Efficient Relocation of Spectrum Incumbents
Peter Cramton, Evan Kwerel, and John Williams
University of Maryland and Federal Communications Commission
17 July 1996

Abstract
Changes in technologies and in consumer demands have made prior
radio spectrum allocations far from efficient. To address this problem
the
FCC has recently reallocated spectrum for more flexible use in bands
that are partially occupied by incumbent license holders. Typically, it
is necessary for the new license holder to relocate incumbents to make
efficient use of the spectrum. In this paper, it is shown that
regulations
structuring the negotiation between incumbent and new entrant may
promote efficiency. In particular, we analyze the bargaining problem
between an incumbent licensee and the new entrant under alternative
policies. With imperfect information, negotiations that are not
structured
by regulation are shown to be inefficient. These inefficiencies can be
reduced or eliminated through effective policy. The model suggests
several prescriptions for effective policy. We then examine the
experience of broadband PCS winners in relocating microwave
incumbents, interpreting the experience through the lens of our model.
We conclude with some speculative remarks on how these ideas might
be applied to future allocations of broadcasting spectrum.

JEL No.: C78 (Bargaining), D44 (Auctions), L96 (Telecommunications)
Keywords: Bargaining, Auctions, Spectrum Auctions, Telecommunications
Policy