Free Market Foundation calls for the legalization of spectrum trading in SA

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The prohibition on the private ownership and free trading of radio frequency spectrum is an “artefact” that has “neither a technological basis nor is supported by economic theory”.

This is the view of the Free Market Foundation (FMF), which this week published a socioeconomic impact assessment on spectrum. It found in its report that spectrum trading should be fully legalized in South Africa and that the airwaves shouldn’t be treated differently to any other commodity.

“There is no valid technological, economic or historical reason for not entrusting the telecommunications industry to own, trade and share the resource of spectrum as players in other industries own, trade and share other resources, including ‘natural’ resources,” the FMF said. “The current regulatory framework derived its justification from contrived historical narratives and flawed economic theory. It will not survive the next decade, not only in South Africa but worldwide.”Why should telecoms operators not strike agreements for the use of spectrum based on the type of private property framework that guides all other industries?

Spectrum, the FMF added in its report, is a distinctive resource, “but not more distinctive than milk, cars or haircuts”.

“All sectors have self-regulating mechanisms that ensure their functioning. Why should telecoms operators not strike agreements for the use of spectrum based on the type of private property framework that guides all other industries?”

The report points to the operators of key Internet peering points around the world, which are not licensed by governments, as an example. “They have not preyed on each other… They simply emerged in the 1990s when the need arose to ensure a more reliable flow of cross-border and intercontinental traffic. The same happened when radio broadcasting emerged in the 1920s. They used the spectrum that was unoccupied and the very few cases of interference were settled by private arbitration.”

Abundant spectrum

According to economic theory, the crucial condition for resources to be employed for the sake of consumer prosperity is that they are in the market and out of the hands of government, the FMF said. “If this condition is met and regulators do not restrict trading, sharing and pooling of spectrum, the South African mobile telecoms market will have sufficient spectrum to roll out rural broadband at much lower cost and provide better and cheaper data in dense urban areas.”

There is abundant spectrum available below 700MHz and in various bands between 1GHz and 8GHz that could be released “relatively quickly” should current holders of that spectrum be able to trade it freely in the open market, it said.

“The dynamic, demand-driven sharing and pooling of spectrum and network infrastructure among carriers to support mission-critical (high-bandwidth and/or low-latency) use cases in dense urban areas will soon become a reality that will render the static regulatory model unfit for the future needs of consumers.”

The report added that to allow consumers to derive the full benefits of spectrum and network infrastructure sharing and pooling, the South African government and regulators “must not succumb to the myth that co-operation is ‘collusion’”. There are also “no logical grounds” for the theory that private ownership and the free trading of spectrum leads to market failure, the FMF said.

Market-based spectrum allocation, sharing and trading could solve spectrum shortages quickly, the report said. “But global regulatory practice has it that spectrum is a public good to be allocated by the state.”

The danger is that regulators “contrive mental constructs of markets that ignore real value”.Global regulatory practice has it that spectrum is a public good to be allocated by the state

“To the extent that publicly assigned spectrum can be considered a market at all, the ‘market’ is suffering from an artificial shortage of spectrum that government failed to make available and for which there is only one logical justification: regulatory failure. It is the reduction of this artificial scarcity that deserves the full attention of government, not any perceived ineffective competition in Pofadder.”

The report added that the prohibition of spectrum trading has meant that mobile network operators “cannot acquire sub-1GHz spectrum occupied by analogue TV broadcasters — an economic mistake for which the consumer pays the price in the form of lower rural coverage and higher data prices.”

Main Image: Mobile Europe

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