What Guatemala Can Teach the FCC
December 27, 2002 By Giancarlo Ibarguen From 1996 to 2000 the number of telephone lines in Guatemala increased at an annually compounded rate of 45%. A good portion of this sharp rise in telephone access was in mobile phones. The number of mobile phone subscribers rose to 935,488 as of June 30, 2001 from 64,197 at year-end 1997.
Those are impressive figures and all the more so considering the gains Guatemala made on its Latin American neighbors in telecommunications access. During the period 1997-2001, the mobile sector in Guatemala grew 50% faster than the Latin American average.
In 1997, mobile phone penetration (as a percentage of the working population) in the rest of Latin America was more than three times higher than in Guatemala. In 2001 that discrepancy narrowed to 1.5. Additionally, Guatemalans pay much less on average for phone service than their fellow Latin Americans.
Until further studies are done, it's impossible to know how to assign the credit for Guatemala's impressive growth in telephone penetration and the drop in prices. A host of telecom reforms surely helped. But economists may also find that a new spectrum policy had a lot to do with it.
Indeed, Guatemala's reform of spectrum law merits attention in both the developing and the developed world. By recognizing the importance of property rights in radio spectrum assignments, Guatemala has tapped into one of the most important resources in the information age.
Before the enactment of the 1996 General Telecommunications Law in Guatemala the radio waves were owned and licensed by the state following the licensing of radio spectrum model of the U.S. Federal Communications Commission. An office inside the bureaucracy of GUATEL, the state telephone company, was managed by a branch of the military. It zoned the radio spectrum, assigning large blocks of bandwidth for particular uses following the pattern of the FCC's U.S. Table of Frequency Allocations.
This office would then slice each block into smaller portions and assign them to individual licensees. Foreign nationals were not allowed to apply for a license. Everyone from radio amateurs to TV channels had to deal with this office. The licensing process was generally not transparent. The licenses were practically -- and legally -- free if you were lucky enough to win the current officers' favor. But demand for the licenses far exceeded supply. So an illegal market for licenses arose whereby bribes and an informal market matched demand with supply.
The radio spectrum license was a revocable authorization for the licensee to use a given frequency band in a given manner. The license specified what could and could not be used for a particular service. This included the technologies to be used, the location of the transmission equipment, the type of antennas, among other requirements. The license was non-transferable. Since the license was dependent upon the consent of the government, the government, at any moment, could also revoke it.
The new law created a spectrum allocation system that dramatically changed the game. Now allocation of radio spectrum evolves from the bottom up. Any person or company, national or foreigner may request title to any spectrum band not currently assigned to other users. When conflicts arise caused by interference from signals of adjacent bands and/or inter-modulation distortions, private parties are encouraged to mediate between themselves. If private mediation fails, the telecommunications regulatory body enforces specified rules. Additionally, the injured party may sue for damages.
The most salient feature of the spectrum reform is the creation and treatment of usufruct titles. Significantly, in sharp contrast to the environment before the new law, the government may not arbitrarily reclaim these rights. The 1996 law specifically states that the Titles of Usufruct of Frequency (TUF) may be leased, sold, subdivided or consolidated for a limited period (15 years). The TUF may be used as equity for investment capital. The duration of the title can be extended for an additional 15 years by a simple request at no cost to the bearer. Regulation is limited to adjudicating disputes over interfering emissions and the set-aside of certain bands for state use.
The regulatory agency, the Superintendency of Telecommunications, has issued more than 5,000 TUFs since 1996. There are over 1,050 different owners of TUFs. The auctions have generated over $100 million in revenue. Seventy percent of these funds have been allocated by the state to subsidize rural telephone services.
Guatemala's spectrum law has been effective, in no small part, because it has recognized property rights in radio waves, thus converting them into a new resource. If we consider how the recognition of property rights in land resulted in economic development, we can see the importance of property rights in spectrum rights.
In the past an economy's most significant resource was often land. For the West at least, every parcel was represented in a property title. "Thanks to this representational process," argues author and property rights advocate Hernando de Soto, "assets [in the West] can lead an invisible, parallel life alongside their material existence . . . . The single most important source of funds for new businesses in the United States is a mortgage on the entrepreneur's house . . . . These assets can also provide . . . a foundation for the creation of securities (like mortgage-backed bonds) that can then be rediscounted and sold in secondary markets. By this process the West injects life into assets and makes them generate capital."
According to Mr. De Soto and his team of analysts, the extra-legal possession of real estate in the hands of the poor of the Third World and former communist nations is valued at $9.3 trillion (1997). Yet this capital is dead because the land owned by the poor cannot be "used to produce, secure, or guarantee greater value in the expanded market."
A similar problem to what Mr. De Soto has described is happening in wealthy countries of the West that have not recognized spectrum property rights and have therefore locked out of capital market networks this new "real estate," the radio spectrum. Continuing with the analogy, one wonders how much dead capital is out there?
Mr. Ibarguen teaches at Francisco Marroquin University in Guatemala City. ©2002 The Wall Street Journal About Thomas Hazlett: articles, bio, and photo |
