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Fortnightly Magazine - June 15 1996

on with putting their spectrum to its best use. The sudden appearance of a large amount of unzoned spectrum should reduce the value of incumbents' licenses. And inefficient incumbents will be driven out of business in the free market.

Finally, a free market in spectrum will require a flourishing secondary market where those who hold radio rights may sell them to third parties, either in whole or in part. Nothing new here, either. Licensees have been selling and swapping for decades. As for dividing licensed spectrum into bits and pieces, that is common commercial practice in other businesses (em as when real estate developers subdivide tracts of raw land and sell parcels to individuals who build homes on them. This, too, has already been done at the FCC, which has experience with both "partitioning" (em taking your rights over, say, the Great Lakes Region and selling geographic components (Michigan, Illinois, etc.) to third parties (em and "disaggregation" (em taking your rights over, say, 10 channels and selling the first to Company A, the second to Company B, etc. These mechanisms are already used today with rural telephone companies and others.

Enforce Legal Rights

The third necessary element of a free market in spectrum is a police force and trial court (or other medium of dispute resolution concerning licenses). Both already exist in the FCC's Compliance and Information Bureau, affectionately known to some as the KiloHertz Cops. These professionals, approximately 350 in number, monitor the uses of airwaves, investigate many complaints of interference, and issue notices of violations (which may be appealed at the FCC and, ultimately, at the federal court in the District where the violation occurred). Perhaps a free market will require more police and courts: There are more collisions at busy intersections than in graveyards. But such growth would not be the kind of regulation that free-market advocates decry (em the dead hand of centralized state control. Growth in this kind of government service should be celebrated as a symptom of a robustly functioning market.

Of course, a free market in spectrum would not be free from all regulation. Two other types of regulation might survive in a free market of radio rights:

Social Welfare Regulation. The free market solves most problems, but not all. Social welfare regulation might encourage, for example, children's television, universal telephone service, improved 911 capabilities for mobile services, and other social goods and remedies for market failures. Such efforts could be financed by a small percentage of winning auction bids and regular taxes on incumbent holders of radio rights, or through conditions attached to radio rights, which are common today in FCC licenses.

Careful monitoring of such regulation will be required, however, to prevent its misuse as a means to create oligopolies and monopolies. Communications businesses are past masters at accepting social-welfare obligations and then using them as a pretext to outlaw competitors who have cleverly avoided the same burdens. To ward off the wolf in sheep's clothing, social-welfare regulation could be limited to instances where it is specifically authorized by Congress. In addition, the