Subject: [NEXTEL-1] Spectrum policy: property or commons?

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Date: Sun, 20 Apr 2003 12:10:55 -0400

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Spectrum policy: property or commons?

Bill McCarthy

IWCE/MRT, Apr 9 2003

The system of allocation needs an overhaul -- but the proposed solutions remain debatable.

Some heavy hitters in the world of spectrum policy came together at Stanford University March 1, and they agreed on one thing: The current system of spectrum allocation by the Federal Communications Commission is broken and needs to be redeveloped.

No profound revelations are found in that, of course. The conference, “Spectrum Allocation Policy: Property or Commons?”, in the law school on Stanford University’s Palo Alto campus brought together some of the most influential thinkers on the subject.

Hosted by Lawrence Lessig, Stanford University professor of law, and Thomas Hazlett of the Manhattan Institute, a think tank aimed at creating greater economic choice and individual responsibility, the conference illustrated just how difficult the reconstruction of allocation rules will be, especially in the short time frame that emerging technologies are pressing. Lessig, whom Stanford hired away from Harvard and founded the Center for the Internet and Society, led the pro commons approach while Hazlett led the discussion and debate from a property perspective.

At the end of a day of discussion and debate, attorneys led by Lessig and Hazlett presented arguments to a moot court, three-judge panel. FCC Chairman Michael Powell was to be one of the judges. Powell was a no show, though, and was replaced by Vernon Smith, a Nobel Prize winner in economics and a professor of economics and law at George Mason University.

Smith may have provided the most telling comment of the day when he told the teams of lawyers: “I’m not sure I’ve heard anyone say anything that would indicate anybody knows what he is talking about.”

Academics, activists, regulators, oh my

The arguments are so diverse and at times so obscure that it seems difficult for some of the smartest people on the planet to get their heads around it.

The heart of the debate is rather fundamental, however. Some participants argued that the rights to spectrum should be sold and free market incentives will provide for innovation and the best deal for consumers. Others said private ownership would lock in spectrum that could be better used with emerging technologies in a commons environment. Both sides generally agreed there should be a combination of the two approaches and that more study will be needed to determine the best mix.

They also agreed that the question of what to do with unused and underutilized frequencies is becoming more important as more communication becomes wireless and the need to repair the system quickly is imperative. Given the combination of academics, activists and regulators, however, the road to solving the problem appears long and contentious.

This type of conference is the grinding of the meat portion of the sausage making process that is behind law-making and public policy creation in America. Participants might laugh at the assertion of the conferences importance, but don’t be fooled. These academic discussions at sessions such as this and the annual Telecommunications Policy Research Conference (TCRP) influence public policy. At times the academic level of the discussion may seem to have no basis in reality, but it always comes back to policy. Numerous present and former FCC employees attend these events.

While it could be argued that the philosophical debate about spectrum as property or commons is ancient and ongoing, this is a critical time for decision-makers. The FCC already has raised the idea of a large auction of both assigned and unassigned spectrum by the agency and by entities that currently control spectrum.

In a press briefing March 4, Powell said the commission is looking at streamlining the process to make more spectrum available. That means re-examining the auction, allocation and other processes is a priority. The FCC’s recent spectrum policy report is the guiding document for wireless issues at the commission, Powell said. Wireless regulation and development is moving forward, and the commission will find more unlicensed spectrum, as well as looking for more licensed spectrum.

Spectrum is no thing

Commons proponents such as Lessig say skepticism about a “spectrum commons” is due to the way we’ve been trained to think about “spectrum.” People believe spectrum is a thing. People believe radio “interference” is because radio waves collide. Both thoughts are wrong, according to Lessig.

“Spectrum is not a thing,” and “interference” is not an issue of radio waves; it’s an issue with the equipment used. When people think of spectrum as a thing, Lessig said, they assume that the benefits of property rights outweigh costs and benefits of an open commons. The current FCC allocation process made sense in the mid-twentieth century, Lessig said. “It’s the wrong answer today.”

Warning: Acceptance of spectrum as a commons requires a philosophical change about the allocation of “natural resources.” There is always the danger of oversimplifying the problem and making promises that technology is incapable of delivering.

On the other hand, the dominant thinking is that spectrum should be property. It should be divided into lots and sold to the highest bidder. That investment provides the incentive to be innovative and maximize value in spectrum use, according to Hazlett and the pro-property side. That does not rule out a commons that is developed by the property rights holder or below the noise floor of the property rights holder. But private ownership makes spectrum “flexible, plentiful and cheap.” A pure commons approach creates scarcity of spectrum, raising the price and ensuring further government involvement and inefficiency in allocation.

Most participants seemed to favor an allocation approach that includes both commons and property rights.

“The more we argue about this the more we begin to converge,” said Gerald Faulhaber, a professor at the University of Pennsylvania and a former chief economist of the FCC.

A private system would not rule out the possibility of a commons, because spectrum owners could open up their own frequencies. Instead of trying to earn back their investment through service fees, they might open up the spectrum in hopes of kick-starting a new technology and making money on equipment purchases by end-users, Faulhaber said. This type of “easement” would create a commons across the entire spectrum.

The next few years should be a period of experimentation, some said.

But David Farber, University of Pennsylvania professor and former FCC chief economist, said, “There are no research companies left in the country any more.”

Yet the industry is in desperate need of experiments — “real experiments, not paper.”

“We’re sort of locked up in this country while in other places there’s a lot more innovation. We have to move fast,” Farber said. “At the glacial rate this whole process is going, we’re going to be in deep trouble as a country unless we manage to accelerate things.”

John Williams and Evan Kwerel of the FCC's Office Of Plans and Policy, offered a paper suggesting that a property approach will speed up the transition to a more efficient allocation process. Though the pair work for the FCC, they cautioned that the paper is for debating purposes and is not an official position of the commission.

FCC Senior Economist Kwerel said the current “crazy quilt” of spectrum use has led to shortages and waste. Only 7 percent of the most valuable spectrum is available for market allocation. A rapid transition from administrative allocation to market allocation is needed, he said. The FCC needs to reallocate spectrum to flexible use, conduct large-scale, two-sided auctions of spectrum voluntarily offered by incumbents, together with any unassigned spectrum held by the FCC. The commission must provide incumbents with incentives to participate in such band restructuring auctions by granting participants flexibility and allowing them to keep the proceeds from the sale of the spectrum they control. Those incumbents who did not participate would be allowed full flexibility in five years. Within two years, Kwerel said, that process could restructure 438MHz of valuable spectrum.

Stuart Benjamin, professor of Constitutional Law with the University of Texas said “rent seeking behavior” can be a problem in a private-spectrum, for-profit system, but private companies have more incentive to develop state-of-the-art technology. Shareholders bear the cost rather than the public, which is another benefit. He added that a public commons allocation is likely to be influenced by reelection motives and other political incentives, which can be just as frustrating to enhancing wireless development as the profit motive.

Is interference a myth?

Commons advocates say recent advances in radio technology mean that using different frequencies is not the only way for radio receivers to distinguish signals. So-called “smart” antennae dynamically select a particular direction in which to transmit signals, and radios can be designed to support a wide range of frequencies. Software radios that bring radio functions to the world of computing are capable of switching among different systems without a user even noticing and can be upgraded over time to be even more discerning, commons advocates said.

In the commons approach, new uses of spectrum would be financially supported by end-users buying devices that work with that spectrum, rather than by carriers investing in an infrastructure and then selling a service on it.

In fact, Yochai Benkler of the New York University Law School argued that repeater networks could be developed with smart devices so that the more users who are on the network, the more capacity that is added.

Radios are evolving rapidly and the devices that use them can now have enough power to use frequencies wisely, said Sean Maloney, executive vice president and general manager of Intel’s communications group. Wireless devices will be able to detect the use of military radar, for example, and automatically drop the connection to prevent interference, he said. Reasonable regulations, Maloney said, could open spectrum that is not being used or is underutilized without a complete rewrite of current legislation.

Some proponents of the commons approach argue the success of IEEE 802.11 wireless LAN technology is proof of the value of an open commons. Wi-Fi use is growing in the 2.4GHz range that had been called “junk” spectrum, and that shows how innovation in an open environment stimulates economic environment. Unlicensed spectrum provides an opportunity for startups that can’t afford spectrum to start developing a new technology. Selling unused spectrum locks it up and prevents new technologies, commons proponents argued.

Property proponents, however, point to Wi-Fi's broken promises for ubiquitous hot spot access, and concerns of the military and public safety communities for security and interference with radar and public safety operations. These problems are lessened with a controlling market interest in designing safe and non-interfering technologies, they say.

In the end, the arguments hinge on philosophical differences in belief in the power of the free market and how far the market can be trusted to create the greatest good. Those basic philosophical differences even seem to determine whether one believes there is a scarcity of spectrum, whether interference is real and whether spectrum is a thing at all.

While some of these arguments seem a bit surreal, don’t be surprised when they lead to real legislation.

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