FCC Proposes
Perpetual Spectrum Splits

Regulators reckon opening secondary markets for re-licensing spectrum will resolve current supply-side woes for wireless service providers. Can the Fed's create a new industry out of thin air or is it putting the wireless traffic at risk?

by Patricia Fusco
Associate Editor ISP-Planet
[December 5, 2000]

The Federal Communications Commission adopted a Policy Statement and Notice of Proposed Rulemaking this week in order to build a framework for developing robust "secondary markets" in radio spectrum.

It's no secret that demand for spectrum has increased dramatically as a result of explosive growth in wireless communications technologies and user demand for wire-free services.

But spectrum demand threatens to outpace supply and could spell disaster the future of wireless services in the U.S.

Please re-release me
The Commission believes that developing a licensing system for secondary markets would allow licensees to freely trade or resell their unused spectrum capacity. The regulator's rationale is that secondary market transactions could increase the amount of spectrum available to prospective users and promote new developments in wireless technologies.

In keeping with the White House mandate for the advancement of wireless technology in the U.S., the FCC hopes that developing secondary markets will permit more effective use of finite radio spectrum.

The Policy Statement outlines the Commission's principles for promoting the efficient use of radio spectrum by encouraging the development of secondary markets. The goal is to develop competitive markets for the sale and lease of spectrum licenses.

The Policy Statement proposes four guiding principles for the secondary market initiative:

1. Licensees should generally have clearly defined usage rights to their spectrum, including frequency bands, service areas, and license terms of sufficient length, with reasonable renewal expectancy, to encourage investment.
2. Licenses and spectrum usage rights should be easily transferable for lease or sale, divisible, or aggregatable.
3. Licensees/users should have flexibility in determining the services to be provided and the technology used for operation consistent with the other policies and rules governing the service.
4. Licensees/users have a fundamental obligation to protect against, and the right to be protected from, interference to the extent provided in the Commission's rules.

Minor-league markets
The FCC Policy Statements identifies three key areas that would promote the development of secondary markets:

1. Remove, relax or modify our rules and procedures to eliminate unnecessary barriers to the operation of secondary market processes and to promote flexible and fungible use of spectrum.
2. Encourage advances in equipment that will facilitate use of available spectrum for a broad range of services, e.g. software-defined radio and multi-band equipment.
3. Encourage mechanisms, including information sources, spectrum exchanges, and brokers, that bring together buyers and sellers and effect transfers of spectrum in a timely and cost effective manner.

The Commission's NPRM is based on hopes that the wider use of spectrum rights by existing licensees would unleash a flurry of third party arrangements to re-license excess capacity on unused spectrum. The FCC believes the new rules would increase the efficient use of spectrum and enable more businesses to gain access to the use of spectrum.

Part and partial dictum
The FCC is actively seeking comments on basic proposals that would impact a large set of the Wireless Radio Services licenses, including both mobile and fixed services.

Specifically, the Commission proposes that wireless radio licensees with "exclusive" rights to their assigned spectrum have the ability to lease their spectrum usage rights to third party users without having to secure prior FCC approval. This portion of the proposal could affect cellular phone use, personal communications services, specialized mobile radio, local multi-point distribution service, fixed microwave, 24 GHz, and 39 GHz, among others.

Spectrum keepers
However, central to the potential new rules is a proposal that would make a licensee ultimately responsible for the spectrum it holds. In essence, the licensee would act as the spectrum warden, ultimately responsible and accountable for ensuring that their lessees comply with the requirements of the Communications Act and other rules or policies.

Of course, the new spectrum rulemaking proposals go both ways. All of the interference, frequency coordination, and other technical rules applicable to the licensee also apply to the business leasing the spectrum usage rights.

The FCC would need to craft service rules to reflect the changes in its spectrum proposal. Eligibility rules, use restrictions, spectrum caps, unjust enrichment rules, and classification requirements would need to be adjusted accordingly.

Finally, the Commission noted that the information currently gathered in its database, the Universal Licensing System, would have to be retooled in order to provide information about secondary market spectrum.

Mentality or monetary animus?
The FCC policy shift and proposed rulemaking is certainly a step in the right direction. But it ignores "spectrum hogs" already playing with its licensing system. After all, if you can't operate in the market you desire due to spectrum caps, you can always keep your rivals out of other markets by hogging the spectrum.

Another issue the new rules should account for is one currently rippling through Internet service providers right now—non-payment. What happens when a licensee can't pay their tab with the FCC because the spectrum lessee went belly-up?

It's the licensee that loses access to the spectrum, while the Commission gets to resell the airwaves to another entity. Certainly wireless firms would readily accept terms for licensing that set up a lose-lose scenario for the company and a win-win for the FCC.

Who would pay interference fines and other spectrum bleeding fees for violating FCC rules? If the licensee is "ultimately" responsible, would they in turn fine a third party license holder to recoup on a FCC penalty?

By creating secondary, segmented markets for spectrum, the FCC could unleash a sort of spectrum gold-rush—only to eventually become a radio ghost town of open frequencies if market conditions head south.

The idea that a federal agency could promote competition and develop secondary markets out of thin air is more a psychological endeavor than an economic plan. After all, there's only so much spectrum available and no limit to how many times it could be sold.

— End    

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