Fred wrote a post earlier this week advocating for more “open spectrum”. Fred argues in his post that freeing up more open spectrum will have a much larger impact than spending $7.2B in stimulus money to run wires to rural constituents. He also references our friend Tom Evslin who has been thinking and writing about telecom policy for 30 years. I’d like to flesh out the argument here and at the risk of coming off as a total fanboy, link to a couple of Tom’s other posts here and here on the subject of spectrum policy.
The first question to ask about spectrum policy is “are we using spectrum efficiently today?” The answer is no. Google makes this argument in their May 21, 2007 letter to the FCC asking for a clarification of the service rules governing the 700MHz band.
“the vast majority of viable spectrum in this country simply goes unused, or else is grossly underutilized. Our nation typically uses only about five percent of one of our most precious resources.”
This study done with the National Science Foundation (warning 20meg download) supports the first part of Google’s contention. It chronicles spectrum usage in New York City during the Republican National Convention. It shows that in the largest city in the country at what should theoretically be one of its busiest moments, we use a tiny fraction of the available spectrum.
So we only use a small portion of the available spectrum under the current policies. The second question is “could the spectrum in use today be used more efficiently?” The answer there is yes.
In there letter to the FCC Google goes on to say…
“even that minimal use is inefficient compared to what is technically possible today.”
I have been working in and around telecom for a long time and I am slightly embarrassed to admit that I did not understand how obvious our underutilization of spectrum is until a few weeks ago when I was rummaging around in some of Tom’s old posts.
Over simplifying slightly, the current allocation of spectrum is a lot like circuit switching. Open spectrum operates more like packet switching which is phenomenally more efficient at the cost of some complexity.
When I make a phone call to my dad in Florida over a circuit switched network, I tie up a continuous electrical circuit from New York to Vero Beach. When I send him an email, that note is chopped up in to packets and put out on the net intermingled with lots of other packets.
Circuit switching is simple but very extravagant in its use of resources. Packet switching is more chaotic. It has to deal with the possibility that two packets will arrive at the same place and the same time. But it is much more efficient. This is, by the way, why in times of crisis, when there is a huge surge in demand such as right after the attacks on 9/11, the phone networks don’t work but email gets through.
Before you all jump down my throat, I know this analogy is an oversimplification. Telcos use packet switching in the backbone to multiplex lots of phone calls over fewer circuits, so one could argue that the profit motive of the Telcos naturally leads to an efficient use of circuits. An argument could also be made that the cellular carriers are using a related technique to get many conversations into the same spectrum by deploying lots of towers broadcasting at low power and switching users from cell to cell as they travel. But we should not be surprised if the increase in the efficiency of licensed spectrum is less than we, as consumers, would like.
Anytime a vendor is granted a monopoly by the government, we should expect that vendor to manage their monopoly to maximize profits. When we license spectrum to mobile carriers, or TV networks, we are granting (or selling) them a monopoly over the management and use of a shared social resource. It is like giving the major oil companies an exclusive license to all of the oil in the US and expecting them to aggressively invest to increase the efficiency of extraction to drive down the price of gas at the pumps. The much more likely commercial reaction would be to extract slowly and manage the availability of the resource to keep the price and their profits high.
So, I for one am convinced that we do not use spectrum efficiently. Only a small portion of this important resource is in active use at any one time, and even when it is in use, most applications tie up a lot more spectrum than they need. I suspect that an analysis of currently available unlicensed spectrum would show that those frequencies are used more efficiently than most licensed spectrum. I have not seen research on this so if anyone can point me to some, I’d be grateful. But, efficiency may not even be the most important reason to open up more spectrum. As a society we benefit from technical innovation, and the pace of that innovation is much greater in unlicensed spectrum. This chart that I also found on Tom’s blog comes from a comment submitted to the FCC proposing more unlicensed operation in the TV broadcast bands (white space) by a coalition of consumer advocates, wireless operators, and media watchdogs.
It is based on a very simple publicly available data set – the number of devices approved by the FCC for operation in licensed vs unlicensed spectrum. This does not speak directly to the value to consumers of all these devices, but if you assume the market works and that developers only invest in devices that they believe will ultimately get bought by consumers, it should be a pretty good proxy, and it tells a very important story.
It is a story that also seems to be playing out in other markets. When Apple introduced the iPhone, it had enough market clout to get AT&T to allow it to create a market for applications that AT&T would not control. The iPhone app store now has over 28,000 applications. I suspect that that is an order of magnitude more than have ever been approved by carriers. Again, I would love to see research that supported or refuted this point. The number of applications in the iPhone applications store is broadly available, can anyone point me to research on the total number of applications approved by wireless carriers to run “on deck” on their platforms? A cynic might argue that most iPhone apps are toys, but the number of applications downloads suggests that consumers like them and even the toys point the way to really valuable innovation like hundreds of different ways of using the accelerometer, or using the headset jack as an I/O channel.
I have heard a couple of reasonable arguments against increasing the amount of open spectrum. The first is that the government needs to grant a limited monopoly in spectrum in order to create an incentive for an operator to invest in the network that will operate in that spectrum. I am not an economist but I do know the cost of network infrastructure is coming down fast, and I suspect that it may already be low enough that network operators can create business plans that are attractive to private capital. More intriguing is the possibility that networks could be built in open spectrum as a series of interconnected networks like the Internet. This would radically reduce the capital requirements for any single network node, and likely lead to the creation of very efficient network back bones just as we have seen happen with the Internet.
A more subtle version of this argument is that a government granted monopoly creates the profits that fund the research and development spending needed to increase the efficiency of spectrum use. Advocates of licensed spectrum will likely point to the absolute size of their investment in R&D and argue that they will not be able to do that unless they have a monopoly that generates the profits needed to support that R&D. The problem with that argument is that there is no evidence that that R&D is creating real consumer benefit, and there is at least anecdotal evidence (I spent my early career poking around Bell Laboratories) that large, over-funded, research groups are an inefficient way to get innovation to market.
The second concern I have heard about opening up more unlicensed spectrum is that it invites the government into an important sector of the economy which they are very likely to screw up. I completely agree that we do not want the government to be involved in the day to day administration of this hugely important social resource. But enlightened spectrum policy can be the best kind of government regulation.The government seed funded ARPANET and in the process created the standards that enabled the creation of the Internet. I don’t know if anyone has tried to measure the return on the government’s initial investment in the Internet (again I’d love to see this analysis), but I suspect it may be the single most effective economic development program ever created. We have a rare opportunity to replicate that success with enlightened spectrum policy. If the FCC chooses to open up more spectrum and creates the right framework for managing competition for that scarce resource, and the Defense Department, or the National Science Foundation funds a few experimental networks to operate in that spectrum, I believe that we will see an explosion of innovation that rivals the impact of the Web.
Unfortunately, as Fred pointed out in his post, that is not where we are headed today. The $7.2B the administration has committed to broadband infrastructure appears to be headed for shovel ready projects by established telecom carriers to deploy outdated and inefficient technology that will perpetuate their market dominance and dampen innovation. This is the wrong kind of government intervention into the market. It is not that it is not well intentioned, and I am not qualified to talk about it’s effectiveness as a stimulus, but it will not have nearly the lasting impact that it could have if it were targeted at disruptive innovation in open spectrum. Why? Because access to those dollars will be a highly politicized process that will result in the firms with the most access getting the most dollars. Those firms tend to be the incumbent telcos and cable companies who have an obligation to their shareholders to maximize their profits by defending their duopoly. They have no interest in more open spectrum that would create an incentive for private capital to finance wireless alternatives to the wires that they now control to the home.
If the administration were to create more open spectrum, they would be creating a vibrant market. They would actually be taking the politics out of the management of communications. It may be tough in these times to walk away from potential revenue from the auction of spectrum, but the administration can have a much more profound and lasting impact on the quality of life of all Americans by opening up spectrum than they every could by putting stimulus dollars in the hands of the incumbent duopoly.