Journal of Economic Perspectives
Volume 8, Number 3
Selling Spectrum Rights
shades of the '49 California gold rush," remarked one indus-
try observer. "It's the 21st century equivalent of the Oklahoma
rush," said another.
The sought-after item is the radio
spectrum, which the U.S. government has put on the auction block. The
wavelengths on offer, formerly reserved for the military, are to be used for
newly invented personal communications services (PCS): pocket telephones,
portable fax machines, and wireless computer networks.
The auction is one of the biggest and most complicated in history. The
spectrum on offer is estimated by the Office of Management and Budget (1993,
p. 21) to be worth $10.6 billion. Thousands of spectrum licenses are for sale.
The bidders include most U.S. telecommunications firms: long-distance,
local, and cellular telephone companies and cable-television companies. After
spending billions for the spectrum licenses, the firms will invest still bigger
sums installing transmitters and developing a customer case. The return is
highly uncertain. The new PCS operators will compete not only with each other
but also with entrenched cellular-telephone companies. The PCS technology is
still being developed. The potential size of the market is unknown. (Will
cordless telephones eventually replace many of the telephones now tethered by
wires? Will the new wireless multimedia systems—carrying video and data as
well as the spoken word—be in wide demand?) Successful bidders face daunt-
ing risks, but could make huge profits.
, November 29, 1993, p. 128; and Tom Wheeler, president of the Cellular Telecom-
munications Industry Association, in the
, October 18, 1993, p. VIII.
John McMillan is Professor of Economics, Graduate School of International Rela-
tions and Pacific Studies, University of California, San Diego.