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ITU Journal on Future and Evolving Technologies, Volume 2 (2021), Issue 1




                                ECONOMIC EFFICIENCY OF SPECTRUM ALLOCATION
                                                    Vadim Nozdrin, PhD.,
                   International Telecommunication Union , Place des Nations, Geneva, Switzerland, vadim.nozdrin@itu.int
                                                   *

          Abstract – Spectrum demand is rapidly expanding, driven by the developments of incumbent radio systems, as
          well as with the requirements of new technologies and market players to get spectrum access. In this regard, one
          of the fundamental functions of the state spectrum regulator is to create an enabling administrative and legal
          environment  to  ensure  efficient  spectrum  use  and  to  mitigate  scarcity  of  this  valuable  natural  resource.  This
          paper  analyses  the  economic  value  of  spectrum  use  and  suggests  an  extension  of  the  spectrum’s  traditional
          technical boundaries, in order to take into consideration energy, environmental, sanitary and bio-geotechnical
          limits. The study reviews the phenomena of increasing transaction costs and negative externalities of spectrum
          access  requiring  economic  criteria  and  assessment  to  achieve  optimum resource  allocation  with  a  spectrum’s
          demand  growth.  Results  develop  an  input-output  matrix  as  an  allocation  instrument  to  achieve  spectrum
          efficiency  and  optimum  equilibrium  based  on  analysis  of  the  economic  effects  from  different  band  utilization
          scenarios, supplemented by currently used technical criteria. Practical application of proposed economic methods
          should improve the existing spectrum management system.


          Keywords – Input-output matrix, spectrum efficiency, spectrum externalities, spectrum management


                                                               rather than by administrative decisions, leading to
          1.   INTRODUCTION
                                                               zero  transaction  costs  and  coping  with  any
          Satisfying the ever-growing material, physical and   externalities [1]. Later on his idea was developed in
          social  needs  of  humanity  under  conditions  of   more detail, advocating for the implementation of
          limited resources, places the implementation of an   alternative  spectrum  management  instruments
          overall strategy for sustainable development at the   including   spectrum   privatization,   secondary
          heart  of  contemporary  economic,  political,       trading  and  auctioning  [2].  Several  fundamental
          environmental,  social,  and  technical  research.   studies designated the introduction of a spectrum
          Invention  of  data  transmission  by  means  of     fee,  deregulation  of  management  systems,  and
          electromagnetic  waves  gave  humanity  a  new       delegation of some administrative functions to the
          invisible resource: radiofrequency spectrum. Every   private  sector  as  the  basic  economic  methods  to
          single  radio  system  uses  artificially-produced  or   improve  spectrum  management  systems  [3].
          naturally-emitted  electromagnetic  waves  as  a     In 1996,  International  Telecommunication  Union
          carrier of data. Radiofrequency spectrum is defined   (ITU) initiated studies aimed to develop a guidance
          as  the  electromagnetic  frequency  continuum       for Member States in applying economic methods to
          ranging from 3 kHz to 3 000 GHz. Originating from    improve their spectrum management systems [4].
          maritime  applications  in  the  past,  nowadays     In  2001,  37  world  famous  American  economists,
          spectrum  plays  an  essential  role  in  all  areas  of   including  four  Nobel  laureates,  addressed  the  US
          human  activity.  For  the  time  being,  spectrum  is   Federal  Communications  Commission  with  the
          primarily utilized based on an exhaustive approach,   need to implement radical changes in the principles
          relying  predominantly  on  technical  limits  defined   governing spectrum usage that would be required
          by  Shannon  theorem  and  absence  of  mutual       to  ensure  the  harmonious  development  of
          harmful interference between the growing number      telecommunications  [5].  Their  proposals  included
          of space and terrestrial radio systems.              modifying users’ rights to allow spectrum trading
                                                               and,  accordingly,  implementing  auctions  and
          The growing problem of spectrum scarcity requires
          spectrum efficiency evaluation and introduction of   market mechanisms for the resource allocation.
          modern  methods  for  its  improvement.  Nobel       However, the problem of spectrum efficiency is still
          laureate Prof. R. Coase emphasized that spectrum     vital.  Conflicts  of  interests  between  different
          allocation should be determined by market forces     spectrum users, newcomers and incumbents, public




          *  The ideas expressed in this paper are those of its author and they do not necessarily represent those of the International
          Telecommunication Union, the Radiocommunication Bureau or any known institution.




                                             © International Telecommunication Union, 2021                    67
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