Interesting People mailing list archives
IP: Spectrum as Property
From: David Farber <dave () farber net>
Date: Fri, 31 Aug 2001 10:46:03 -0400
From: "Kamman, Stephen" <Stephen.Kamman () us cibc com> To: "'farber () cis upenn edu'" <farber () cis upenn edu> Subject: Spectrum as Property Date: Thu, 30 Aug 2001 18:37:11 -0400 X-Mailer: Internet Mail Service (5.5.2653.19) My two cents from experience in designing the worlds first (and I hope only) auction of point to point microwave spectrum (in Mexico, in a past professional life). An alternative approach is to draw a distinction between the right to use spectrum and the right to manage it. This would mean selling spectrum blocks off to the highest bidder TO "SUB-LEASE" AS THEY SAW FIT. It would be like selling someone the land BUT prohibiting them from building on it themselves. Instead, they would have the right to sub-lease it to the highest bidding 3rd party developer to actually put buildings on it (or a factory or whatever). The key to this system is that the spectrum owner/manager has an incentive to maximize utilization (to get the greatest return from his "inventory" of spectrum) and has every incentive to prune old uses of spectrum in favor of newer technologies that promise a higher value/per/hertz. In practical terms, that might mean that the owner of the UHF TV spectrum might decide that he'll get more dollars per hertz by switching over to offering wireless data. Tough news for the UHF guys, but good news for society. The problem now is that "ownership" of the spectrum lies somewhere between the government (who is lousy at resource allocation) and the system operator (who has zero incentive to use it for anything other than what his/her system was designed to do. The result is new technologies jammed into crowded, gerrymandered spectrum while older technologies trundle along out of sheer intertia. Of course, a spectrum owner has a number of potential ways to abuse such a system (insider deals, overcharging, hold-up of existing users, etc...). But the aspiring and actual users of the system also have a strong incentive to uncover and document such abuses. This natural conflict should give a regulator/arbitrator enough information and information to keep such a market working in a reasonably fair manner. You could also make accomodation for "public use" spectrum either by giving block to be "managed" by the governemt (for no fee) or by requiring public use set-asides within auctioned blocks (much like developers sometimes have to set aside land for public use). Again, a lot of kinks in the system but at least it would create an incentive to maximize utilization and purge archaic applications. Just a thought. Steve Kamman Executive Director - Networking and Internet Infrastructure Equity Research CIBC World Markets, 200 Liberty St. NY, NY 10281 212 667 5896, Fax 212 667 8430 stephen.kamman () us cibc com -----Original Message----- From: David Farber [mailto:dave () farber net] Sent: Thursday, August 30, 2001 5:03 PM To: ip-sub-1 () majordomo pobox com Subject: IP: Response to David ReedFrom: "Gerry Faulhaber" <gerry-faulhaber () home com> To: <farber () cis upenn edu> Subject: Response to David Reed I am impressed that David Reed, one of the greats of this field, has given us such a thoughtful reply. I will try to respond appropriately, cognizant that (to paraphrase Dave) I'm no engineer. Let me first remind your readers that in proposing a property rights-market system, I am not claiming that it's perfect -- only that it is infinitely better than what we have now. Paraphrasing Winston Churchill (in speaking of democracy), I don't have to show it's perfect; just that it's betterthanthe available alternatives;-) David Reed argues that a good must be subdividable into easily transferable lots without loss of value in order to ensure a market works. This is pretty close to true; in fact, the good must be both subdividable and aggregateable; which one does depends upon what use what has in mind. Surely subdividing real property into 1" square lots is pretty useless ... unless you are selling souvenir plots of Graceland. For example, it's pretty hard to get a driveway and sewer and water lines into a tiny plot of land. Similarly, subdividing spectrum (increasing wastage from guardbands)has the same sort of limit. Users will aggregate or subdivide to meettheirown needs (as an apartment builder aggregates smaller properties or a home builder subdivides former farmland for new homes). I may be guilty of a "faulty understanding of the physics" here, but I don't think David hasmadethe case. Simply asserting that subdivision has costs, while true, doesn't quite do it. He also mentions that markets work if the good is expensive to produce. This is not quite true; markets work well if the good is scarce, either because it is expensive to produce or because people want more of it than exists. I recently had the privilege of buying waterfront property on abayin Delaware; very expensive, and nobody (at least on this earth) created or produced it. And the developer wisely chose the appropriate subdivision to enhance marketability for him and usability for me. David also indicates that property rights work well if one person's use ofagood doesn't interfere with another person's use of his good. This is certainly true; but land certainly doesn't fit that model and yet it has been adapted to the property rights model extremely well. I would argue that the number of possible uses of land that interfere with my neighborsisway more difficult to control that interfering uses of spectrum. For example, my neighbor is currently building a house next to me, and the construction crew needs an on-site outhouse. Do I like having an outhouse next door? Not really. Is this an "interfering use?" Yeah. Are there laws/ordinances to cover this? Yes there are. David Reed then mentions the all-important network effects issue. If systems interoperate/interconnect, they are more valuable to customers/citizens. He mentions the failure of Marconi-Telefunken interoperability "in the days of the Titanic," implying this had something to do with that disaster (which it didn't). I (and Dave) are all for interconnection of systems; but this has nothing to do with spectrum, or spectrum ownership. I can use my Verizon cellphone to call a friend on a Cingular phone without problems, thus realizing the benefits of one giant phone system (thanks to the FCC's interconnection policies, *not* the market). They don't have to share the same frequencies in order to gaintheadvantages of network effects. Again, perhaps I am misunderstanding the technical aspects of this, but interoperability at the application level (rather than the hardware/spectrum level) is the issue, and that is completely transparent to spectrum ownership. This is not to say it is not a huge problem (Dave and I wrestled mightily with this at the FCC in the AOL-Time Warner merger), it is just not a spectrum ownership problem. David then goes on to suggest that the future of radio is in cooperative technologies that make much more efficient use of the spectrum, such as software defined radio, ultra-wide band, etc. These advances are very difficult for the current system to accommodate; they work fine if restricted to Part 15 spectrum, but the flurry of innovation is finding these bands increasingly crowded, and the current spectrum allocation mechanism cannot respond in a timely way to these new needs. But I would argue that a property rights-market model is extraordinarily effective at adapting to new needs (after all, property rights have been around a very long time, and we still find them highly useful, in part because these system continue to adapt to new technology). There are two ways in which cooperative systems could fit well into a property rights regime (detailstobe worked out later; this is conceptual): (i) a large number of bandwidth owners could be induced to sell/lease an "easement" on their property to accommodate, say, very low power uses (UWB) or opportunistic uses (SDR). (ii) public agencies or private parties could establish a wide swath of spectrum in which cooperative sharing could occur, either priced or not.AsI mentioned originally, we have public parks where people come together for a shared experience, and I suspect we'd have parks in spectrum space where people can share. David sets up a bit of a straw man when he argues that property rights implies partitioning and closedness. It doesn't. Much of private property is about sharing -- office parks, condominiums,apartments,etc., are all about private property and sharing. His argument is that radio innovation is all about sharing and cooperation, which isantitheticalto private property. In fact, it is not antithetical to private property and can be accommodated quite easily. Let me also go on record that property rights and markets are all about encouraging innovation; as an historical fact, the capitalistic country in the world (that would be the US) has the best record of innovation (certainly for the last 60 years). Markets aren't the only means to encourage innovation; the Internet did very well on innovation without markets, and the Soviet Union did some very impressive innovation as wellinits time. But I will put my money on markets to out-innovate just about anything else. David's blanket statement that a market model will stifle innovation is wrong both in its particulars and in general. At the risk of spouting pretentious social philosophy: cooperative ventures work well when there's a tight community that can discipline inappropriate behavior through social mores. We all experienced this during the pre-commercial days of the Internet. But when the resource in question increases in value and millions demand it, community changes and economic values predominate, as they do in today's Internet. Remember thoseWesternsin which the cattle guys wanted to drive their cattle anywhere on the open range, and the sheepherders built fences to keep their sheep enclosed? Eventually, the fence-builders win (and lease some land to the cowboys),not because fences are good, but because private property is the more efficient way to organize markets for scarce resources. I believe we are long past the point where we can all play cooperatively in the E/M sandbox. The resource is way too valuable to be managed by the government, and too valuable to be run as a commons. There will have to be adult supervision, and that's what a market will do. The market can accommodate a widevarietyof sharing technologies easily; but it will not accommodate anarchy.For archives see: http://www.interesting-people.org/ Information in this message reflects current market conditions and is subject to change without notice. It is believed to be reliable, but is not guaranteed for accuracy or completeness. Details provided do not supersede your normal trade confirmations or statements. Any product is subject to prior sale. CIBC World Markets Corp, its affiliated companies, and their officers or employees, may have a position in or make a market in any security described above, and may act as an investment banker or advisor to such. Although CIBC World Markets Corp. is an indirect, wholly owned subsidiary of Canadian Imperial Bank of Commerce ("CIBC"), it is solely responsible for its contractual obligations. 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