more on Spectrum Gold Rush

[David Farber <dave () farber net>]

Begin forwarded message:

From: Brett Glass <brett () lariat net>
Date: August 31, 2006 12:56:50 PM EDT
To: dave () farber net, ip () v2 listbox com
Subject: Re: [IP] more on Spectrum Gold Rush

Dave:

For IP, if you'd like.

--Brett Glass


Dana Blankenhorn writes:

> Two things are actually happening at the same time.
>
> a.. We're finding all kinds of spectrum to be suddenly useful, so
> the government is selling it to hoarders.
> b.. New radios and cellularization are making every hertz of
> spectrum ever-more powerful.

Unfortunately, while (a) is true, (b) is not. New radio technology
is somewhat better than older technology, but only somewhat. (The
people who originally developed the technology were certainly not
dummies; in fact, only a handful of people today are as
knowledgeable.) And eventually, everything runs up against the
constraints imposed by the Shannon-Hartley theorem, AKA Shannon's
Law. (See the Wikipedia article for a good synopsis.) Also, while
the power of the licensed, hoarded spectrum is indeed still increasing
a bit (because the parties who own it have the exclusive right to it
and hence can control interference), the power of the "spectrum
commons" -- the unlicensed bands -- is already decreasing due to
massive pollution and overuse.

The result: So long as licensed spectrum is purchased by parties
whose primary goal is to forestall competition rather than develop
new services, and is thus kept "out of play," the scenario Dana
describes -- in which wireless capacity increases dramatically and
becomes less and less expensive -- cannot occur. In fact, the reverse
is occurring, because the spectrum to which it is feasible to gain
access is losing its value and capacity as the tragedy of the commons
on the unlicensed and "lightly licensed" bands becomes acute.

Even if more spectrum were made available, it is far too optimistic to
claim exponential increases in capacity. If spectrum were readily
available under a fairer allocation system (rather than the horribly
broken auction system), the increase in capacity would be a bit better
than linear (linear with the amount of spectrum released, with an
additional boost from small, incremental improvements in technology).
It would certainly not be exponential a la Moore's Law.

Dana also writes:

> But the result of the auctions will be that new players have put
> billions on the table, money they will need to get back by building
> competitive services.

This statement carries with it the implicit assumption that the
spectrum was bought for the purpose of offering service -- rather than
for the purpose of forestalling competition, speculation, or hoarding.
If the parties which bought the spectrum believe that they are receiving
sufficient ROI simply by virtue of owning it, they will feel no need
whatsoever to develop it. This does, indeed, seem to be what is
happening.

Our company -- which does specialize in wireless and does want to
develop spectrum -- has found itself shut out of the auctions by
large, monied entities which believe they have more to gain by
hoarding the spectrum and/or forestalling competition than by
developing it. They cannot use it more efficiently than us,
and yet are paying more than we could pay and still break even,
much less eke out a meager profit for our efforts. What's more,
they will neither sell nor lease their stakes at any reasonable
price -- in fact, often not at any price. As a small business,
we can always be outbid by a large incumbent telephone company,
a satellite carrier, or a nationwide spectrum acquisition (hoarding)
company. In the recent AWS auction, for example, our small, local
business would have had no choice but to bid against a very large
telephone company from several hundred miles away for the ONLY scrap of
spectrum that was available in our local area. That company paid so
much for the spectrum that we could not have made use of it profitably
at that price. (Even the FCC's usual minimum bid -- $5 per MHz per
person -- are beyond the price where one can make money in a rural
area in most cases.)

Thus, under the current system, we cannot gain access to the
spectrum we need and which our customers so ardently want us
to use to bring them service.

--Brett Glass



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