Below is text from one section of Douglas Galbi’s paper, “Revolutionary Ideas for Radio Regulation.” For other sections, see www.galbithink.org or www.ssrn.com
II. Separation and Balance of Powers
Prior to the last decade of the twentieth century, radio regulation was almost wholly a minor administrative task for most national governments. State-owned radio and televisions stations organized radio use, and the general structures and process of government administration governed radio.[1] Making, administering, and enforcing rules concerning radio took place within a common, well-established framework of government administration.
The separation and balance of powers in radio regulation has changed significantly over the past decade. Many countries have set up new agencies to regulate radio use. These agencies’ authority relative to other legislative, executive, and judicial bodies is often a matter of considerable uncertainty. In addition, private entities now play a much more important role in radio regulation. Governments recognize that allowing private entities to make decisions about radio benefits the public. Private entities, in turn, participate in public regulatory processes, supply radio equipment, develop new technologies, establish non-legal standards, and work with regulators to implement equipment certification, frequency coordination, and dispute resolution. Making, administering, and enforcing rules concerning radio now depends on complex interactions among legislative bodies, regulatory agencies, and private entities.[2]
Property rights, contract rights, and liability rules are an alternative to government administration as a general framework for governance. Property, contract, and liability have been important aspects of human relations throughout human history.[3] Failure to appreciate the significance of such rights and rules to human societies is a fundamental anthropological error. Property rights, contract rights, and liability rules are essential for fostering individual freedom, human solidarity, and justice. A good configuration of these rights and rules also seems to be associated with material wealth. Realizing the potential contribution of property rights, contract rights, and liability rules to advancing freedom, solidarity, and justice in radio use is in the public interest.
Some policy makers have recognized the importance of property rights, contracts rights, and liability rules. In a March 2002 directive, the European Parliament and the Council of the European Union noted:
Transfer of radio frequencies can be an effective means of increasing efficient use of spectrum, as long as there are sufficient safeguards in place to protect the public interest, in particular the need to ensure transparency and regulatory supervision of such transfers.[4]
There is no evidence that any spectrum trading has yet occurred in the European Union. Further consultations and directives may elaborate on how to achieve transparency. The risk to the public that speculators, traders, and merchants, particularly foreign ones, pose has been well-recognized historically in Europe, and this danger has been regulated in a variety of ways.
Despite more difficult circumstances, Guatemala has taken a more liberal approach to reforming radio regulation. During the European Dark Ages, Guatemala was the center of a highly developed Mayan civilization. But this civilization did not respond successfully to changing circumstances. In 1996, Guatemala, then one of the poorest countries in Central and South America, finally managed to end thirty-six years of civil war. That same year a new telecommunications law was passed. It established Títulos de Usufructo de Frecuencias (TUF), which are radio use rights that can be leased, sold, subdivided, or consolidated. TUFs are recorded in a publicly available database. A regulatory body administers simple rules governing TUFs.[5] As of the first half of 2001, about 5000 TUFs have been issued to more than 1000 different persons. About 26% of these TUFs have been sold or otherwise transferred, and banks have judged them to be secure enough rights to be used as collateral for loans. Private mediation of interference disputes is encouraged, and parties can seek from the judiciary system damages for interference.[6]
The Guatemalan reforms have been highly successful. Fixed line telephone subscribership was only 4.1% at the end of 1997, and many Guatemalans, like many persons around the world, lacked important opportunities to communicate. Access to communications capabilities has increased dramatically through deployment of radio services. Mobile telephony subscribership grew from 0.6% of the total population at the end of 1997 to about 9.5% at the end of 2001. Persons have choices between pre-paid and post-paid options, and the average monthly minutes of use is higher in Guatemala than in other Latin American countries. Poor persons in rural areas and urban slums can be seen using mobile phones. Guatemala’s approach to radio regulation has provided significant benefits to many of its citizens.[7] Guatemala has probably become the leading practical model of radio regulation reform for rich and poor countries around the world.
Other regions and countries may not have the institutional capacity to implement the type of reforms that Guatemala has. Consider, for example, land titles, an important aspect of property rights in land. The U.S. has a primitive system:
The American system of land title records differs from almost all others in developed nations. Our system does not provide citizens with legally binding information about the ownership of land parcels…. It relies on searchers to analyze what they find in the recorded documents and to reach conclusions about the status of title. Moreover, technological advances have had little effect on the recording system. It continues to preserve and provide information in the same fundamental ways used in the Massachusetts Bay Colony in 1620….[8]
Land titles in the U.S. are registered at the county level in a variety of different institutions and formats. Most countries use a more centralized titling system in which the legal status of title is established and recorded as part of a transaction. Such a system lowers transaction costs and reduces uncertainty regarding property rights. Despite a clearly inferior regulatory system for property rights in land and some recognition of the problem, the U.S. has lacked the capacity to change. The problem does not appear to be related to the judicial system, but to the legislative and administrative process.[9]
Enforcing property rights, contract rights, and liability rules for radio rights is not necessarily a task best assigned only to courts. The judicial system in many countries is weak and susceptible to extra-legal private power. In such circumstances administrative agencies may be much more propitious institutions for establishing and enforcing property rights, contract rights, and liability rules that challenge the private status quo.[10] Even a highly competent judiciary might not be able to translate general legal standards for property, contract, and liability to radio use as quickly and appropriately as administrative action could. On the other hand, a general function of courts is to protect persons against government action that treats persons as legally unequal or violates law on the basis of informal consensus and expediency. While administrative actions may be able to establish rights and rules quickly, they are less likely to be credible long-term without independent judicial support.
Establishing a good separation and balance of powers in radio regulation requires attention to what particular institutions actually do, how they evolve, and how they interact. The effort must encompass not only government institutions but also private entities and their role in regulation. As scholars have pointed out, undoubtedly there is no completely certain formula for success. Circumstances vary, and institutional details are likely to matter a great deal. Yet knowledge and meaningful discussion about these issues are possible. This section will explore patterns, trends and relationships that provide general insight into achieving a better separation and balance of powers in radio regulation.
A. Long-Run Decline in Administrative Enforcement
For insights into radio regulation with a significant private radio industry and an independent regulatory authority, U.S. experience is particularly useful. The U.S. has had both of these institutional features since 1927. Improvements in radio technology and expansion of radio use are more clearly visible over a longer time horizon. U.S. experience provides insight into the evolution of regulatory activities over a time span that highlights important, ongoing changes.
This section will consider regulatory activities in four categories. The first category is administrative decisions, i.e. the regulator’s decisions regarding radio use and the licensing of radio users. The second is administrative enforcement, i.e. the regulator’s monitoring and enforcement of statutory radio law and administrative rules. The third is judicial process, meaning the development of public case law governing radio use and adjudication of disputes through the public judicial system. The fourth is private regulation, meaning private entities working out among themselves radio use norms, agreements, and operating capabilities. How does U.S. radio regulation in these categories compare between the early 1930s (when good data becomes available) and about the year 2002?
In the early 1930s, the U.S. radio regulator, the Federal Radio Commission (FRC), focused on administrative decisions. Those decisions predominately concerned AM radio broadcasting, although marine, amateur, and telegraphic uses of radio occasionally required administrative decisions. The largest functional units within the FRC were the Licensing Division (30 persons), the Engineering Division (26 persons), and the Legal Division (19 persons). As of September, 1931, the FRC employed 131 persons.[11]
Before 1933, the Radio Division of the Department of Commerce handled administrative enforcement of non-content-related radio regulations. The Radio Division divided the U.S. into nine districts, each with a district headquarters. An additional eleven branch offices were spread throughout the U.S. There was also a central frequency monitoring station in Grand Island, Nebraska. In July of 1932, the Radio Division employed about 187 persons.[12]
|
Table 1 Licenses and Inspections, 1932
|
|||
|
Radio Service |
Licenses |
Inspections (fiscal year) |
% Licenses Inspected |
|
Amateur |
30374 |
696 |
2% |
|
Ship |
2160 |
1275 |
59% |
|
Land (fixed) |
1165 |
1184 |
102% |
|
Broadcasting (AM radio) |
625 |
1193 |
191% |
|
Aircraft |
355 |
266 |
75% |
|
Source: Radio Division (1932) p. 7. Government stations excluded. Land (fixed) includes geophysical, general and special experimental. |
|||
The Radio Division extensively monitored compliance with statutory and administrative rules. In 1932, the radio division carried out 11,125 inspections of radio equipment on ships departing subject to radio requirements. Those inspections covered 76% of ship departures subject to the inspection regulation.[13] The Radio Division carried out an additional 3,352 inspections of departing ships voluntarily equipped with radio.[14] These inspections reflect private demand that private institutions did not satisfy, at least at the price and with the expertise that the Radio Division offered. Table 1 shows inspection rates for other classes of radio stations. Officials attempted to inspect every broadcast station semi-annually. Other stations were inspected on an annual or non-calendar basis. In addition to inspecting stations, the Radio Division also monitored frequency use through over-the-air frequency measurements. Table 2 shows frequency monitoring statistics for 1932, along with investigations that the FRC pursued on its own initiative. Station inspections and frequency monitoring predominately focused on (AM radio) broadcasting. This was the most contentious area of radio regulation.
|
Table 2 Monitoring and Investigations, 1932
|
||
|
Radio Division – Frequency Monitoring |
||
|
|
Broadcast |
Non-Broadcast |
|
Licensed stations |
625 |
34054 |
|
Frequency measurements |
66895 |
17738 |
|
Stations found deviating |
491 |
2138 |
|
% stations found deviating |
79% |
6% |
|
|
|
|
|
FRC Investigations |
||
|
|
Broadcast |
Non-Broadcast |
|
Operating rules (non-content) |
54 |
152 |
|
Programming or messages |
156 |
24 |
|
Financial issues |
32 |
6 |
|
Total investigations |
242 |
182 |
|
% investigations/licensed station |
38.7% |
0.5% |
|
Source: Radio Division (1932) p.9; FRC (1932) pp. 12-3. |
||
Enforcement actions focused on education, cooperation, and compliance rather than on punishment and deterrence. Radio Division annual reports mention nothing about fines. License revocation was an extreme, rare penalty for not complying with license terms. Enforcement seems to have been largely informal and focused on technical advice to correct detected problems. To foster radio skills and knowledge, the Department of Commerce established a licensing scheme for radio operators under a 1910 radio law that required ocean steamers to have radio equipment “in charge of a person skilled in the use of such apparatus.”[15] In 1932 the Radio Division examined and licensed 27,211 radio operators.[16] Unlawful radio use was associated with persons who did not know what they were doing.
From the early 1930s to the early 2000s, the balance among administrative decisions, administrative enforcement, and private regulation changed significantly. The FCC became the only government body regulating non-government radio use. According to a simple estimates based on publicly available data, the FCC in fiscal year 2001 employed 409 persons to support licensing and radio rights management activities related to domestic radio services[17] and about 168 persons to support administrative enforcement of non-content-related rules for domestic radio.[18] These figures indicate that, from the early 1930s to the early 2000s, the number of regulatory staff employed in administrative enforcement of non-content-related domestic radio rules decreased slightly. The number working on administrative decisions regarding domestic radio approximately tripled.
The number of radio licenses has increased dramatically with improving radio technology and expanding radio use. The number of administratively recognized radio services has approximately tripled, from 30 in 1932 to 106 in the year 2002.[19] Table 3 shows the number of U.S. radio licenses in April, 2002. Rather than organizing the data according to the many administratively defined radio service categories, Table 3 summarizes license counts using the categories in Table 1, plus new categories for new land mobile, FM radio, and television services. Over the past seventy years the number of radio licenses increased about fifty-fold. In measuring the administrative licensing task, the number of licenses should be discounted by license duration, which increased approximately ten-fold from 1932 to 2002.[20] Given that the number of regulatory staff only tripled, productivity in making administrative decisions is about two-thirds greater in 2002 than in 1932.[21] This productivity improvement may reflect clarified and streamlined regulatory processes, better administrative tools, and increased staff effort.[22]
|
Table 3 Number and Term of License, 2002
|
||
|
License Category |
Active licenses |
Ave. License Term (years) |
|
Amateur |
728,742 |
10 |
|
Land (mobile) |
546,245 |
7 |
|
Ship |
276,038 |
10 |
|
Land (fixed) |
111,951 |
10 |
|
Aircraft |
64,129 |
10 |
|
Broadcast (FM radio) |
11,885 |
8 |
|
Broadcast (television) |
9,084 |
8 |
|
Broadcast (AM radio) |
4,727 |
8 |
|
All licenses |
1,752,801 |
9 |
|
Sources and Notes: See Appendix A. |
||
In addition to calling forth greater administrative productivity, radio regulation also responded to increased licensing demands by eliminating some licensing requirements. In 1938, the FCC allowed low-power radio devices to be operated without individual licenses.[23] Subsequent FCC decisions expanded the scope of this freedom.[24] Many devices that emit radio waves now operate under device class rules.[25] In 1983, the FCC eliminated individual licenses for the Radio Control Radio Service and the Citizens Band Radio Service. At that time, there were about six million licenses for these services.[26] In 1996, the FCC eliminated individual licenses for certain non-mandatory radios carried on ships and aircraft. There were then about 581,000 ship radio licenses and 131,000 aircraft radio licenses of these types.[27] Thus administrative decisions have limited the licensing task.
The regulator’s role in inspecting for compliance with licensing and other radio regulations has decreased dramatically over time. In 1932, the Radio Division inspected 1275 ship radios, and in doing so inspected 59% of those licensed (see Table 1). In mid-1990s, the FCC inspected annually about 1600 ship radios, but there were about 581,000 licensed ship radios subject to inspection at that time.[28] FCC orders in the late 1990s privatized all ship radio inspections.[29] In the second half of 1998, the FCC conducted 68 random inspections of ship radios to monitor the private inspection process.[30] Inspections of ship radios and for all other types of radio services are now done mainly in reaction to complaints or particular concerns.
Other aspects of administrative enforcement have also become less significant. Table 4 summarizes Notices of Violation that the FCC issued in the year 2001 regarding non-content-related rules for domestic radio use. Violations of antenna structure rules (primarily structure registration) and emergency address system rules accounted for 72% of Notices. Only 165 Notices (15%) concerned rules related to free-to-air radio signals. In 1932, the FCC did not have rules concerning antenna structure registration, which is important for aviation safety, and there were no rules concerning emergency address systems, which are important for civil defense. But recorded rule enforcement actions were more numerous in 1932 than in 2002. Recorded enforcement actions in 1932 addressed 2835 violations of non-content-related operating rules.[31] The decline in administrative enforcement since the early 1930s is particularly remarkable given the huge increases in radio service use and associated administrative rules since then.
|
Table 4 Notices of Violation, 2001
|
||
|
Reason for Notice |
Notices Issued |
% of total |
|
Antenna structure rules |
562 |
51% |
|
Emergency address system rules |
229 |
21% |
|
Free-to-air radio signal rules |
166 |
15% |
|
Cable system standards |
95 |
9% |
|
Protocols and procedures |
53 |
5% |
|
Total Notices of Violation |
1105 |
100% |
|
Source and Notes: See Appendix A. |
||
Enforcement often involves informal requests for action to comply with rules. An FCC report indicates that over 180 unlicensed (“pirate”) broadcasters were shut down in the year 2000.[32] However, in that year the FCC field offices issued only 24 Notices of Violation for unlicensed or unauthorized stations violating the FCC’s general licensing authority (47 U.S.C. §301).[33] Only 6 orders are given in a list of Enforcement Bureau-level actions against unauthorized broadcast stations.[34] For comparison, in fiscal year 1935, the FCC Field Section reported 441 complaints about unlicensed radio stations, of which 66 were broadcast stations. That year the FCC Hearings and Trial Section in Washington reported 10 persons indicted and convicted for violating radio law and 20 radio stations closed without prosecution but with promises from the operators not to engage in further unlicensed activity.[35] Because enforcement occurs in different ways, statistics on enforcement should be analyzed with care. But the big picture is clear: enforcement of radio regulation is now a much less significant regulatory activity than it was in the early 1930s.
One focus of current FCC enforcement effort is shutting down certain unlicensed radio broadcasters. These broadcasters, called “pirates,” are typically unusually motivated individuals operating small, non-commercial stations far inland.[36] U.S. pirates, when fined several thousand dollars, typically claim that they are too poor to pay the fine. Stations called “pirates” in Europe have had much different characteristics. European pirate broadcasters have been large commercial operations broadcasting to Europe from ships or islands outside of European countries’ territorial waters. Drawing entrepreneurial capital especially from the state of Texas, pirates off the coast of the UK ran operations in the mid-1960s that involved construction costs of about a half million dollars, reached an audience of about 2-10 million listeners per week, and generated profits that may have been as high as a quarter million dollars a month.[37] These pirate broadcasters raised difficult, contentious political and economic issues for European countries. With little financial or political support, “pirate” broadcasters in the U.S. have been much easier targets for regulatory action.
Monetary penalties imposed in radio regulation enforcement have been relatively insignificant. In the year 2001, the FCC imposed 19 forfeitures related to unlicensed or unauthorized radio use. The average size of these forfeitures was about $8,900, and their total amount was about $188,000. These forfeitures are small relative to the total amount and sizes of forfeitures that the FCC has imposed in other areas. FCC-ordered forfeiture for all causes in 2001 totaled $3.7 million, with the largest forfeitures being over a hundred thousand dollars for unauthorized switching of a customer’s long-distance telephone provider (“slamming”) and for failure to pay universal service levies.[38] Radio use has considerable value: about $25 billion was bid for auctioned radio use rights, and the total value of radio use is unquestionably much higher.[39] The penalties imposed for violations of radio regulations have been remarkably small relative to the value of radio use.
Some have questioned the value of administrative enforcement efforts relating to radio use. An FCC chairman in the mid-1990s recalled:
I began the most aggressive effort to reduce the scope of the FCC’s activities in agency history. My target was the FCC field offices. After study, I concluded that the principal and misbegotten purpose of the field offices was to do work for industries or other governmental agencies that should do the work on their own…. Blair and I proposed to close virtually all the field offices. The career bureaucrat who ran the group refused my direct order to recommend a major cutback. I issued the order to the next in command, who also refused. Finally, the third in command agreed to make the recommendation to the full Commission. Then the bureau chief relented. …We had won another battle.[40]
As a result of this initiative, in 1995 the FCC closed its nine separate frequency monitoring stations dispersed across the US, as well as four additional frequency monitoring stations associated with field offices. Nine of the twenty-five field offices were reduced to two resident agents, and three of the six regional offices were closed. So little value was attached to radio enforcement skills that, for the first time in FCC history, involuntary separations were imposed on FCC staff. The regional and field office workforce was reduced by 120 persons. About 50 regional and field office workers lost their jobs through an associated, narrowly targeted, FCC reduction in force.[41]
While administrative enforcement of radio regulation has declined, the judiciary’s role in regulating radio has remained negligible in areas other than broadcast programming.[42] U.S. courts have assumed that the FCC has exclusive jurisdiction over technical matters associated with radio use other than by the federal government.[43] Thus state courts have refused to consider common law tort claims in radio interference disputes arising from alleged lack of adherence to FCC rules.[44] Similarly, a federal court found that state courts cannot consider nuisance claims relating to radio interference created in violation of FCC standards.[45] Under §207 of the Communication Act, a person can claim damages against a common carrier either at the FCC or in a federal district court, but not both. Many important types of radio devices, such as microwave ovens, computers, certain types of private land mobile services, and radio broadcasting, are not classified as common carrier services.[46] A search in a major legal database turned up no case in which a U.S. court considered, on its merits, a claim against a radio user for violating FCC rules unrelated to the content of broadcast communications.[47] Courts have, however, judged radio frequency interference disputes in relation to private agreements.[48]
Private regulation of radio use is becoming more important. In 1971, the FCC established a private coordination rule in conjunction with technical regulations for common carrier point-to-point microwave radio services (CCPMRS).[49]
An insightful FCC study of this experience noted:
Perhaps the most interesting aspect of the CCPMRS technical regulations is what they do not contain. Except for the antenna pointing rule (and of course the general allocation constraint) there are no a priori restrictions on the selection, location or orientation of specific frequency assignments. There are no prior allotments of channels to markets, as in the broadcast services; no pre-channelization of the band, as in the private microwave and most other services; and no minimum mileage separations as in the private land mobile services. Perhaps most notable of all is the absence of even a working definition of harmful interference. Individual licenses are allowed to set their own protection ratios.[50]
Historically influential arguments have stressed that, without centralized administrative control of radio use, chaos, or at least failure to use radio effectively in the public interest, would result. But this didn’t happen. In 1985, there were 15000 coordination actions for this radio service. Only 100 active protest cases were before the FCC.[51] The FCC study observed:
According to information in the case folders and as confirmed by the Commission’s licensing staff, most of these protests are eventually resolved informally through private negotiations between the parties and involve only minimal intervention by the Commission. The Commission gets involved only if one of the parties requests it, and then functions more as a mediator than a judge. However, since the Commission has the ultimate power to mandate a solution, a solution recommended by a member of the licensing staff no doubt carries considerable weight with licensees.[52]
Thus administrative power to make and enforce rules, though still important as a clear point of reference, matters much less than private regulation in ordinary regulatory activities.
Private negotiations to address interference are now well institutionalized. Since 1983, FCC rules for private land mobile radio services have required applications for new frequency assignments, changes to existing facilities, or operation at temporary locations to include a recommendation from a private frequency coordinator. For frequencies below 470 MHz or above 512 MHz, a particular private frequency coordinator is specified for particular uses, while any frequency coordinator can be used for services provided on frequencies from 470 MHz to 512 MHz.[53] The FCC and three frequency coordinators have entered into Memoranda of Understanding regarding the frequency coordinator’s actions “protecting public safety and other land mobile operations from harmful interference” and “promoting fair competition in the land mobile communications marketplace through the expedited enforcement of FCC rules and regulations.”[54] In private land mobile radio services, private entities have thus taken on the tasks that once were central aspects of public regulation.
Private regulation also plays an important role for many other radio services. For example, an FCC rule for public domestic fixed multipoint microwave service (multipoint distribution service) states:
Licensees, conditional licensees, and applicants are expected to cooperate fully in attempting to resolve problems of potential interference before bringing the matter to the attention of the Commission.[55]
Many other FCC radio service rules also require private coordination and cooperative, good faith private negotiations to resolve technical problems.[56] Particular types of amateur radio services have developed well-organized, voluntary, private coordination mechanisms.[57] The FCC urges compliance with amateur frequency coordinator plans. When interference arises between a coordinated and non-coordinated amateur repeater or auxiliary station, FCC rules assign the non-coordinated station primary responsibility for resolving the interference.[58]
Private regulation tends to favor narrow service categories. The FCC currently recognizes 106 different radio services.[59] These radio service categories facilitate private regulation by grouping organizations using radio in similar ways. Organizations that operate in similar ways can more easily coordinate radio use among themselves. Moreover, linking particular radio uses to particular radio frequencies helps to control the possibility for competition in a particular radio use. Increasing industry hostility to “spectrum flexibility” seems to reflect at least in part an increased awareness of the role of service categories in supporting private regulation.[60]
Across seventy years, with an independent regulator and a large private industry, the balance of powers in U.S. radio regulation has changed significantly. The number of regulatory staff employed in making rules and licensing users has approximately tripled. The number of licenses processed per year has increased five-fold. In contrast, the number of regulatory staff employed in administrative enforcement of non-content-related radio regulations has decreased slightly. Other measures of such enforcement have fallen absolutely, and, on a per license basis, dramatically. Judicial proceedings have never played an active role in non-content-related radio regulation. Private regulation, which tends to be neglected in policy analysis, has grown enormously.
B. Limited Information Matters
[Warning: This section contains material that some may find intimidating. Be not afraid! Nothing more is required than rudimentary knowledge of addition and subtraction, along with a willingness to read some algebraic notation. Even if you skip this section, you still know much about the world that is relevant to radio regulation.]
Currently, in the U.S. and in other countries, the most important types of radio regulation are administrative decisions and private regulation, while the role of administrative enforcement and judicial processes are generally negligible. Simple ideological interpretations of institutional and functional forms of regulation would link administrative decisions with administrative enforcement, or private regulation with judicial proceedings. But those aren’t the combinations observed. This section presents a simple model for understanding the advantages and disadvantages of administrative decisions and private regulation in a way that also explains how these types of regulation interact.[61]
Important aspects of administrative decisions are the limited information available to regulators and the bounded rationality of regulation.[62] In defining and issuing licenses, regulators make decisions about the initial allocation of radio rights. Radio rights have often been defined in detailed service rules. To give radio users more freedom, rights more recently have been defined by a small number of parameters, such as frequency assignments, limits on emission out of the assigned frequency, and limits on radiation outside of an assigned area. But in either case, regulators generally lack important information about costs and benefits of new radio uses in different circumstances. Moreover, practical limits on the feasible complexity of regulation mean that regulators cannot exhaustively tailor rights to circumstances.[63] Thus licensing rules, even service-specific ones, necessarily entail decisions at a high level of generality.
Private entities can establish radio regulation more closely related to local information and particular circumstances. Weather, terrain, the location of incumbents, and the demand for different services all significantly affect radio use. These and other relevant factors vary significantly by location. Entrepreneurship – perceiving a multitude of new possibilities and responding experimentally to particular circumstances – is more characteristic of small, competing private entities than of a single, public regulator. While private entities may confront limits on innovation that only public action can address, no social process of aggregating information can transfer what private entities learn through freedom, activity, and experience.[64]
|
Table 5 Model of Limited Information
|
|
|
v1>c1 |
v2>c2 |
|
v3<c3 |
v4<c4 |
To clarify these points, consider an applicant for a license to provide a new radio service. Both the value to the applicant of providing that service v, and the cost to incumbent radio users of the new radio use c, vary across four sets of circumstances. Social welfare, i.e. the public interest, is defined as the difference between the value and cost of services actually provided. The applicant and the incumbents know the value and cost in all circumstances, but the regulator can distinguish only between some of the circumstances.[65] Based on the values, costs, and the regulator’s knowledge of them, assume that the four circumstances can be categorized as in Table 5. The regulator can distinguish only between column 1 circumstances and column 2 circumstances. Within a column, the regulator cannot distinguish between the circumstances in different rows.
The regulator can choose not to license the applicant (licensing decision 0), to license the applicant for just the circumstances in column 1 (licensing decision 1), or to license the applicant for the circumstances in columns 1 and 2 (licensing decision 2). Define the regulator’s rationality as making licensing decisions so as to maximize the aggregate difference between value and cost for its licensing choices (the aggregate difference will be called service value, V). Assume that the regulator enforces its licensing decision. Then service value with no license issued is V0=0. Under licensing decisions 1 and 2, service values are, respectively
(1) 
, 
The regulator makes its licensing decision so as to achieve the maximum in {V0, V1, V2}.
The regulator’s rationality also includes an approach to justice. Assume that the regulator requires the applicant, if licensed, to compensate incumbents for the average cost imposed on them under the licensing scheme. Thus in licensing decisions 1 and 2, the compensation levels are, respectively
(2) 
, 
Compensation is paid, however, on a per circumstance basis, in only the circumstances in which the licensee chooses to operate. The compensation scheme, since it merely redistributes value, does not affect the regulator’s optimal licensing choice.[66] In circumstances i, compensation may be more or less than ci. Like the limited range of feasible licensing decisions, the limited range of compensation schemes reflects the regulator’s lack of information and bounded rationality.
Consider the incentives of the applicant and the incumbents. The applicant, unlike the regulator, can distinguish circumstances across the rows of Table 5. Hence, given the freedom to use or not use its radio rights in particular circumstances, the value L of the license to the applicant under licensing decisions 1 and 2 are:
(3) 
, 
Since the licensee can choose to operate in all circumstances permitted under the license, Li≥Vi.[67]
The regulator’s limited information and the licensee’s information and freedom of action in particular circumstances can affect social welfare. A licensee might get the right to operate in a circumstance where doing so decreases social welfare, and the licensee might also have the incentive to operate there. That is the case, for example, when V1>0>V2, c3>c1>0, c3>v3, and v3-t1>0.[68] A licensee might get the right to operating in circumstances where doing so would increase social welfare, but the licensee might also have the incentive not to operate there. That is the case, for example, when V1>0>V2, c3>c1>0, v1>c1, and v1-t1<0.[69] In this situation an incumbent might also have an incentive to oppose a socially beneficial license (v3>c3 , t1<c3). In a different situation, despite the requirement to pay average compensation to incumbents, the applicant still might have an incentive to seek a license even when issuing a license is not socially beneficial.[70] These results illustrate a mismatch between private incentives and social welfare even with no externalities and an administrative attempt to provide full compensation.
The rationality of the regulator’s licensing decision is also bounded by the regulator not knowing what the applicant will do in particular circumstances after licensing. The regulator chooses the licensing rule to maximize service value within {V0, V1, V2}. However, V1>V2 does not imply L1>L2. Thus the regulator’s licensing choice might not maximize service value actually realized. Some regulators attempt to address this problem by imposing build-out requirements on licensees. Since L1≥ V1 and L2≥ V2, to the extent that such requirements matter, they generally reduce social welfare.[71]
Now suppose private negotiations over radio rights are costless. Then, without licensing, a company seeking to provide the new radio service would acquire rights from incumbent users in all circumstances where vi-ci>0. Rights would not be acquired if vi-ci<0. Private negotiations thus generate the maximum possible total social welfare. More generally, private negotiations are more attractive than licensing if the costs of private negotiation are sufficiently low.[72]
But the costs of private negotiations appear to be quite high in many circumstances. Most transfers of licenses occur without any change in the license.[73] Private negotiations for radio rights are almost never used as a means for enabling a new type of radio service.[74] Most private negotiations concern extending or modifying existing licensees’ rights to do something similar to what has always been done with the license. Broadcasters’ inefficient radio use shows the prohibitively high cost, thus far, of private negotiations to bring forward persuasive cases for changing broadcast service rules.[75]
The licensing process seems to play an important role in supporting private negotiation. Licensing brings interested parties together for extended discussions about interference issues. While these discussions tend to be contentious, they provide information and build relationships that facilitate private negotiations.[76] Licensing also facilitates private negotiations by narrowing the scope for negotiations. For example, the licensing process, both symbolically and through rules that are relatively easy to monitor and enforce, establishes the licensee’s general right to use radio in a particular way. The details and boundaries of that use, articulated through the licensing process, then become the primary focus of negotiation. Moreover, technical coordination among licensees has a long tradition of cooperative, solution-oriented negotiations.[77] Thus post-licensing private negotiations take place in a low-transaction-cost context.
The model can help to analyze the interaction between licensing and private negotiation. Suppose the regulator granted a license for radio use under the circumstances in column 1 of Table 5. Suppose that radio regulation allows private negotiations, or that radio rights are not publicly enforced. Suppose that the new radio use in the top row of column 2 is socially beneficial (v2-c2>0), but new radio use in the bottom row of column 2 is not (v4-c4<0). Then after the licensing process, the new licensee and the incumbents are likely to be able to negotiate privately to allow the new licensee the additional use in the top row of column 2. The new licensee will recognize that it can not adequately compensate the incumbent for new use in the bottom row of column 2, so negotiation for such use will not be pursued.
Compare those results to the results of licensing the applicant for radio use in both column 1 and column 2 of Table 5. Most likely the magnitude of payments from the licensee to the incumbent would have been different. Moreover, because of the limitations of the compensation scheme that the regulator can impose, the new licensee might have been given an incentive to operate in the bottom row of column 2, or not operate in the top row. More extensive license rights for the new applicant only redistribute value and increase the possibilities for inefficient, i.e. not socially rational, radio use.
This model suggests how licensing and private negotiations might be closely related. Licensing is necessary to facilitate private negotiations. Private negotiations more effectively substitute for the substance of licensing. But licensing must retain enough substantial effect to attract interest in the licensing process. So, for example, allowing incumbents to have unlimited flexibility in radio use might not facilitate private negotiations over those additional rights. On the other hand, licensing broad “overlay” rights and administratively establishing rules for compensation for incumbents does not effectively distinguish between circumstances. It would provide bad incentives for radio use. One might hope to license overlay rights without any centralized, administrative scheme for compensation.[78] To the extent that could be done, the licensing process would do nothing to facilitate private negotiations, and it might create a more antagonistic environment. When regulation has been reduced to licensing and private negotiations, the best choice seems to be an awkward balance between the two.
C. Insecure Radio Rights?
Administrative decisions concern not just who gets radio rights in what circumstances, but also how those rights are defined. A recent UK review of market mechanisms in spectrum management noted:
It is possible to set boundary conditions, both geographic and adjacent band, for spectrum blocks. However, setting the boundary conditions at levels that prevent interference under all conditions is impractical (i.e. too constraining). Setting the conditions at levels higher than this leads to a potential for interference. Negotiation/co-ordination is therefore required in order to allow for satisfactory co-existence.[79]
A spectrum management specialist explained the situation this way:
Importantly, the access conditions do not seek to fully manage interference, but draw ‘a line in the sand’ for the licensee to then manage the interference based on this known reference point.[80]
Thus administrative decisions do not fix atomistic radio rights that are then bought and sold in private negotiations. Administrative decisions provide a reference point for the distribution of value in radio rights. Private negotiations reshape radio rights with respect to this distribution of value.
Because radio rights typically depend on complex administrative models and decisions, there is considerable scope to argue about the administrative reference point. Administrative decisions are not well-separated formally from private struggles over radio rights. Consider, for example, the FCC regulation that defines an important aspect of broadband PCS radio rights:
The predicted or measured median field strength at any location on the border of the PCS service area shall not exceed 47 dBuV/m unless the parties agree to a higher field strength.[81]
Predicting or measuring median field is not like checking the placement of a property marker. The Australian regulator forthrightly recognized the problem:
The [spectrum license] model also relies on imposing ‘limits of power levels at the geographic and frequency boundaries’, which poses a significant problem for the regulator! In the event of a complaint, the regulator has to establish as a matter of fact [emphasis in original] whether or not the power level has been breached. As our engineering and field technical officers were quick to point out, many phenomena in radiofrequency propagation lead to situations where power levels cannot be measured accurately [emphasis in original]. Indeed, there are situations where power levels measured only metres apart may be substantially different! The idea of absolute and measurable power levels at boundaries is unworkable.[82]
Typical implementations have used engineering models that predict interference contours.[83] The practical regulatory significance of these models can best be understood by analogizing them to engineering cost models such as those used in universal service calculations and state rate proceedings.[84] The much higher level of cooperation in radio use, as compared to wireline network use, may help explain why models used in defining radio rights have been relatively uncontroversial thus far. With a more competitive environment and more intensive radio use, models and parameters used to define radio rights are likely to become the focus of regulatory battles in the same way that cost models are in regulators’ rate proceedings.
The physical characteristics of radio signals make the problem more complex than cost analysis. Radio signal propagation is not only difficult to measure, but also difficult to model. Unexpected interference can occur even when users adhere to commonly accepted models and parameters for radio regulation. An Australian study noted:
Lawful interference can occur even where there has been full compliance with the spectrum management regime. Spectrum planning is not an exact science – a number of unpredictable factors, such as atmospheric conditions and malfunctioning devices, means that the actual propagation of a radiocommunications signal may not match that calculated by a spectrum planner. The Australian Communications Authority reported, for example, that one of its ‘more unusual’ investigations involved interference with a VHF and UHF emergency communications network in North Queensland from a HF broadcasting service situated in Victoria.[85]
A UK study also grappled with the issue:
One of the key questions that has to be resolved at the outset is whether the negotiation is based on calculation or measurement. While the closest to reality is measurement, it is not really practical to adopt this approach. If calculation is to be adopted then it will be essential that common data and common calculation tools are made available. There does however remain the question of what happens if an operator claims to be experiencing, and is able to measure, unacceptable interference even though the calculated interference levels indicate that the situation is satisfactory. It is considered that the likelihood of this is remote as experience tends to show that the engineering calculations used to assess interference are relatively conservative. However there would need to be a clear statement associated with the calculation tools that negotiated agreements reached on the basis of results obtained from the calculation tools do not completely guarantee interference free operation.[86]
Not only is an objective measure of radio signal propagation elusive, but interference in an operational sense involves human perceptions, i.e. subjectivity. Radio use rights cannot simply be defined objectively.
A private legal system is unlikely to develop to provide independent support for radio use rights. Compare radio use to the wholesale cotton trade.[87] In the wholesale cotton trade, a private legal system has “…endured since the mid-1800’s, surviving widespread social change, years of extreme price volatility, and substantial change in the background public legal regime.”[88] The legal system governing cotton trade depends only on the most general aspects of public law. Radio use, in contrast, depends deeply on public administrative decisions. Moreover, compared to cotton traders, radio users are more diverse geographically, institutionally, and technically. While diversity makes gains from cooperation larger, it also makes cooperation harder to achieve. Private negotiations among radio users about radio rights are unlikely to separate themselves from public regulatory decisions and become institutionalized enough to form an effective private legal system.
On the other hand, private negotiations of radio rights do not provide a sound basis for pubic administrative enforcement. Some regulatory authorities do not require public recording of at least some types of private negotiations about radio rights.[89] Such an approach is conducive to cooperative, technical negotiations incorporating possibly sensitive company-specific information. In contrast, a recent radio review in the UK presented as a key element of radio regulation “a [public] database of deployed systems and their technical parameters, and agreed changes to boundary conditions.”[90] Under any disclosure requirements, private negotiations are likely to produce regulations more complex and more specific than administrative rules that would be applied to the same situations. Administrative enforcement is best suited to simple, clear, general rules. Making information available about the results of private negotiations will not produce regulation amenable to public administrative enforcement.
Private negotiations among licensees can also undermine regulatory expertise. The licensing process lowers private negotiation costs and thus creates a propitious environment for post-licensing private negotiations. But these private negotiations tend to convert substantive administrative decisions into mere indicators of the distribution of value between the new licensee and incumbents. Thus distributional considerations become a more central aspect of licensing. Distributional decisions relate to political priorities and strategic goals. Field-specific expertise tends to play a minor role in distributional decisions, while political choices, personal connections, lobbying, and happenstance are much more important. Regulatory expertise is wasted, and its credibility eroded, if it is used merely as a cover for distributional struggles.
Encouraging some interference disputes to emerge after licensing may help to create over time more secure radio rights by fostering a better separation and balance of powers in radio regulation. Interference disputes handled through an independent judiciary system would contribute to building a common law to help define and secure radio rights. Moreover, a judicial record of disputes would help regulators to identify clear, simple, and beneficial public regulations that would not be made subject to private negotiation. Such regulations would be a propitious object for administrative enforcement. Giving both an independent judiciary and administrative enforcement a greater role in radio regulation would help to foster more secure radio rights.