TCS Daily


Let the Free Market Allocate Spectrum

By Phil Kerpen - July 19, 2007 12:00 AM

The Federal Communications Commission is poised to include onerous regulation of wireless phone service in its rules for an upcoming spectrum auction.

Auctions are a very efficient way of allocating scarce public resources like spectrum. Auctions dedicate a resource to its best and highest use, based not on the hunches of regulators but by the expectations of relatively efficient capital markets. The less restrictive the auction rules are, the more the free market is allowed to determine how and by whom spectrum is used, encouraging investment that drives innovation and benefits consumers.

The particular spectrum in question is 60 MHz of the prime 700 MHz band set to be vacated by television broadcasters and auctioned off by the FCC early next year. This is very desirable to wireless phone companies because it can penetrate walls and travel long distances. It is so valuable, in fact, that based upon previous spectrum auctions and the particular characteristics of this band, experts have projected auction proceeds anywhere from $10 billion to over $20 billion.

Unfortunately for taxpayers and consumers, FCC Chairman Kevin Martin is circulating draft auction rules that impose strict so-called "open access" restrictions on a large portion of what is to be auctioned. These restrictions, cheered on by MoveOn.org and other groups on the political left, would prevent a wireless company operating on that spectrum from managing which devices and applications they support. These restrictions would effectively reduce the carrier operating on that spectrum to an old-fashioned common carrier, a regulated utility that would provide a convenient platform to companies like Google and Skype who want access to spectrum without having to pay for it.

This is a wireless version of the so-called "network neutrality" fight that's been raging about the Internet. Content companies resent paying for network infrastructure, even though their services could not exist without the physical networks on which they run. Content companies want these aggressive regulations to ensure that the full costs of infrastructure are placed directly on consumers.

Chairman Martin has talked about how his proposed rules would prevent wireless companies from disabling Voice-over IP functionality in their handsets, which many carriers do to prevent data traffic (which VoIP is) from cannibalizing their revenue from voice minutes. But a company required to offer VoIP would have no way to pay its costs than to hike up prices for their services—there is no free lunch.

Moreover, if that were an efficient business model, FCC rules to rig the auction would be unnecessary—Google or some consortium of content companies could bid for spectrum like everybody else. Instead they want to rig the rules to require the type of network that would benefit them most.

These rules would clearly benefit Google at the expense of taxpayers and consumers. Consumers would be left with less meaningful choice than if one of the highly competitive wireless carriers won this spectrum and used it to compete for customers with innovative services. Taxpayers would be on the hook to cover the billions of dollars less in auction revenue that would be paid into the U.S. Treasury - monies slated for deficit reduction, public safety communications equipment and to ease the public transition when television broadcasters vacate the analog 700 MHz spectrum and go all-digital in February of 2009.

Competition and freedom ultimately produce the best results for consumers. The FCC should allow this high-quality spectrum to be devoted to its best and highest uses by proceeding with the auction without undue restrictions.

Mr. Kerpen is policy director for Americans for Prosperity.


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9 Comments

The internet is like a highway.
It is REQUIRED to be funded by the government. because DUH! its owned and shared by us all.

This is far more true when it comes to the radio spectrum. It is shared and owned by US!.... I repeat, the people!

I will ask a simple question, how many spectrum's are there?

The spectrum commons
The electromagnetic spectrum is a commons of a sort, and the auction should not be regarded as auctioning property for sale, but leasing it to those whose proposals seem to provide the public with the greatest value.

Perhaps the simplest way to do this would be to auction only about 10% initially, and see what is done with it. In six to ten years, we can see what happened and craft the rules of the next auction (another 10%) to match those realities.

Not that this will happen.

The example of a carrier disabling one service to provide spectrum for another is part of the problem: this bidder took up a lease on part of the commons, and is limiting its use to what profits him while someone else, who might be able to serve more people and make more money, is blocked.

At the very least, we can limit the leases to less than one sixteenth of the spectrum. Even that is potentially hazardous, because some of the most effective modulation schemes allow many signals to spread across the entire spectrum without interfering; instead of being orthogonal on the basis of frequency, they are orthogonal on the basis of some other function.

A piece of real property can have surface rights, petroleum rights, etc. Perhaps the spectrum auctions ought to split spread-spectrum rights from rights based on the older modulation schemes.

Addendum to the spectrum is a commons
I forgot to add that one of the benefits to the public *is* the present or future value of the monies paid at auction. It is one of the benefits, and must be weighed properly as such.

so anything that is used by more than one person must be owned by the govt?
Why must the internet be owned by us all?

How many spectrum are there? 1
How finely can the spectrum be divided. Nearly infinite.

benefits
offseting this "benefit" is the fact that the companies must now raise their prices to the public because of all the bribe money they are having to pay to govt. officials.

Infinitely divisible continuum, but finite bandwidth
The spectrum can be divided very finely indeed, but it does not have infinite capacity to carry data. That capacity is the subject of Communication Theory, the astonishing brainchild of Claude Shannon. The fundamental limits are these: no more than two orthogonal (non-interfering) samples per cycle of the available bandwidth multiplied by the log (base two) of the number of levels that can be distinguished from each other in each sample; that number is set by the noise floor (which blurs one level into another) and the maximum signal power you can use. The reality is a bit more complicated and statistical, but that's the hard, not-to-be-exceeded limit.

Since the available bandwidth in free space (not in a wire or fiber) is finite, and since trying to use it too hard results in mutual interference, the right to use it is subject to the limitations of the commons.

(I do not use the word 'astonishing' lightly. Shannon's theory says exactly the same thing as classical thermodynamics, but the formulations are completely different. It came at about the same time as the transistor, but I expect it will outlive every piece of our current solid state technology. And yes, the limit of two samples per cycle was established earlier by Harry Nyquist--the Nyquist Sampling Theorem.)

the capacity of everything is finite, therefore everything must be owned by the govt.
...

The Internet is a collection of networks
The Internet is nothing like a highway. It is NOT owned by the government. The Internet as we know it was started by the Defense Advanced Research Projects Agency, not Al Gore, in 1969 as a military communication system to provide redundant communications links in case of WWIII.

As the Internet grew it started to incorporate different networks in the educational sector. Then businesses became involved and started adding their networks the the Internet.

No one entity controls or 'owns' the Internet, the Internet is essentially a collection of individual networks that all share different connections with other networks. Much like the individual cells in a brain communicate through multiple connections to its neighboring cells while also providing communications pathways for cells farther away.

The Internet does not require a single dollar of governemt funding. The U.S. military essentially gave the world the Internet free of charge quite some time ago.

It is now and will continue to be self sustaining through capitalism and free market enterprise.

Broadcast vs. Wireline
We're not talking about the internet. We're talking about broadcast. Broadcast only works if there is some degree of order. If everyone is trying to broadcast without regard for who else is trying to do so, nobody will be able to receive one signal; the signals will interfere. There is some escape using directional antennas, but even this requires cooperation. (Geosynchronous satellites must be spaced far enough apart that the signals can be selected with antenna of reasonable size.)

It isn't a question of government ownership. It's a question of a common resource (the opportunity to send electromagnetic waves in all directions around all of us for communication) whose use requires cooperation. As a practical matter, with millions or billions of users, cooperation seems to require coordination: we must agree ahead of time on who will be sending what so that those who are to receive the signals will know what to listen for, and where, and what equipment to buy.

When the number of users and the bandwidth they need are small relative to the amount available, they can manage themselves. When there aren't many automobiles, you don't need very good roads and you don't need traffic lights, lane markings, turn ramps, cloverleafs, etc. But as the usage increases, cooperation has to become more pervasive and more 'automatic': we need rules of the road, and we need to designate certain parts of the resource for the use of each.

People sailed the seas for centuries, but their free movement was restricted as they approached port. The master of a ship was required to observe approach lanes, and to give over command of the ship's movement to a harbor pilot, because that was the only way to keep everything working.

We're long past that point in the electromagnetic spectrum. What you put down a wire or fiber is the business of the people at each end (so long as the whole thing isn't radiating in a way that interferes with others). But what you release into free space, bathing others and their receivers with, requires some agreement. And by far the most practical way is to agree in advance who may do what. How this commons is to be managed is a reasonable subject for debate. That it must be managed if it is to serve the needs of all is beyond reasonable debate.

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