Spectrum Licensing, Carbon Credits, and Uber

For years, proponents of spectrum auctions and exclusive licensing have maintained that exclusive licensing is the superior means of allocation, primarily relying on the Coase theorem that market mechanisms will, over time, produce the most efficient outcomes.Coase assumed the necessity of exclusive licensing and postulated that auctions and flexible use would be superior to government allocation aka “command and control. Coase did not, however, indicate whether it would be more efficient to artificially induce scarcity by requiring exclusion of non-interfering uses. This has not, however, stopped proponents of exclusive licensing from insisting that licensees must have exclusive use of frequencies – offering a variety of rationales.The difficulty with this approach is that, if inducing artificial scarcity for the sake of auctioning licenses invariably maximizes efficiency, there is no particular reason to confine it to spectrum use. A contrary example is offered by the argument between taxi services and the car sharing service Uber. Opponents of permitting Uber to operate as an unlicensed car sharing service in competition with licensed taxis and limousines make substantially the same arguments for licensing ride services as proponents of licensed spectrum. Yet the adherents of the spectrum property school generally react with abhorrence to the same arguments for licensing car services.How can use of wireless capacity be distinguished from Uber? If auctions are inherently the superior way to distribute rights, then we should require Uber to purchase and distribute licenses in the market. Is it the negative externality of interference that distinguishes Uber from spectrum licenses? Here again, we see a modern analogy that disproves this approach. Carbon credits – also drawn from Coasian theory -- are a means of controlling carbon emissions, using the same logic as exclusive licensing. Part of the intent of licensing carbon emissions is to encourage the development of “clean” technologies by making them comparatively cheaper than their polluting cousins. It is difficult to distinguish between the logic of carbon credits and the logic of spectrum licensing. To prohibit non-interfering uses of spectrum is the equivalent of banning “clean” technologies because they undermine the value of the right to emit carbon. This is not to say that exclusive licensing must be dependent on scarcity. Copyrights and patents are examples of government enforced exclusive use monopolies justified not because ideas are scarce, but because certain desirable social outcomes flow from grant of the limited monopoly. Similarly, one can argue that exclusive licensing of high-power wireless use has social benefits, such as encouraging deployment of certain types of networks. But we should recognize the justification of exclusive licensing for what it is, a grant based on “the public interest” rather than on free market principles. Accordingly, as with other forms of command and control, it should be regarded with skepticism when free market solutions such as unlicensed spectrum are available.