Reallocation of Spectrum Bands with Insurance and Compensation ----Proposal of a New System
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Transcript of Reallocation of Spectrum Bands with Insurance and Compensation ----Proposal of a New System
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Reallocation of Spectrum Bands with Insurance and Compensation ----Proposal of a New System
SNU Center for Law & Technology's 2004 International Symposium in Seoul
Beyond Property v. Commons Dimension
For a New Spectrum Management System
August 16, 2004
Hajime ONIKIOsaka-Gakuin University, Japan
www.osaka-gu.ac.jp/php/oniki/
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Contents:
I. Introduction and Background
II. Reallocation with Insurance and Compensation (RIC)
III.RIC and Spectrum Assignment
IV. Discussions of RIC
V. RIC for International Reallocation of Spectrum (IRIC)
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I. Introduction and Background
A. Radiowave resources
B. History
C. Management of spectrum
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A. Radiowave resources 1. Physical properties
a. radiowave spectrum:
3KHz ~ 300GHz
b. transmission of energy and
signals
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A. Radiowave resources 2. Technological and economic properties(1/5)
a. natural resource which is
non-reproducible
non-depletable
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b. a “space-type” resource
like land as a resource
terrestrial spectrum:
3-dimensional space
satellite-to-earth spectrum:
4-dimensional space
A. Radiowave resources 2. Technological and economic properties(2/5)
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c. size and boundary
physical capacity of a piece of spectrum resource:
given and fixed
A. Radiowave resources 2. Technological and economic properties(3/5)
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A. Radiowave resources 2. Technological and economic properties(4/5)
d. utilization
needs capital equipment
(e. g., transmitters and receivers)
technological capacity
can be increased by technological progress
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A. Radiowave resources 2. Technological and economic properties(5/5)
e. externalities
positive externality:
economies of scale band-wise and area-wise
negative externality:
interferences, congestions
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early 20th century:
maritime navigation
military use
B . History1. Beginning of spectrum use
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expansion of spectrum uses
radar, TV, wireless telephony, etc.
expansion of spectrum frontier:
VHF, UHF, high-frequency band
B . History2. Development
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B . History 3.Current situation
exhaustion of spectrum frontier
shortage of useful spectrum bands
(such as VHF, UHF) in urban areas
spectrum now has economic value
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C . Management of spectrum 1. Management bodies (1/2)
a. international organizations
ITU
Overall allocation of spectrum bands
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C . Management of spectrum 1. Management bodies (2/2)
b. national government
allocation in detail
technological specifications
assignment of spectrum blocks(licensin
g)
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C . Management of spectrum 2.Objectives of management (1/2)
a. before spectrum shortage emerges:
prevention from interferences
promotion of use with positive externalities
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C . Management of spectrum 2.Objectives of management (2/2)
b. after spectrum shortage:
efficient utilization of spectrum
resources
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (1/8)
a. exclusive use
spectrum block is assigned exclusively to a single user
licensed for a limited period of time but renewable
systems for this use:
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (2/8)
a. exclusive use
(1) command and control (traditional
system)
repeated renewals
no rental or lease fees
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (3/8)
a. exclusive use
(2) market mechanism
(a) spectrum as a property
auction at initial assignment
secondary property markets
secondary lease markets
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (4/8)
a. exclusive use
(2) market mechanism
(b) competitive lease and renewal by government
some protection of incumbents at renewal
secondary markets for lease rights
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (5/8)
b. club use
spectrum block is assigned to multiple users (with licenses)
unlimited or restricted entry
systems for this use:
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (6/8)
b. club use
(1) command and control
for unlimited or restricted entry
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (7/8)
b. club use
(2) some market mechanism
for restricted entry
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C . Management of spectrum 3. Various modes and institutions for spectrum assignment (8/8)
c. commons (free) use
spectrum block is open to the public for
free use
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C . Management of spectrum 4. institutions for spectrum allocation (1/2)
a. international allocation
negotiations in ITU
conflicting interests to member countries
time-consuming and costly process
reallocation is often delayed
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C . Management of spectrum 4. institutions for spectrum allocation (2/2)
b. domestic allocation
command and control by a national
government
vested interests of incumbent users
reallocation is time-consuming
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II. Reallocation with Insurance and Compensation (RIC) (1/2)
A. Outline
B. Selection of spectrum bands to be reallocated (to be done by the government)
C. Determination of the rate for compensation premiums (to be done by the government)
D. Implications of RIC as an insurance
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II. Reallocation with Insurance and Compensation (RIC) (2/2)
E. Possibility of speculative behavior by users
F. Implications of RIC to income distribution
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II. A. Outline1. spectrum users (1/2)
equivalent to subscribing to an insurance plan covering the cost of reallocation
choose and register an amount of compensation
pay an insurance premium (compensation premium) to government
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II. A. Outline1. spectrum users (2/2)
(compensation premium)
= (compensation premium rate) *
(compensation amount declared)
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Users(no reallocation)
Users(with
reallocation)
compensationpremium premium
Insurance-Compensation for Reallocation
Country Government
(premium rate)
Users
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II. A. Outline2. government
determines a rate of compensation premium
so as to balance the income from premiums
and the outlay for compensations
selects spectrum bands to be reallocated
pays compensation to users with reallocation
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II. B. Selection of spectrum bands to be reallocated1. Establishing a new allocation
new objective and a mode of use
the size of spectrum bands to be reallocated for
the new objective
to be determined by government
decision would be easy with market-oriented
assignment
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II. B. Selection of spectrum bands to be reallocated 2. Determination of the location of spectrum bands to be reclaimed for reallocation
minimization of the total amount of
compensations for reallocation
consideration of externalities
economies of scale in using the spectrum bands
reclaimed
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II. C. Determination of the rate for compensation premiums
maintenance of the long-run balance between
the premium income and the compensation
outlays
minimization of the average annual changes in
the premium rate
an algorithm for rate adjustments
(left for research in the future)
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II. D. Implications of RIC as an insurance 1. Fair insurance to spectrum users in the long run
(probability of spectrum reallocation to users)
= ( average annual premium rate).
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II. D. Implications of RIC as an insurance 2. Rational behavior of spectrum users
complete insurance:
the level of utility is unchanged
regardless whether the spectrum band is
reallocated or not
maximization of the expected utility level
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II. E. Possibility of speculative behavior by users 1. Spectrum “hold-up”
declaring an extremely large amount of compensation to spectrum with high probability of reallocation
utilization of positive externality between contiguous spectrum blocks
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II. E. Possibility of speculative behavior by users 1. Spectrum “hold-up”
possibility of successful hold-up is decreased by RIC
declaring a large amount or compensation means an increase in premium payment decreases the probability of reallocation
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II. F. Implications of RIC to income distribution (1/2)
the social cost of spectrum reallocation is
the sum of the costs incurred to users with spectrum reallocation
borne by all spectrum users
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II. F. Implications of RIC to income distribution (2/2)
a fair outcome since spectrum shortage arises from the demand for spectrum resources by all users
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III. RIC and Spectrum Assignment
A. Club or commons
B. Market mechanism
C. Command and control
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III. A. Club or commons 1. Allocation and assignment:
government allocates a band for club or
commons use
assignment to multiple users or open to the
public
RIC works well.
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III. A. Club or commons 2. Club or commons users
each declares and registers a compensation amount
pays compensation premium
this may be done at the time a user buys a device for using the club or commons band
receives compensation if the band is reallocated and the device becomes worthless
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III. A. Club or commons 3. Government
(the total amount of compensations to be paid at reallocation)
= (the sum of the declared compensations by all users of the reclaimed band)
Lindahl-Samuelson valuation of public good
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III. B. Market mechanism 1. Allocation and assignment (1/2)
government allocates a band for exclusive use
assignment by means of a market mechanism
private property (to be used within the
allocation restrictions)
traded or leased
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III. B. Market mechanism 1. Allocation and assignment (2/2)
government property
leased competitively to users
RIC works well.
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III. B. Market mechanism 2. Spectrum users
declare compensations and pay premiums
decision on compensation can be made by
considering market values of spectrum
(e.g., the estimated cost of acquiring a
replacement spectrum)
receive compensations at reallocation
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III. B. Market mechanism 3. Government
decision on reallocation can be made
on market values of spectrum
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III. C. Command and control 1. Allocation and assignment
government allocates a band for exclusive
use
assignment on first-come base, comparative
hearings, or random selection
RIC works, but not well.
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III. C. Command and control 2. Spectrum users
declare compensations and pay premiums
decision on compensation need to be
done with uncertainty
receive compensations at reallocation
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III. C. Command and control 3. Government
decision on reallocation need to be
done by discretions
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IV. Discussions of RIC (1/2)
A. Economic meaning of compensations
B. Decision by government on the size of spectrum bands to be reallocated
C. Decision by government on selection of spectrum bands to be reallocated
D. Determination of the amount of compensation by users
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IV. Discussions of RIC (2/2)
E. Introduction of multiple reallocation periods
F. Introduction of (partial) compensation in kind
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IV. A. Economic meaning of compensations
the supply price of the right of using a spectrum band with respect to reallocation
the value of spectrum to incumbent users
RIC functions as a price mechanism
a means to calculate the spectrum value
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IV. B. Decision by government on the size of spectrum bands to be reallocated 1. Criteria for reallocation (1/2)
a band should be reallocated from low-efficiency use to high-efficiency use
a band should be reallocated if the efficiency-improvement index is greater than 1, where
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IV. B. Decision by government on the size of spectrum bands to be reallocated 1. Criteria for reallocation (2/2)
(the efficiency-improvement index) = (B – C) / A
A = (the present value of a band with the current use)
B = (the present value of the band with a new use)
C = (the compensation to be paid for reallocating the
band)
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IV. B. Decision by government on the size of spectrum bands to be reallocated 2. Spectrum band is assigned with a market mechanism
the present value of a band may be
calculated by using market prices
government can rely on market data
for making decisions on reallocation
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IV. B. Decision by government on the size of spectrum bands to be reallocated 3. Spectrum band is assigned with a command and control
the present value of a band need to be
estimated in some way
government need to rely on discretions for
making decisions on reallocation
likely disputes, difficulties, and delays in
reallocation
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IV. C. Decision by government on selection of spectrum bands to be reallocated 1. Selection of bands to be reallocated
minimization of compensation outlays
consideration of positive externality
selection of bands contiguous area-wise
and/or frequency-wise
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IV. C. Decision by government on selection of spectrum bands to be reallocated 2. Prevention of speculative behavior by users (1/4)
a. speculative behavior
declare a very high amount of compensation to
a band which is
likely to be reclaimed
low compensations attached by other users
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IV. C. Decision by government on selection of spectrum bands to be reallocated 2. Prevention of speculative behavior by users (2/4)
b. prevention of speculative behavior (1/2)
disclose information on the amount of
compensations declared by users
announce a tentative decision on selection of
bands for reallocation, and
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IV. C. Decision by government on selection of spectrum bands to be reallocated 2. Prevention of speculative behavior by users (3/4)
b. prevention of speculative behavior (2/2)
give ample time for users to readjust the
amount of compensations,
before executing a final decision
impose restrictions on adjusting the amount
of compensations by users
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IV. C. Decision by government on selection of spectrum bands to be reallocated 2. Prevention of speculative behavior by users (4/4)
c. designing a mechanism (algorithm) for avoiding speculative behaviors
(research in the future)
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IV. D. Determination of the amount of compensation by users 1. Non-speculative decision
(the amount of compensation to be declared)
= (the present value of future incomes with the current business without reallocation)
– (the present value of future incomes with a business after reallocation)
+ Q, where
Q = (the once-and-for-all cost of changing business because of reallocation)
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IV. E. Introduction of multiple reallocation periods 1. Reallocation period
the length of time from the decision of reallocation to the execution of reallocation
multiple reallocation periods
give flexibility to users and government
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IV. E. Introduction of multiple reallocation periods 2. An example of RIC with five reallocation periods (1/3)
a. spectrum users
declare an amount of compensation for
each of the 5 reallocation periods
(say, of 1 to 5 years) and pay premium
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IV. E. Introduction of multiple reallocation periods 2. An example of RIC with five reallocation periods (2/3)
b. government
sets premium rate
so as to balance the long-run RIC budget
a rate for each of the 5 periods, or
a single rate to be applied to each period
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IV. E. Introduction of multiple reallocation periods 2. An example of RIC with five reallocation periods (3/3)
c. selection of bands to be reallocated by government gradual execution of reallocations
selection of a reallocation period for each band to be reclaimed
minimization of the present value of compensations to be paid during the coming 5 years
selection algorithm: for research in the future
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IV. F. Introduction of (partial) compensation in kind 1. Compensation in kind
allocation of a spectrum band, of which ablock may be assigned to users withreallocation
users may receive for reclaimed band
monetary compensation and/or
spectrum block in another band
useful in the command and control mode
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IV. F. Introduction of (partial) compensation in kind 2. Example of compensation in kind (1/2)
(a) data
X = (the size of spectrum block assigned to a user before reallocation)
Y = (the size of spectrum block assigned to the user as compensation in kind)
(Y < X)
(b) government
specifies an upper bound Ÿ for compensation in kind Y
YY
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IV. F. Introduction of (partial) compensation in kind 2. Example of compensation in kind (2/2)
(c) users
declare an amount of monetary compensation for reallocation of X
choose a Y (<Ÿ ) and receive
(the amount of monetary compensation)
= (the declared compensation for X) * (X – Y) / X
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V. RIC for International Reallocation of Spectrum (IRIC)
A. International reallocation of spectrum – current state
B. Outline of IRIC
C. ITU and member-country (1/3)
D. ITU and member-country (2/3)
E. ITU and member-country (3/3)
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V. A. International reallocation of spectrum – current state
negotiations in international organizations (such as ITU)
conflict of interests to member countries
difficulty in negotiations
delay in agreeing on reallocation
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V. B. Outline of IRIC 1. Government of member countries
plays to ITU the role of users in domestic RIC
selects an amount of compensation for each spectrum band
pays compensation premium to ITU
receives compensation for reallocated bands
the payment and receipt by a member country with ITU need not balance
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V. B. Outline of IRIC 2. ITU (international organization)
plays to member countries the role of
government in domestic RIC
sets a premium rate so as to balance the
income and payment to ITU in the long run
pays compensation to member countries for
reallocated bands
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Country Government (domestic rate)
domestic compensation
domestic premium
GIRICcompensation
GIRIC (GIRIC rate)
Users
GIRICpremium
International Insurance-Compensation for Re-Allocation
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V. C. ITU and member-country (1/3) 1. Outline
ITU adopts IRIC
member countries adopt RIC
IRIC and RIC function well together.
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V. C. ITU and member-country (1/3) 2. Action by member countries to ITU
aggregate the domestically declared compensations for each band and register the sum with ITU
apply the ITU premium rate to domestic users
pay the sum of domestic premiums to ITU
distribute the compensation received from ITU to domestic users as declared
the role of domestic government becomes transparent
Y
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V. D. ITU and member-country (2/3) 1. Outline
ITU adopts IRIC
member country does not adopt RIC
domestic reallocation done by
command and control
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V. D. ITU and member-country (2/3) 2. Action by member country to ITU
follows IRIC rules at ITU
declares an amount of compensation for each band
need to aggregate the preferences of domestic users with regard to reallocation in some way
the amount of work is of the same order as in the current situation
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V. E. ITU and member-country (3/3) 1. Outline
ITU does not adopt IRIC
negotiation for reallocation by
member countries continues
some member countries adopt RIC
domestically
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V. E. ITU and member-country (3/3) 2. Member countries with domestic RIC
may form a group within ITU for spectrum
reallocation (GIRIC)
execute IRIC within GIRIC
coordinate for negotiations in ITU
offer to ITU a reallocation plan agreed upon
within GIRIC