Reclaiming Spectrum from Incumbents in Inefficiently Allocated Bands: Transaction Costs, Competition, and Flexibility

Unlocking spectrum from inefficient, inflexible uses assigned mostly prior to the 1990s to a more efficient, flexible-use model is a key challenge for the Federal Communications Commission. This paper focuses on transitions of spectrum use and looks at how the FCC attempted to minimize transaction and holdout costs while also facilitating competition among service providers. The FCC's recent Broadcast Incentive Auction provides a case study to examine tradeoffs between centralized mechanisms and "overlay" auctions.  The FCC experiences with overlays and more interventionist approaches leads to a set of five questions to help decide when to use simple overlays and when to add more rules to facilitate spectrum repurposing. When the FCC can facilitate repurposing through reducing hold up issues and providing alternatives for incumbents that decentralized private parties would find harder to effectuate, it may be appropriate for the FCC to step in. In other instances overlays may be better.