Do Spectrum Set-Asides Work?

Reserving spectrum for new competitors is a relatively common tactic regulators take when trying to encourage competition when new blocks of communications spectrum are to be licensed.

The U.S. Department of Justice has suggested Sprint and T-Mobile USA be allowed to acquire spectrum on a preferred basis, when auctions are held for upcoming blocks of spectrum at frequencies below 1 GHz, essentially.

Austria in 2013 will be holding an auction of 28 blocks of spectrum in the 800MHz, 900MHz and 1.8GHz bands, for launching Long Term Evolution networks.

Two of the 800-MHz blocks will be set aside for a new mobile firm not already in the market. The minimum reserve price for this spectrum will be €45.6 million.

Some think such spectrum set asides are not economically effective, essentially denying use of spectrum to the providers who can put resources to work most efficiently.

Nor is it clear that spectrum set asides actually wind up changing market structures long term. One might argue Illiad’s Free Mobile is shaking up France’s mobile market, but the full story is not to be told, yet.

One might argue the auction of personal communications service spectrum did enable firms such as Sprint to enter the U.S. market, and Sprint remains the number three provider, in terms of market share.

But it also is possible to argue that Sprint’s final story also is yet to be written. On the other hand, Sprint’s market entry was not enabled by a set aside, either. Typically, set asides do not allow a new contestant to amass enough total spectrum to really challenge market leaders.

The financial backers of a “set aside” firm do stand to profit.  But whether markets actually are changed, long term, when set-asides are used, is far from clear.