Skin in the Game : Interference, Sunk Investment, and the Repurposing of Radio Spectrum

We attempt to shed some light on the optimal design of Commission rules and practices for addressing interference disputes. Since spectrum licenses produce no benefits without large and mostly sunk investments in communications networks, our focus is on investment incentives. We argue that the Federal Communications Commission's optimal interference policy would necessarily deal with different license holders differently when their sunk network investments vary. We focus on sunk investments because if interference-causing repurposings are permitted and the significant sunk assets to provide services using spectrum are given short shrift, then the rational response of private parties is to curb investment. A reduction in investment will reduce the value of wireless services and, in turn, the value of the spectrum. Accordingly, our model of interference dictates that license holders who have made little or no sunk investment in capital to generate benefits from their license would receive little relief under an optimal rule. On the other hand, those licensees with substantial sunk network investments would receive far more expansive treatment by the regulator. Put bluntly, regulatory policy towards interference concerns should favor those licensees with more “skin in the game,” with attention focused on actual capital investments in networks and not spectrum licenses alone. To provide context, we use the continuing saga of LightSquared Networks — a spectrum speculator now branded as Ligado — as a case study, though the analysis is in no way limited to the specifics of this ongoing proceeding