Coase and WiFi : Law and Economics of Unlicensed Spectrum

Ronald Coase’s famous 1959 paper, “The Federal Communications Commission,” argued for innovative and needed change to the system of spectrum allocation, challenging the prevailing “command and control” model in favor of one based on property rights and auctions. Today, many continue to not only rely on Coase’s insights to support spectrum auctions over command and control, but also invoke Coase’s writings as almost sacred texts opposing any use of spectrum for unlicensed purposes. I argue that this is a simplistic and inappropriate reading of Coase and that his economic insights provide strong support for unlicensed, as well as licensed, spectrum. Coase was primarily attacking a model of governmental command and control that was in dire need of modernizing, but Coase surely never intended his work to be used to support rigid and doctrinaire thinking about spectrum. This paper examines the support for a new interpretation of Coase, concluding that a mix of both unlicensed and licensed spectrum is well grounded in Coase’s economic pragmatism. There is a wide range of potential ways to define rights in spectrum use; we should craft those rights in such a way that minimizes the costs of arranging the most socially beneficial outcome. Given the tremendous benefits of both licensed and unlicensed applications, we need a spectrum policy grounded in Coasean pragmatism, not Coasean doctrine. This TPRC submission builds upon and extends an earlier work of the same title produced for ITIF. Additions include a deeper analysis of Coase’s spectrum work, discussion of contemporary developments in unlicensed spectrum such as sharing in the 5 GHz band and LTE-U or License Assisted Access, and recommendations on institutional arrangements for spurring innovation in unlicensed bands