The Case for Unlicensed Spectrum

Abstract

Demand for wireless data communication has risen rapidly in the past few years, raising important policy questions about how to allocate radio spectrum for this purpose. Historically, the US government has designated some spectrum for licensed use and a smaller but significant amount for unlicensed use. We discuss the advantages of each approach, and explain why unlicensed spectrum in particular has been a catalyst for innovation, and an important complement to licensed spectrum. We also explain why allocating a portion of spectrum for unlicensed use need not reduce government revenue from selling spectrum licenses, and the serious flaws in proposed auction-based approaches for determining the fraction of spectrum to leave unlicensed.

Keywords: radio spectrum, unlicensed spectrum, managed commons, wi-fi

JEL Classification: L51, L96, O38