on a price.

Press Release

R Street Policy Report: Transaction Costs Are Killing the Spectrum Market

INTRODUCTION

All wireless devices rely on access to radio frequencies over which they send and receive data. In the United States, private access to the radio spectrum is controlled by the Federal Communications Commission (FCC), which licenses spectrum users. The FCC is currently moving toward allocating mid- and high-band spectrum that has not yet been a major component of commercial wireless services. As the wireless market grows, the FCC will need to consider how the regulatory regime that governs spectrum licenses may help or hinder the connectivity of tomorrow. And as private companies move into new bands, the FCC must ensure that conditions are ripe for an innovative and dynamic marketplace.

One of the most significant barriers to this robust spectrum marketplace of the future is the existence of transaction costs that inhibit the ability of frequencies to be used productively. Accordingly, this paper seeks to evaluate alternative allocation schemes in light of the transaction costs they elicit and suggests concrete policy reforms that would reduce these costs, thereby enhancing the efficiency of markets for the benefit of everyone who uses wireless services.

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