Discussion Papers

Lorenz Nett, Ulrich Stumpf unter Mitarbeit von Ulrich Ellinghaus*, Joachim Scherer*, Sonia Strube Martins, Ingo Vogelsang**
[*Kanzlei Baker & McKenzie, Frankfurt; **Boston University, Department of Economics, Boston, USA]

Eckpunkte zur Ausgestaltung eines möglichen Handels mit Frequenzen
Nr. 241 / Februar 2003

Summary

The following study "Guidelines for implementing frequency trading" was conducted for the Ministry of Economics in Germany by wik-Consult in collaboration with Dr. Ulrich Ellinghaus, Prof. Dr. Joachim Scherer and Prof. Dr. Ingo Vogelsang. The task of the study was to develop the guiding principles for implementing frequency trading in the new German telecommunications act. The study is divided up into four main parts. The economic analysis of frequency trading, legal aspects of frequency trading, international experience with frequency trading and guidelines for the implementation with frequency trading. The economic analysis deals with the following topics: basic principles of frequency management, frequency trading as a market mechanism to improve economic efficiency, frequency trading and external effects, network externalities and standards for usage, political and social aspects for frequency usage, incentives to prevent hoarding, windfall profits, trading and predetermined user rights, a central data base as a necessary prerequisite, the initial assignment mechanism and frequency trading, frequency user fees and frequency trading, institutional arrangements big-bang auctions and introducing frequency trading retrospective. The legal framework was scrutinised by Prof. Dr. Joachim Scherer and Dr. Ulrich Ellinghaus. They considered the international telecommunications law, the European telecommunications law as well as the national constitutional law. Especially, they make explicit the requirements for a frequency trading system in line with the national constitutional law.

To get a deeper understanding and gain from international experience the institutional arrangement and current discussion of frequency trading in various countries has been considered. Prof. Vogelsang explicitly presents the experience with frequency trading in the United States of America. In addition frequency trading in Australia and New Zealand in its main elements is discussed. Furthermore the current debate in the United Kingdom is presented. The conclusions of the previous analysis with respect to the guidelines for frequency trading can be summarised as follows: Frequency trading is a market mechanism which can promote the efficient use frequencies considered as being a scarce resource. Frequency trading is a voluntary act by those directly involved in the trading. Therefore, both are better off after trading occurs. Trading is a better incentive mechanism than other administrative tools since the directly affected parties are better informed about the real economic consequences than third parties like public institutions. Frequency trading can help to speed up the process that those get the spectrum which can use it in the economic most efficient way. The more flexible the institutional arrangement of frequency trading especially with respect to usage restrictions the higher the potential efficiency gains. In combination with flexible user rights frequency trading can increase competition in specific areas. Frequency spectrum makes market entry possible. It creates incentives to prevent hoarding. It offers an additional option for all frequency users. Therefore, the team recommends to  implement frequency trading proactively. The new telecommunications act should allow to introduce frequency trading.

Frequency trading means that the initial user gives up its user rights and that he receives part or all of the money paid for the transfer. However, there is a wide range of possibilities for the precise institutional arrangements of the trading mechanisms. On the one extreme there is free trading without any restrictions. A detailed determination of the mechanism by the regulatory authority case by case is the other extreme. In addition frequency trading has to take into account a lot of relevant regulatory aspects as such are interference, competitive considerations, user restrictions, political aspects, the institutional arrangement should be objective, transparent and non-dis-criminatory and so. As an immediate consequence of the complexity of the issue, because of lack of experience, to prevent mistakes and to get acceptance among the involved parties it seems to be a good advise to proceed moderate and carefully implementing frequency trading in practice. It makes sense to initiate a consultation process among persons, firms, institutions affected. A reasonable procedure which allows all participants to point out their arguments is also the way how the Radiocommunications Agency proceeds in the United Kingdom. [full version only available in German]

Diskussion Paper is available for download.

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