Last October, then-President Bill Clinton tried to prod federal regulators to carve out space in the nation’s airwaves for the next generation of wireless technology — technology that promises high-speed Internet access with simple hand-held devices. For Clinton, the urgency was already apparent: “If the U.S. does not move quickly to allocate this spectrum,” Clinton warned, “there is a danger that the U.S. could lose market share in the industries of the 21st century.” More recently, the Commerce Department echoed the urgency of clearing the way for so-called Third Generation wireless. “Asia and Europe are on the verge of surpassing the U.S.,” it noted, as did congressional Democrats earlier this month.
But that sense of urgency hasn’t been matched with government action. Six months after Clinton issued his directive, the Federal Communications Commission is still trying to scrape together available spectrum. It missed Clinton’s December deadline for identifying available space. Three times it has delayed auctioning off already available frequency space.
Now groups occupying spectrum that might be useful for 3G are lobbying to keep hold of it.
On March 30, the FCC produced a study on the potential of using spectrum in the 2,500-2,690 megahertz band, which produced howls of protest from everyone from church groups to schools that currently occupies parts of it. Meanwhile, the other big chunk of promising spectrum is occupied by the Defense Department and other government agencies, none of which is particularly interested in giving it up to commercial interests. Other chunks are held by TV stations in the UHV band between channels 60 and 69. They’re supposed to hand it back to the government, but not until 2006, when the country is slated to convert to digital TV.
The result: months upon months of lobbying, handwringing, acrimony, and almost certainly, more and more delays.
The cause of this trauma is said to stem from the fact that we are running out of spectrum. As the nation has fallen in love with wireless devices, cell phones, pagers, satellite TV, and so on, it has chewed through the limited supply of bandwidth available to transmit all that data. That’s the claim, at least.
It is true that there is a limited amount of frequency space available, but the fact is that the current difficulty in identifying spectrum is just the latest example of the truly ridiculous way the nation manages this limited resource. Essentially, spectrum was long ago nationalized. The government decides who gets to use it, what frequencies they can occupy, what they may do with it. The FCC carved out this chunk for TV, that chunk for AM, this other chunk for FM, and so on. This set-up might have made some sense 60 years ago when wireless meant little more than analog radio and TV.
Today, the wireless economy is dramatically different. What are sent over the airwaves are basically bits of data. And carving up spectrum for specific government-approved purposes, and letting it out only for those specified uses, makes little sense. Worse, it has done serious harm to consumers and the economy.
Cell phone technology, for example, was available a full decade before any consumer could buy one because it took the FCC that long to dole out spectrum for its use. And then the FCC let only two competitors in any given market. The cost to the economy: $85 billion.
This system has hampered technology in other ways. The FCC can kill technologies simply by deciding that others are more deserving of the space. FM radio, for instance, was developed before World War II. It got spectrum on the VHF band in 1940, and by 1945, 55 stations broadcast in FM to 400,000 receivers. But TV wanted that space, too, and after three years of court challenges, congressional hearings, and lobbying, the FCC acted. To make room for television, it pushed FM from the 40-52 Mhz band over to the 88-108 frequencies. As Milton Mueller reported for the Cato Institute, the FM industry didn’t recover until the late 1960s.
To be sure, the FCC has modernized its management of spectrum some in recent times. New spectrum is auctioned off to bidders, rather than handed out for free to companies deemed worthy enough by the government. For 3G wireless, FCC promises to give companies a fair amount of flexibility on its use.
But at its core, spectrum is managed just as it was back in the 1930s. Auctions are encumbered by a host of rules, caps on how much any company can own, and on and on. Companies don’t have any real property rights on the spectrum they use. So anybody who wants spectrum for a new product or service has to go to the FCC and, essentially, beg. Everybody who has spectrum lobbies to keep it. Nobody can easily change what he or she uses it for.
This centralized system continues to create artificial scarcity. Right now there are huge chunks of spectrum sitting idle simply because they cannot be easily redirected to more pressing uses. There are only a handful of channels in the UHV band, for example, even in the largest cities. The majority of those between 14 and 69 sit idle. Government agencies — from the Defense Department to the General Services Administration — hold substantial blocks of spectrum that could be used far more efficiently.
The net effect is precisely what is now on display with the scramble for 3G spectrum: an artificial shortage and years spent wrangling over who should get it. In a normal market, a commodity limited in supply would quickly go to its most valued uses. If a company desperately wanted some of that commodity, it would simply go to current owners and either try to buy it or work out a lease arrangement. Companies that own the spectrum would use it to provide whatever services consumers value most: video, voice, data.
There have been proposals for decades on how to privatize spectrum, letting it function like any other normal market. The latest is sitting in the filing room of the FCC from 37 economists (one Nobel prize winner, six former FCC economists, 10 who served in the Justice Department’s antitrust division). It argues that the FCC should, at a minimum, eliminate all rules and restrictions on spectrum use that don’t involve interference or anti-competitive concentration. That means getting rid of eligibility requirements, service rules, and buildout mandates. As the paper notes: “Current spectrum policies continue to decrease consumer welfare and reduce the effectiveness of the wireless half of our telecommunications world,” and without reform “spectrum will continue to be artificially scarce in some uses and wasted in others.”
Until such reforms are adopted, every new wireless technology will face the same needless hurdles in getting to market, and consumers will suffer the result.
The views expressed within represent those of the author, and do not necessarily reflect those of Capitalism Magazine’s publishers.
