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Fortnightly Magazine - June 15 1996

in recent years. For example, the permitted uses under licenses for broadband personal communications service (PCS) are broader than those under licenses for cellular service. Further, in several pending dockets, the FCC proposes to auction thousands of megaHertz of spectrum for almost any technically feasible use.

Distribute Radio Rights

Second, you need a method of dispensing the radio rights into the new free market. At the most basic level, three such methods already exist, mostly in the FCC's Wireless Telecommunications Bureau. The first is the venerable "public interest" standard, which says that you should have a radio license only if you are of good character, financially secure, and technically expert, and only if you will use the spectrum for a service that the FCC approves.

The intellectual basis for this standard is that spectrum is scarce. But a finite amount of spectrum provides no reason why a public-interest investigation should be the means of distributing it. There is a finite amount of land, but we generally rely on the free market to distribute it.

The second method, lotteries, is an improvement only in speed. They encourage application mills and award licenses to people who have no intention of ever using the spectrum.

The third method is auctions. The FCC first decides what to auction off (e.g., nationwide or local licenses, in big blocks of spectrum or small ones) and then conducts the auctions. The contributions of the auction mechanism (em speedy government action, economic efficiency, revenue for the U.S. Treasury (em are by now clear. Most important, the FCC already has more than a year of practice with this mechanism, as do other government agencies and numerous private businesses.

Several policy issues concern incumbent licensees. What is to be done with incumbent users of the spectrum who are inefficient, but have used the spectrum they now occupy to create valuable businesses, jobs, and services that people depend on? Here again, the FCC has experience with two alternatives that have proved workable. One is to force the incumbents to migrate to other spectrum, assigning their relocation costs to new, more efficient users. The FCC is doing this with the private microwave users who occupy the spectrum that will be used for broadband PCS.

The other alternative is to grandfather the incumbents, leaving them with the spectrum and territories they now have, and then auction off the remainder of the same spectrum to the highest bidder. This option has been proposed for some dispatch and paging systems.

Another difficult policy issue involves whether to charge incumbents for the spectrum that they now have. Letting them keep what they now possess would not be as much of a giveaway as it may initially appear. Most current holders bought their licenses on the open market and, therefore, already paid fair value for them. There would be little point in seeking payment from the few who originally got them for free, in many cases decades ago. Even in the case of those who received free licenses recently, government resources might be better served by letting licensees get