Efficient Allocation of Radio Spectrum

Abstract

Legislative reforms in Anglo-American countries require governments to account for efficient spectrum usage subject to interference control. New spectrum governance regimes promote flexible and competitive usage but the broadcasting industry remains exempt from reforms, at a significant cost to society. The need to liberalize broadcast spectrum cannot be overstated, but how should we select among alternative deregulatory regimes? In a simple stylized model we formalize the welfare effects of allocating licenses for using bandwidth on broadcast spectrum. We provide optimality conditions for entry, spectrum usage, and congestion levels under different market conditions, which allows us to justify the selection of specific governance arrangements.

Royalties, entry, and spectrum allocation to the broadcasting industry

“…There is a direct, or variety, effect of the number of channels on quality, which is positive but not increasing. On the other hand, there is an indirect, or interference, effect of the number of channels on quality by way of the reduced separation between channels, which is negative (Freyens & Jones, ). Furthermore, up to a critical number of channels, say , the positive variety effect is assumed to dominate the negative interference effect (see also Freyens & Jones, ).…”

“…In light of the above information, any expansion of the OTA broadcasting industry can be expected to intensify the variety–reception trade‐off in the pursuit of overall service quality. This trade‐off was examined by Freyens and Jones () in a static applied welfare economics setting in which, at a given threshold, the variety gains from entry are systematically compared to the costs of signal deterioration. The net benefits are then matched against the profits created through advertising under different market structures and spectrum governance regimes to derive optimal criteria for OTA broadcaster entry.…”

“…In this paper, however, we focus instead on a single governance regime, namely, open access, which Freyens and Jones () show to be most vulnerable to the variety–reception trade‐off. In contrast to Freyens and Jones (), we use a dynamic framework to examine the variety–reception trade‐off and the impact it has on the dynamics of a deregulated broadcasting industry.…”

“…Consumers' satisfaction from over‐the‐air (OTA) broadcast services typically increases with service variety and clarity of reception. While an expansion of the number of OTA broadcasters often increases the variety of programs, the resulting increased spectral congestion intensifies interferences thereby decreasing reception clarity (Freyens & Jones, ). This variety–reception trade‐off is the focal theme of our theory of optimal spectrum pricing in the broadcasting industry, which is motivated by the regulatory debate about improving entry to the OTA broadcasting industry in technologically advanced countries.…”