Discussion Papers

Kenneth R. Carter

Next Generation Spectrum Regulation for Europe: Price-Guided Radio Policy

No. 326 / November 2009


This project examines how market signals in the form of pricing information can be introduced into spectrum management in order to optimally guide not only assignment, but also determinations concerning type of use, emissions characteristics and exclusivity. We construct a mathematical model to illuminate how one possible implementation of such price-guided policy might function to make these determinations. For the past nearly two decades, spectrum management authorities have used market mechanisms such as auctions to determine spectrum assignment in an effort to ensure that the right to utilize the spectrum is held by those who value it most. As compared to conventional spectrum auctions, price-guided mechanisms for determining allocation and policy would arrive at an assignment of spectrum rights to the highest value users as well as ensure that the contours of those rights were the most efficient possible.

In the mathematical model presented in this paper, participants in a hypothetical auction are free to express their demand for spectrum licences which are different on several dimensions such as permissible power output and bandwidth. These demands are dictated by what is necessary to satisfy a specified a pre-specified level data rate using wireless communications ability. We use the Shannon-Hartley Theorem to model the possible tradeoffs between permissible signal strength and allotted channel bandwidths. As a proof of concept of the mathematical model, we created a simplified MS Excel-based version of the model. The model’s output was also a mix of high and low power users, at various channel bandwidths and winning bids. We also review the implications of German Law and EU for such price-guided policy. Price-guided spectrum policy is viable in Europe. However, price-guided policies cannot be used to determine allocations and assignments in internationally harmonised bands. The most actionable initial implementations include determinations of maximum power limits, bandwidth, duration of rights and channelisation. Other early potential implementations include boundary interference standards and possibly congestion-based protocols.

Price-guided policy holds substantial promise because it encourages allocative efficiency of spectrum due to the fact that bidders can acquire exactly the set of spectrum rights they need. Further, price-guided policy mitigates the allocation errors inherent in administrative determinations.

Discussion Paper is available for download.

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