IP: A view of the Spectrum for the formerly Chief Economist, FCC and my Co-Director, Penn Initiative on Markets, Technology and Policy

[David Farber <dave () farber net>]

From: "Gerald Faulhaber" <faulhaber () wharton upenn edu>

Dave--

The "spectrum shortage" is one of the great hypes of 2001, and at least in
the short run is bogus. There are a few wireless markets (e.g., New York
City) in which spectrum is short, but generally there is no national
spectrum shortage. Further, existing analog carriers have been slow in
converting their analog (inefficiently used) bandwidth to digital, which
could give them more capacity without new spectrum being allocated to these
markets.

Much of the noise has been generated by the perceived need for 3G
applications, touted as broadband to the pocket. Again, keep in mind the
hype factor: even if successful, 3G is very unlikely to ever provide more
than 144 Kbps downstream, not the 2-3 Mbps claimed by early fevered
proponents. And as DoCoMo has shown, much of the mobile demand can be met
via a relatively narrowband channel: SMS, weather, stock quotes, e-mail,
etc. We all know that nobody's gonna watch movies on their cellphone, OK? So
demands that we need to greatly expand the amount of spectrum available
to wireless in the next few years is largely bogus. A bit more would be
helpful, but let's get serious.

But the long run problem is more serious. If voice wireless is ever to
become a true competitor to wireline voice, or if true wireless broadband
(mobile or not) is to be realized, then we are going to have to use our
spectrum much more efficiently than today.  The problem: how we allocate
spectrum.  The US and every other country in the world allocates spectrum by
government fiat: we'll give this much to the police, this much to broadcast
TV, this much to cellphones, etc. For most uses the government also says who
gets the spectrum and what they are allowed to use it for. Only for
cellphones does the government actually sell the spectrum (actually, it
doesn't actually sell the spectrum; it auctions very limited rights to use
it). You will recall GOSPLAN in the old Soviet Union, which allocated
resources among competing interests? Well, that's the model we seem to be
using. The government decides who gets what, and the political lobbying is
intense.

Well, guess what? We don't have to do it this way. We have this thing called
a market economy, in which valuable stuff gets bought and sold, as it moves
to its highest valued use. Resources, such as computers, automobiles, real
estates, and maybe eventually spectrum, are privately owned (subject to
limitations on interfering uses) and traded. We sing the praises of how
efficiently the market allocates resources (with well-known exceptions) but
somehow we don't get the message with spectrum. And what does it lead to?
Shortages and political lobbying, as we see today. If we are to avoid
shortages and political handouts to favored constituents in the future, we
need to move away from our GOSPLAN system and marketize the spectrum. Let's
put *all* the spectrum into the market: some can be owned by private firms
and people, and some can be owned by local, state and Federal governments
for their use. But any and all of it should be available for sale, so it can
move to its highest valued use without waiting for the approval of
government bureaucrats.

- Some may decry this as squandering a "national resouce" that should belong
to all the people. Really? More so than, say, land? Should the government
own all the land and parcel it out to farmers, industry, individuals on the
basis of "need?" Thank God we don't do that.

- Some may decry this as unworkable due to interference problems: "spectrum
is different." Is it different than land? There are many things I can't do
on my land because it "interferes" with my neighbor's right to use his land,
such as build an asphalt plant in a residential neighborhood. We have real
property laws to handle this, including zoning, and I am sure the same thing
will happen if we marketize spectrum: your property right to use the
spectrum will be limited in frequency, power, direction, spillover into
neighboring bands, and perhaps time of day. In short, everything that now
goes into an FCC license can also be specified as a property right (rather
than a government restriction).

- And some may decry the loss of unlicensed spectrum, the equivalent of
public lands in which anyone can play (subject to some rules).  But this
need not be lost; after all, the government provides public parks even in a
regime of private property.  I expect the government would retain (or
actually buy) some "public park" spectrum for unlicensed use, continuing to
enable the great innovation that has occurred in this space.  And some
private owners may encourage unlicensed uses as well (for a fee); after all,
we have private parks as well as public parks.

Of course, technology is constantly challenging what we mean by spectrum
use; software-defined radio and ultra-wide band seek to use the spectrum of
other licensees on a non-interfering basis, either by only using it when the
licensee is not using it, or transmitting at very low (non-interfering)
power levels.  This contravenes the "barbed wire" model of private property,
but that's OK.  If property rights are carefully crafted to account for such
spectrum sharing (fee-based or not), a market-based system could adapt to
these new innovations (as Dave has been advocating).  In short, a property
rights-market driven model can deliver the terms and conditions we need to
accomodate the technology as well or better than the licensing model, but
harnessing the dynamic forces of the market to ensure spectrum is used
efficiently, rather than the current inefficient political/bureaucratic
process.

When a resource is not that valuable, we can afford the GOSPLAN solution of
political/bureaucratic allocation. But spectrum is too valuable for this; we
need to re-think the foundations of our spectrum management policy and get
the government out of this business. The US has championed the market model
(again, where appropriate) and been highly successful doing so. It's time to
move from a centrally-planned GOSPLAN to a dynamic market in order to meet
this country's spectrum needs most efficiently. Let's get on with this
transition, taking full cognizance of technical issues involved.

Professor Gerald Faulhaber
Business and Public Policy Department
Wharton School, University of Pennsylvania
Co-Director, Penn Initiative on Markets, Technology and Policy
formerly Chief Economist, Federal Communications Commission



For archives see: http://www.interesting-people.org/