Can Spectrum Fees Incentivize Federal Agencies to Release Spectrum? Lessons From the United Kingdom and GOSPLAN

Abstract

One proposed market-based approach to repurposing federal spectrum involves levying administratively-controlled fees that approximate the opportunity cost of spectrum on federal agencies. This article examines the theory and evidence that a system of spectrum use fees can promote an efficient reallocation of spectrum and finds that the spectrum fee approach has no intrinsic advantage over the existing command and control system. Under the system of Administered Incentive Pricing in the United Kingdom, calculating the opportunity cost of spectrum imposes a heavy burden on regulator Ofcom, but spectrum fees still give the wrong price signals, and in Ofcom’s own 2016 assessment, financial incentives of government departments to release or share spectrum have been weak or non-existent. With imperfect information, it is no easier for the regulator to specify correctly the right prices under the spectrum fee approach than the right quantities under the command and control system. As budget-funded non-profits, federal agencies have a soft budget constraint that weakens their responsiveness to prices and costs. In these respects, the spectrum fee model shares the information and incentive problems of the classical and reform versions of socialist economic systems. The practice of charging federal agencies market-based rental rates for office space in federally owned or leased buildings does not validate the spectrum fee proposal given that federal property is managed in a top-down fashion. The overlay approach to repurposing federal spectrum has an intrinsic advantage over the spectrum fee model because auctioning flexible-use overlay licenses generates market-based pricing information about the value of federal spectrum.