Broadcast License - Economics

Economics

In the U.S. broadcast licenses were issued for only a nominal payment, but economist Ronald Coase challenged the FCC's approach. Coase proposed that, as for other resources (land, metal, etc.), the market should regulate the use of radio spectrum. This proposition is based on the Coase theorem: with well-defined property rights, the free market will allocate resources to their most efficient use if transaction costs are low. Coase's theory indicated that broadcast licenses in a spectrum that was limited had high economic value, which should be paid on the open market. Licenses are increasingly offered via spectrum auctions; however, this fails to consider non-commercial educational users (who are shut out of the process for economic reasons).

Licensing is conducted by a broadcasting authority (a government agency) to manage the radio-frequency spectrum and implement public policy, such as that regarding the concentration of media ownership. In the U.S. the Federal Communications Commission (FCC) does not assign licenses to exclusive users, instead permitting qualified users to apply for a license. The Radio Act of 1927 established the regulatory premise that the spectrum belongs to the public, and licensees have no property rights to use it. Although the spectrum is licensed to bidders, its purchase does not entail ownership or rights but the privilege of using that portion of the spectrum.