Bandwidth allocation

Bandwidth allocation is the process of assigning radio frequencies to different applications. The radio spectrum is a finite resource creating the need for an effective allocation process. In the United States, the Federal Communications Commission or FCC has the responsibility allocating the portions of the spectrum, or bands, to various industries. For example, the FCC shifted the location of television on the spectrum, to open up more space for mobile applications. Different bands of spectrum are able to transmit more data than others, and some bands of the spectrum transmit clearer than others. These bands are of critical importance for companies that intend to operate a business involving wireless communications.

One method used to assign bands to users is auctions, since FCC found this method to be the most profitable as they earned millions of dollars through auctions. Some economists believe based on Auction Theory, auctions are the most efficient method of allocating resources. Due to the differences in the amount of data each band can transmit and the clarity of the signal, auctions allow the more desirable bands to sell for more. The United States currently auctions off bands that then become the property of purchaser. The FCC spectrum auctions have multiple rounds of bidding, as opposed to each party submitting one sealed bid. The FCC, when auctioning multiple bands, auctions them simultaneously. This allows for a more efficient bidding process, and keeps bands being auctioned at the end of the auction from being over or under valued. An example of this practice was the 700 MHz auction in 2008. A benefit of this method is that the government is able to raise money. A potential problem of this method is that smaller companies may be priced out of the market and unable to compete with large firms. This would reduce the number of points of view in the communications industry, which would violate one of the principles of the FCC, to protect the public interest.

Another method used to allocate bands of frequencies was lotteries. Lotteries were used by the FCC in the 1980s. A benefit of lotteries was that it gave all parties a chance at winning, unlike auctions which favor parties with more money. By giving all parties a chance it was believed that it served the public interest better. Some disadvantages of the lottery method was that some firm would engage in rent-seeking behavior, and try to get multiple licenses that they did not intend to use, but only intend to sell to another firm. In this situation not only were firms using rent-seeking behavior on a public resource, but the negotiations between firms could go on for years, meaning that frequencies were not being used and the public interest was not being served.

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