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Dr. Faulhaber will be liveblogging here this evening at 7pm EDT.
Gerald Faulhaber is a Professor of Business and Public Policy, and of Management, at the Wharton School, University of Pennsylvania, and Professor of Law, University of Pennsylvania Law School. He has written widely on telecommunications and Internet issues, most recently on spectrum policy issues, public safety radio, and file sharing. He was Chief Economist of the Federal Communications Commission in 2000-2001.
First, a note of thanks to Sen. Durbin for hosting this online real-time blog regarding these issues critical to our nation's infrastructure.
Municipal broadband, particularly in its WiFi incarnation, has seized the headlines over the past few years, with my hometown of Philadelphia in the forefront. The ubiquity of WiFi-enabled computers and in-home WiFi receivers, all using unlicensed spectrum in the 2.4 GHz band, has spurred interest by cities and towns to provide broadband access to all their citizens using this popular technology. Free (or cheap) broadband for all was the watchword.
Has it worked? Yes and no. Towns without broadband from commercial providers have been most successful, with WiFi being deployed by municipalities directly, by municipal power companies, or by community volunteer organizations. While many have had problems, it seems that this market most amenable to successful municipal WiFi, and I certainly applaud it. Cities and towns where commercial providers are already present is a rather different story. The rationale for municipal deployment is usually to provide more complete coverage (digital divide issues) or cheaper coverage. Unfortunately, many of these systems have had coverage problems and have had difficulty pricing the service to compete with existing vendors and still cover their costs (an interesting and balanced review of the studies of municipal WiFi is in Ars Technica, at http://arstechnica.c... ).
(More in 'there's more'...)
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| Unfortunately, WiFi is almost surely the wrong technology for this deployment. WiFi was designed for in-building use; stretching it to create a city-wide network will always create problems. Further, in a field with very rapid technical change, it is unlikely that WiFi is a good choice three years from now, and municipalities are the last organizations you want managing in a rapidly changing highly uncertain technological environment. But ultimately, this is a decision for voters in each city to make, not something the Federal government or even the states should control (except to make sure each city's citizens have a free choice).
Far more interesting are the few attempts to bring broadband to municipalities using either fiber or advanced wireless broadband (WISPs). I am totally in favor of this type of deployment, although I favor community groups or some other agency that does not have access to taxpayers' pockets to subsidize this. But especially for smaller communities, this is a big plus, and we should support it.
What is the role of unlicensed wireless spectrum? As most of us know, this is spectrum the FCC (which is the government agency that allocates all non-Federal radio spectrum) makes available for specific uses with very tight power restrictions in specific frequency bands. Cordless phones, baby monitors, remote thermometers, WiFi, and garage door openers are examples with which we are all familiar. Anyone may use this spectrum without a license, but only if they and their devices follow the FCC's strict rules. Of course, interference is often encountered in these bands. Licensed spectrum, of course, is controlled by a licensee and used for a specific and defined purpose: broadcast TV and radio, public safety radio, and cellular phones are the best examples here. Most of this spectrum is now sold at auction (formerly, it was given away by the FCC). Interference in these bands is almost non-existent.
Many advocates have noted the success of WiFi (and indeed cordless phones) in unlicensed spectrum and have proposed that as technology advances, unlicensed should be the model for all (or perhaps most) spectrum. Of course, cellular telephony has been an even bigger success, not only in the US but around the world, and that success has involved licensed spectrum. It is safe to say that neither licensed nor unlicensed has a monopoly on success; indeed, each model has specific applications in which it is superior, and we need to preserve and enhance our abilities to make good decisions regarding what spectrum regime is most appropriate.
Unfortunately, the current model has a government agency, the FCC, making these decisions. As many have pointed out (including myself; see The Question of Spectrum: Technology, Management and Regime Change, 4 J. ON TELECOMM. & HIGH TECH. L. 123 (2005) available at http://quello.msu.ed... ) there are two consequences of bureaucratic/political allocations of scarce resources (such as right to spectrum): (i) huge inefficiencies, and (ii) substantial advantages to politically powerful incumbents. As long ago as 1959, Ronald Coase suggested that having government bureaucrats pass out spectrum was wildly inefficient; he recommended (as do most economists including me) that all spectrum licenses should be put into a market and let people buy, sell, trade, aggregate and subdivide it. In this way, spectrum will move to its highest valued use. Of course, governments could also own spectrum and make it available (should they choose) for unlicensed use.
The model of establishing property rights and a market in the use of frequencies would be like the property rights and markets in land, something with which we are all familiar. Much privately held land is for exclusive use of its owner (such as my home), but much is also available for use by the public (retail space, malls, hotels, amusement parks). Publicly held land (also owned, but by a government) can be held for exclusive use (military bases, post offices, city and school property) or can be open to the public (national parks, Central Park in NYC, state forests). By treating use rights to spectrum as property, then the allocation system can respond to changing needs and technology. If open unlicensed use increases in value, then either private parties will figure out a way to offer such services, or governments can buy spectrum from private hands and offer it as unlicensed. And vice-versa if licensed appears to be the right model. This is exactly how land is allocated: state parks with excess land sell it off, or buy it if they need more land.
Would this be costly? Not at all. Spectrum licenses today are very costly for the simple reason that the FCC severely limits the supply available. If all spectrum were available in the market, this would increase supply, probably by a factor of at least one hundred. Net result: the price would drop like a stone! New firms could afford to buy into the market and compete with the big wireless firms. And indeed the big wireless firms would be quite discomfited by the price drop, as it would devalue their most important asset: spectrum licenses. But government should not be in the business of supporting the value of big firms' assets. We should be trying to get as much spectrum out there as we can, and selling all of it, all of it, is the way to do this. Abundance is the enemy of monopoly power, and we should insist that the FCC stop dribbling spectrum out bit by bit in order to keep the price of spectrum high. Dump it all in the market, let the price drop, and let's see what our technology firms can do with it.
Both licensed and unlicensed spectrum have their place, and we need both. But what we really need is to quit controlling this market allocation via bureaucratic/political control. Get the FCC out of the allocation business; governments are notoriously bad at this. |
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