Subject: [NEXTEL-1] Why airwaves should be deregulated

From: [email-masked]
Date: Thu, 12 Feb 2004 00:02:16 -0500

Perspectives
February 11, 2004

Why airwaves should be deregulated

By Thomas Hazlett
and Gregory Rosston

On Nov. 24, a much-touted regulatory initiative was put into effect by the
Federal Communications Commission.

Called "number portability," the policy enables you to keep your cellular
phone number, even if you switch carriers. It is designed to enhance
competition among the six national wireless phone systems by making it
easier for subscribers to jump ship for a better deal.

This is what passes for a big deal in Washington, D.C., but it is barely a
blip on consumers' radar screens. On the other hand, allowing carriers to
simply utilize idle airwaves would upgrade service and send usage fees
plummeting.

Today, the U.S. cellular industry is allotted little more than half the
radio spectrum used in European Union countries. Squeezed for bandwidth,
costs inflate, and phone call quality declines. Moreover, advanced wireless
networks are stymied, starved for spectrum.

Regulation blockades the market. Take the owner of an independent
ultrahigh-frequency (UHF) TV station that's carried by cable and satellite
operators to 95 percent of its viewers. This company might use frequencies
assigned to its station to instead offer wireless broadband, competing with
cable modems and digital subscriber lines. Internet-based networks would
receive a huge boost, while TV viewers would continue to receive programs
via subscription services. But broadcast license rigidities--Stalin-era
regulations--thwart progress.

In February 2001, a group of 37 prominent economists, including Nobel
Laureate Ronald Coase and many of the top advisers in the elder Bush and
Clinton administrations (as well as both authors of this article), urged the
Federal Communications Commission to liberalize spectrum policy.

Specifically, they asked the FCC to allow new and existing licensees the
right to offer any service, using any technology that does not cause
material damage to other spectrum users. Markets would then be empowered to
move wireless bandwidth to where consumers, investors and risk-taking
technologists want it to be. If heeded, wireless phones would work better at
a lower cost, while nationwide networks that provide wireless Internet
access would be challenging for supremacy in the broadband race.

Yet, regulators have taken only baby steps toward markets, and--under the
current Bush administration--actually retreated from even these tentative
initiatives. A spectrum report the FCC issued in November 2002 cut the
bandwidth that a November 1999 FCC report (under Clinton) had proposed to
allocate for flexible licensed use by 46 percent. It also failed to raise
the question why none of the targeted frequencies had been made available to
the marketplace in the intervening three years.

Still darker clouds threaten, as antireform (or pro-status quo) Republicans
embrace Democratic friends that bear "public interest" rationales for
restricting competition. Making licenses flexible yields new freedom. That's
productive, because it allows more economic use of airwaves. But some see
the new rights as "windfalls," arguing that the government should capture
every penny of value that free markets bestow.

This, incredibly, leads them to champion policies that restrict the number
of new rights issued. This artificial scarcity does force license bids
higher, but only by inflicting mass casualties on the consuming public. By
depriving markets of vital spectrum inputs, it forces consumers to continue
to bear the needlessly high costs of a low-technology world.

An example illustrates. Wireless operators are typically licensed to offer
specific services, according to technologies and business models bureaucrats
prescribe. Government mandates, for instance, forced analog cellular phone
systems on a 1980s world that yearned to be digital. Worse, restrictions
keep licensees in one band from offering services to compete with those in
another, as in the UHF TV mandate.

Spectrum deregulation has, in limited instances, stripped away such
restrictions, and efficiency has broken out. Since a 1988 deregulation,
wireless phone networks have been able to offer most any service or
technology within the airspace defined by their licenses.

As a result of this laissez-faire regime, personal digital assistant
networks have sprung up for which no government assembly is required.
Carriers compete to create networks for the BlackBerry, the Palm Pilot, the
Treo and the PocketPC. Additional spectrum deregulation would now allow
these data networks to purchase bandwidth to zip along at broadband speeds.

When free markets lead to innovation, low prices and happy customers, what's
not to like? The government's take from wireless license auctions. The more
competition--and the lower the resulting retail prices--that wireless users
enjoy, the less revenue the government extracts via license sales.

Incredibly, this has created a backlash against liberal reforms. Revenue
hawks actively propose stopping "giveaways" via loosened government controls
in order to obtain higher license auction receipts. The glitter is fool's
gold. By suppressing market competition, consumers will pay through the nose
for each dollar raised. And thanks to the gross inefficiencies such policies
impose, government revenuers ultimately lose cash.

Consider wireless telephone licenses. When analog cellular systems were
deregulated, operators invested billions to digitize their systems,
carefully migrating tens of millions of customers to an upgraded platform
while continuing analog service unabated. Because competitive networks were
free to flexibly use spectrum, this massive technology switch was smooth and
efficient. In contrast, the FCC's 20-year transition to digital television
is in shambles, a monument to industrial policy.

Note that the cell phone operators got their "digital permission slips"
gratis. Today, revenue hawks say, "Make them pay." In fact, to get top
dollar, they advise the government to issue very few permission slips.
Instead of six or more wireless competitors offering digital service, we
might extract more license revenue by authorizing just one or two.

In truth, stifling cutting-edge technologies is about the most expensive way
we could raise revenues. In the decade since license auctions began, the
U.S. Treasury collected $14 billion--about $1.5 billion per year. These are
one-time payments (no auctions for renewals), and they are trivial, compared
to the value of wireless services.

U.S. cellular subscribers paid about $85 billion to chat for approximately
700 billion minutes in 2003 alone. Market forces have pushed down the
average price per minute for cell phone use from 57 cents in 1993, when only
two carriers competed in each market, to just 12 cents in 2002. Deliberately
slowing new rivalry could easily cost consumers several billion dollars
annually in higher charges.

But there is actually worse news. Taxing the productive use of new
technologies feeds political forces that prosper by blocking entry. For
instance, bureaucratic inertia kept cell phones off the market well over a
decade after the technology was ready for prime time, resulting in an
estimated $87 billion in lost productivity. Revenue hawks advocate such
delays, along with the extraction of every dollar of profit available to
innovators. This kills any political momentum to make spectrum available,
ironically protecting incumbents with "windfalls" that will not be captured
via auctions.

Windfalls can and should be eliminated by liberalizing markets. This would
allow eager competitors and a multitude of new applications to pour over
regulatory barriers. Conversely, consumers lose when monopoly is the aim of
government, and regulators blindly trumpet the pocket change government
seizes by selling spectrum serfdoms.

Author Bio:
Thomas Hazlett, a senior fellow at The Manhattan Institute (See
http://www.manhattan-institute.org/), was chief economist of the Federal
Communications Commission during the first Bush administration. Gregory
Rosston, deputy director of the Stanford Institute for Economic Policy
Research (SIEPR) See
http://siepr.stanford.edu/, was deputy chief economist of the FCC during the
Clinton administration.

Source: http://news.com.com/2010-1039-5156846.html

------------------------ Yahoo! Groups Sponsor ---------------------~-->
Send the freshest Valentine's flowers with a FREE vase from only $29.99!
Shipped direct from the grower with a 7 day freshness guarantee and prices so low you save 30-55% off retail!
http://us.click.yahoo.com/_iAw9B/xdlHAA/3jkFAA/61FxlB/TM
---------------------------------------------------------------------~->

-- 
    "NEXTEL-1 IT'S NOT JUST NEXTEL"
  Note The New address 
Subscribe to Nextel-1: http://www.groups.yahoo.com/subscribe/NEXTEL-1

  "NEXTEL2 FOR iDEN SOFTWARE DEVELOPERS"
Subscribe to Nextel2: http://www.groups.yahoo.com/subscribe/NEXTEL2

  "WIRELESS FORUM HOMELAND SECURITY GROUP"
     The Complete Resource for Wireless Homeland Security.
Subscribe to WFHSG:  http://www.groups.yahoo.com/subscribe/WFHSG

Yahoo! Groups Links

<*> To visit your group on the web, go to:
     http://groups.yahoo.com/group/NEXTEL-1/

<*> To unsubscribe from this group, send an email to:
     [email-masked]

<*> Your use of Yahoo! Groups is subject to:
     http://docs.yahoo.com/info/terms/