Taxation by Condition: Spectrum Repurposing at the FCC and the Prolonging of Spectrum Exhaust

We show how the Federal Communications Commission’s regulatory process may be used to impede the efficient functioning of a secondary market for commercial spectrum.

In particular, we show that imposing (and threatening to impose) significant conditions when firms seek to repurpose spectrum from a low-value to a higher-value use acts as a “tax” and thus reduces the incentives of firms to exchange spectrum in the secondary market. As a result, “taxation by condition” will discourage the larger scale transactions necessary to resolve spectrum exhaust, though we may still observe many deals of a less material nature that will attract less attention and thus fewer conditions. Our analysis also reveals that in many cases the arguments to condition spectrum licenses based on “market power” concerns are misguided.