WASHINGTON D.C. - Introducing property rights and market forces into spectrum allocation would achieve the most efficient usage and promote development of new technologies, conclude the Digital Age Communications Act Project's Working Group on New Spectrum Policy in Release 1.0 of their report on spectrum reform. The working group proposal also provides guidance for an effective transition from the current "command and control" system, analyzing five alternative ways to move towards a market-based spectrum allocation system.

The working group makes a case for market-based allocation of spectrum by looking at two alternative means of reform: the "commons" approach and one based on property rights. The report identifies two primary reasons why the commons approach would not be appropriate for achieving significant reform. First, the lack of property rights in such an approach would discourage large private investment in spectrum technology and would slow or hinder innovation in spectrum-based services. Second, without a market mechanism for determining price or the opportunity costs of spectrum usage, it would be difficult to determine the most efficient allocation. Hence, the report explains, market-based allocation of spectrum would be the best means for reform.

The group proposes five possible options for moving towards a market-based allocation of spectrum, each granting a different level of rights or compensation to incumbents:

• Auction spectrum with rights to clear incumbents immediately without compensation
• Auction spectrum with rights to clear incumbents, but with compensation for relocation or ceasing of operations
• Auction spectrum without rights to clear incumbents, leaving the private sector to negotiate transactions to clear incumbents from the auctioned spectrum
• "Big Bang" auction of unassigned and encumbered spectrum permitting incumbents to repurchase existing rights at no net cost or receive vouchers.
• Give incumbent licensees full property rights to the spectrum they use

The working group rejects options 1 and 5 outright because they would either not provide compensation to incumbents or would lead to costly litigation, slowing down the transition to a property rights regime. The group proposes that options 2 through 4 would be reasonable solutions to moving towards a market-based allocation of spectrum because each of them involves a market-based transition process as well as providing protection for incumbents.

The group also proposes that steps should be taken to promote efficiency in government-held spectrum. Suggestions include: public disclosure and Congressional monitoring of government spectrum usage; requiring the government purchase additional spectrum rights as needed at market price; and encouraging governments to purchase complete communications services in place of grants of spectrum. The proposal also includes two alternatives for enforcement and adjudication of spectrum property rights: under the jurisdiction of the Federal Communications Commission or within the Federal Court system.

The DACA Spectrum Policy Working Group proposal and other communications topics will be discussed at the upcoming all-day conference, The Digital Age Communications Act: Towards a New Market-Oriented Communications Policy in 2006. The event will be held March 9th at the Capitol Hilton. To register for the event or for more information, please visit the PFF website.

The Digital Age Communication Act (DACA) Project was launched in early 2005 with the intent of providing guidance for regulators and legislators on how to address regulatory issues in an era of competing digital services and platforms. DACA consists of dozens of individuals, including PFF fellows, scholars at other think tanks and universities, and public policy officials from the last five presidential administrations. There are five working groups -- Regulatory Framework, Federal/State Framework, Universal Service, Spectrum Policy, and Institutional Reform.

The Progress & Freedom Foundation is a market-oriented think tank that studies the digital revolution and its implications for public policy. It is a 501(c)(3) research & educational organization.