Skin in the Game: Interference, Sunk Investment, and the Repurposing of Radio Spectrum

In this bulletin, we attempt to shed some light on the optimal design of Federal Communications Commission rules and practices for addressing interference disputes. Since spectrum licenses produce no benefits without large and mostly sunk investments in communications networks, our focus is on investment incentives. We argue that the Federal Communications Commission’s optimal interference policy would necessarily deal with different license holders differently when their sunk network investments vary.

We focus on sunk investments because if interference-causing repurposings are permitted and the significant sunk assets to provide services using spectrum are given short shrift, then the rational response of private parties is to curb investment. Put bluntly, regulatory policy towards interference concerns should favor those licensees with more “skin in the game,” with attention focused on actual capital investments in networks and not spectrum licenses alone. To provide context, we use the continuing saga of LightSquared Networks—a spectrum speculator now branded as Ligado—as a case study, though the analysis is in no way limited to the specifics of this ongoing proceeding.