1. Spectrum trading and the role of innovation
Richard Marsden, DotEcon
FCS/Eversheds Spectrum Forum London - 8 July

2. EC Study on Spectrum Trading
DotEcon, Analysys and Hogan & Hartson recently completed a major study on spectrum trading
The study focused on both:
Trading – transfer of spectrum usage rights between parties in a secondary market
Liberalisation – relaxing restrictions on services and technology associated with spectrum usage rights
Final report available from EC website (
Workshop in Brussels on 15 July

3. There are both benefits and costs from spectrum trading …
The study examined a range of potential costs and benefits from trading & liberalisation:
Direct efficiency effects
Transparency
Competition
Innovation
Scale economies in regulation
Regulatory costs
Interference coordination
Standardisation
Other national policy goals
Concentration
Potential benefits
Potential costs

4. … but benefits substantially outweigh costs
Introducing trading AND liberalisation can bring significant welfare gains in many bands
Largest category of benefits is INNOVATION
Regulatory costs
Interference coordination
Standardisation
Other national policy goals
Concentration
Direct efficiency effects
Transparency
Competition
Innovation
Scale economies in regulation
Potential costs
Potential benefits

5. Traditional spectrum management suppresses incentives for innovation
New services and technologies must win regulatory approval to access spectrum
Normally requires intensive lobbying:
Process may take many years
Favours well-resourced incumbents
Innovators lose ‘first mover’ advantage
Regulator may pick ‘wrong’ technology
Successful lobbying for change of use does not guarantee access to spectrum

6. Welfare gains from innovation are large
Welfare gains from new services dwarf existing service efficiency improvements
e.g. Hausman (1997) – cumulative cost of regulatory delays in spectrum for mobile = $100bn
Combination of trading and liberalisation offers:
Sufficient scale to incentivise innovation
Reduced risk and uncertainty for entrants
Less wasteful lobbying
Easier access to spectrum for trial launches
Trading and liberalisation would both:
Encourage domestic innovation
Promote diffusion of successful innovations from abroad

7. Examples of liberalisation facilitating innovation and entry
Wireless broadband services (up to 1Mbps) competing with DSL and cable
Launched in Australia in Dec 2003
Wide-area broadband technology
Using 3G spectrum acquired in 2001 auction
Equivalent spectrum in Europe was pre-packaged with 3G licences
‘Netvigator’ service launched in UK in May 2004
Deploying UMTS TDD technology in 3.4GHz spectrum
Only possible because RA relaxed technology restrictions for FWA bands

8. Nextel – a cautionary tale
Sixth largest US mobile operator
13.4m subs; 17,000 employees; $10bn+ revenues
Aggregated SMR licences to create national mobile network from 1991
But FCC allowed trading & liberalisation without clear framework:
Interference with public safety operators
No consensus over real extent of interference
Lack of clarity on rights to protection undermines commercial incentives to resolve problem
FCC resorting to giving Nextel valuable replacement spectrum in 1.9GHz band

9. The European dimension
Countries should have strong self interest to introduce spectrum trading
However, EU countries that ignore spectrum trading opportunity also create costs for others:
Restricts prospects for launch of innovative services that require pan-European scale
Reduces likelihood of innovations originating in Europe
Strong case for coordinating certain aspects of trading and liberalisation across Europe
Objective should be to create compatible frameworks not necessarily common outcomes

10. Case study: innovation in mobile
1990s: Europe led USA, owing to coordinated introduction of GSM
2000s: Europe falling behind USA and Asia in new mobile technologies:
Integration of wireless technology into handheld devices
802.11b and wireless hotspots
Mobile networks deploying CDMA2000 and EDGE
Innovative wireless broadband technologies (Arraycom, Flarion, Navini, IPWireless) originating outside Europe; most commercial trials in Asia and USA
Difficulty of accessing spectrum appears to be holding back launch of new technologies in Europe

11. Conclusions
Spectrum trading offers great opportunities for innovative wireless technologies
Welfare benefits could be huge
Need well-defined usage rights to ensure functioning market
Innovation benefits will only be maximised if sufficient number of EU states adopt trading AND liberalisation
Otherwise, Europe risks increasingly becoming a ‘taker’ not ‘maker’ of new technologies and services