Subject: [NEXTEL-1] From The Economist-Economics focus Freeing the airwaves]

From: [email-masked]
Date: Sun, 08 Jun 2003 14:52:49 -0400

Economics focus Freeing the airwaves
May 29th 2003
>From The Economist print edition

Should radio spectrum be treated as property, or as a common resource?

WHAT is the best analogy for radio spectrum? Is it, as most people 
intuitively believe, a palpable resource like land, best allocated 
through property rights that can be bought and sold? Or is it, thanks 
to technological progress, more like the sea, so vast that it doesn't 
need to be parcelled out (at least for shipping traffic), in which 
case general rules on how boats should behave are enough to ensure 
that it is used efficiently.

Wireless folk have been discussing these questions for some time. Now, 
regulators are starting to take an interest, because increasing 
demands for wireless services require more efficient use of the 
spectrum.

Earlier this month, America's Federal Communications Commission (FCC) 
decided to allow leasing and trading of frequency licences-the 
property model-as a first step towards establishing a market in radio 
spectrum. However, when regulators meet for the World Radio 
communication Conference in Geneva, starting on June 9th, they will 
try to harmonise their plans to expand the part of the spectrum that 
can be used without a licence, treating it as a common resource.

These two different regulatory models are already competing across the 
airwaves. On the one hand, telecoms companies have spent vast sums on 
licences for third-generation (3G) wireless services-but are facing 
serious financial and technical obstacles to building networks. On the 
other, there are already many wireless local access networks, called 
WiFi, which operate in unlicensed spectrum-and are growing at a 
phenomenal rate.

The question of how best to allocate spectrum is not new. Over 40 
years ago Ronald Coase, who won the Nobel prize for economics in 1991, 
argued that there is no reason why spectrum should be treated 
differently from, for example, land. Both are scarce-so a market is 
the best way to allocate their use. Although this seems blindingly 
obvious today, it took the FCC more than two decades to start 
auctioning radio frequencies.

The debate has since moved on. Auctions alone are now considered 
unsatisfactory, because they do not change
the traditional structure of spectrum allocation.

 And even after last month's reforms allowing leasing and trading, the 
FCC remains a dirigiste bureaucracy which decides, in most cases, how 
the spectrum is divvied up, who gets which slice, and for what use.

So what is the best way to replace this command-and-control regime? 
Proponents of the property approach want to create, as soon as 
possible, a market in which rights to spectrum blocks can be freely 
traded-rather in the way that pollution rights now are. Some have 
already drawn up plans for a "big bang": a giant simultaneous auction 
of as much spectrum as possible.

Hold hard, say the advocates of common access. If spectrum were scarce 
by some law of nature, they argue, selling licences would certainly be 
the best solution. But in fact it is scarce only in terms of old, 
clunky technology.

When radio equipment needed "channels", defined by frequency and 
power, to allow communication without interference, airwaves were 
indeed a scarce resource.

Now, however, thanks to the dramatic decline in the cost of computer 
power, wireless devices are far cleverer, meaning that they can use 
spectrum more efficiently and are more tolerant of interference. They 
are able to communicate over a broad range of frequencies at once 
(this is called "spread spectrum"), to help each other out ("mesh 
networks") and to adapt to the local environment ("agile radio"). 
Instead of creating a spectrum market, argues Yochai Benkler, a law 
professor at New York University, it should now be possible to rely on 
the market in smart radio equipment without anybody having to control 
the airwaves.

Technological progress is not the only reason why spectrum markets 
would be a second-best solution, Mr Benkler argues. For one, they are 
likely to come with high transaction costs. If spectrum is priced 
efficiently in an increasingly dynamic wireless world, the necessary 
overhead in network management and metering is likely to be
quite costly. 

Innovation could suffer as well: rights holders could ignore 
technological improvement just because it does not fit their business 
model. With spectrum as commons, anybody can innovate, as users do on 
the internet.

Keeping the options open Despite their differences, the two camps 
agree that they do not have enough hard data to bet everything on one 
regime: they must experiment with both. David Farber and Gerald 
Fulhaber, telecoms professors at the University of Pennsylvania, for 
instance, want a big-bang auction. But they also want to let others 
use spectrum freely, as long as they do not "meaningfully" interfere 
with the owner's right to a clear broadcast.

Despite its recent move toward a spectrum market, the FCC too prefers 
a hybrid approach, saying in a recent report that "no single 
regulatory model should be applied to all spectrum". Early last year, 
it authorised systems using a technology called ultra-wideband to 
operate at very low power to avoid interference. The agency is also 
looking into expanding the part of the spectrum for which no licence 
is needed.

If experiences in other areas of technology are any guide, there is a 
good chance that both approaches will be around for some time, 
although the commons solution may eventually come to dominate. The 
internet, at least from the perspective of the end-user, is a common 
resource, with bandwidth allocated on a first-come-first-served basis. 

In software, the commons is growing, in the form of free open-source 
programs developed by volunteers. Technology may thus help to create 
markets; but it also makes some of them obsolete. In this case it has 
turned land into sea, metaphorically speaking. To draw a historical 
parallel: the development of better ships did not lead to parcelling 
up the world's oceans but to something called free trade.

http://www.economist.co.uk/finance/displayStory.cfm?story_id=1812344

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