Contracts as Entry Barriers for Unlicensed Spectrum

Greater unlicensed access to spectrum has the potential to increase competition among wireless service providers and encourage innovations by lowering barriers to entry. However, early providers offering service in such a band could create new entry barriers through the use of contracts that impose a penalty on customers who switch to a new provider. This paper discusses cases in which an exclusive or non-exclusive contract may be signed before entrants come into an unlicensed spectrum market. Our results indicate that the incumbents will always offer an exclusive contract, which would increase the expected customer surplus. The expected social welfare may increase or decrease depending on how we model the customers' demand, and the technology of the incumbents and entrants.