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Saturday, September 28 • 9:35am - 10:10am
Cellular Competition and the Weighted Spectrum Screen

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If one or two cellular carriers gain control of enough spectrum, they may be able to prevent current rivals and potential new entrants from getting the spectrum needed to compete. Thus, regulators typically attempt to protect competition through some form of limit on how much spectrum any one cellular carrier can hold. The U.S. Federal Communications Commission (FCC) previously imposed a spectrum cap on the total bandwidth that a carrier can hold in any given market. They later replaced this with a spectrum screen. If a proposed transaction would cause the spectrum screen to be exceeded, this triggers greater scrutiny by the regulator. Final decisions as to whether the transaction would harm competition are made on a case by case basis after further investigation. With both the spectrum cap and spectrum screen, the amount of spectrum a carrier holds in a given market has been determined by simply adding the bandwidths of all licenses held in that market, regardless of the frequency band associated with each license. However, the physical properties of spectrum depend on frequency, and treating all frequency bands as if they were the same could potentially become more problematic as spectrum at higher and higher frequencies become available to cellular carriers, which is the trend.

This paper proposes the idea of measuring the amount of spectrum held in a given market with a weighted sum of the bandwidths of all licenses held, where weights are a function of frequency. The motivation for adopting such an approach is explored from both a technical and economic perspective. First, we quantify how the cost of deploying and operating a cellular network depends on the frequency of the spectrum used by constructing an engineering-economic model based on standard signal propagation equations. The more costs vary by frequency, the more reason there is to assign different weights to different frequency bands. We find that frequency has a tremendous impact on infrastructure cost in regions where population density is low, and a more modest impact in regions where population density is high. Some implications for handset cost are considered qualitatively. Second, we discuss the extent to which market valuations of spectrum licenses are dependent on frequency, relying primarily on past studies. We find that frequency is a very important factor in determining the market value of a license. Third, we present new analysis showing how the market concentration of cellular carriers in a given region relates to the concentration of spectrum holdings in that region, where spectrum holdings are measured using some form of weighted scheme and with the usual unweighted scheme. This analysis uses U.S. spectrum data that was recently made available by the FCC, and U.S. market data that became available as a result of consideration of the proposed merger of two U.S. cellular carriers: AT&T and T-Mobile. The results of this analysis shed light on the extent to which market concentration reflects spectrum concentration, and how this depends on the weighting scheme chosen.

avatar for Jon Peha

Jon Peha

Carnegie Mellon University

Saturday September 28, 2013 9:35am - 10:10am PDT
GMUSL Room 221

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