|
The Spectrum The spectrum encompasses all possible frequencies of electromagnetic waves. The radio spectrum, which is what needs reform, covers the range from 30 Hz (cycles per second) to 300 GHz (billion cycles per second). These “airwaves” are used for an ever expanding array of over-the-air electronic transmissions and wireless devices – radio and television broadcasting, cellular phones, mobile radio, satellite communications, microwave cooking, garage door openers. A large part of the “broadband revolution” will occur through spectrum-based devices. Different bands of the spectrum have different characteristics that make them better or worse for various uses. Some frequencies are better at long-distance transmission; others are better at penetrating solid objects. And one person’s use of a portion of the spectrum can be easily interfered with by another person’s transmission use of the same wavelength, in the same place, at the same time. Interference also occurs from incidental transmissions originating in neighboring geographical locations or spectrum bands and from extraneous sources such as sunspots, lightning, electrical motors or generators, and transmission lines.
Spectrum Management and Mismanagement In 1927, when interference “chaos” threatened the nascent broadcasting industry, Congress and President Calvin Coolidge who famously said “the chief business of the American people is business” – enacted a Soviet-style central planning solution: The federal government would prevent interference by making all spectrum allocation decisions. As a result, for the past 74 years the spectrum has effectively been the property of the American public, and the Federal Communications Commission (FCC) has been charged with managing the spectrum “in the public interest.” To this day, the FCC decides the use – say, broadcasting, or cellular phones, or garage door openers – to which a specific block of spectrum will be put. Then it defines the parameters of service, such as transmitter power and location. The FCC grants a license to a specific party to operate a transmitter over a specific frequency ban, and then enforces its allocations, service rules, and assignments to ensure that interference does not arise.
In the 1920s, when the technology was rudimentary and the possibilities were limited, this management process was arguably tolerable: The early users of spectrum – radio broadcasters – were like homesteaders: First-come, first-served for a free renewable FCC spectrum license was an acceptable method of assignment. But since the 1920s, the technologies of spectrum use have exploded. And as the rising value of the multiple uses of the spectrum has become increasingly apparent, competitors, in ever-larger numbers, have contended for the use of various spectrum parcels. The FCC has tried to adapt to the changing climate. From the late 1920s until the late 1970s, if the FCC concluded that, say, an additional AM radio station should be broadcasting in Dubuque, the agency held comparative hearings (“beauty contests”) to decide which party would best serve “the public interest” and thereby receive the FCC’s free renewable license. This process collapsed of its own weight in the early 1980s as the FCC prepared to assign the first set of licenses for cellular telephone service. The agency was swamped with applicants and appealed to Congress to allow other allocation methods. Congress responded by authorizing lotteries for the free licenses. The lotteries were duly conducted. But the FCC and Congress soon realized that the process was arbitrary and that many lottery winners simply “flipped” their licenses and earned large windfall profits. Accordingly, the FCC and Congress considered other alternatives. Auctions seemed a natural choice. But incumbent license holders – especially broadcasters – feared that auctions for new spectrum allocations might someday be the precedent for auctioning their (currently free) spectrum parcels and fiercely opposed them.
An Unworkable System This allocation system simply can’t be efficient, or even equitable. At its foundation, the FCC’s spectrum management process rests upon a fallacy: that the agency knows exactly the right uses of the right bands of spectrum in the right places using the right technologies and by the right parties – in every instance. As new technologies arise, Congress expects the FCC will recognize them and unerringly accommodate them.
If the FCC were perfect and omniscient, and if incumbents didn't lobby fiercely to retain their spectrum parcels once granted, the system might work as designed. But all too often the FCC has discouraged competition, and favored incumbents over entrants and innovators – all the while claiming its decisions and actions were “in the public interest.” In the early 1950s, in the name of encouraging a local orientation for television channels, the FCC assigned channels in a way that made nearly impossible the formation of more national networks beyond the three incumbents. In the 1960s and 1970s, the FCC impeded the expansion of cable television. In the 1980s and 1990s the FCC and the Congress stymied the expansion of locally based (“wireless cable”) and satellite-based (“direct broadcast satellite”) alternatives to incumbent local cable companies. The FCC delayed the initial rollout of cellular telephone service by 10-15 years, and then initially licensed only two carriers per region in such a way as to reduce the competitive pressures that cellular telephone would bring. And the FCC's national allocation patterns of spectrum for mobile radio uses have meant, for example, that forestry communications allocations have lain idle in New York City, while its allocations of spectrum for taxicab communications have been idle in Idaho. There are other drawbacks. The FCC’s management process, combined with the free licenses, has yielded “shortages” of spectrum for current uses. And the spectrum “shortage” has provided a justification (unfortunately, upheld by the Supreme Court) for the FCC and the Congress to impose content obligations on radio and television broadcasters that would be outrageous Constitutional violations if applied to the print media. The problem is not clumsiness or incompetence by FCC personnel. The FCC has been, is, and will continue to be staffed by knowledgeable, able, hard-working individuals, with capable leadership. But its task is impossible. No organization could gather all the necessary information, process it, and make the right decisions – and then do so again and again, as technology and/or economic conditions change. And a cautious, bureaucratic environment with constant, frequently excruciating pressures from Congress and lobbyists is not one that encourages innovation and entrepreneurship.
A Better Way There is a better way and U.S. real estate provides a good model. At first blush, the two spheres don’t seem to have much in common. But upon examination, real estate and spectrum share a great deal of similarities, and their management and use present some of the same challenges. Both are finite. Productive land is “scarce;” the same is true of spectrum. As with land, different types of spectrum are often inherently better suited for different uses. Technological change can improve the efficiency of the use of both land and spectrum. Technological change can expand the amount of land that is considered usable and productive; ditto for spectrum. And some uses of both land and spectrum may interfere with neighboring uses of the same resource. The solution is thus to construct a legal and regulatory regime that would treat spectrum much the way our legal system currently treats real estate. Here’s how, in principle, it would work: The government would recognize a property right (in perpetuity) for an owner to transmit over a specified spectrum band, so long as the signals do not exceed a specified strength beyond specified geographic boundaries during a specified time period. The owners of such parcels would have the right to be free from others' transmissions that interfered with the reception of their own spectrum transmission. Owners, including government agencies, would be free to sub-divide and to buy and sell parcels. Owners would also have the right not to use their parcels, just as real estate owners do. Non-use would make sense if, for example, spectrum use requires investment in complementary facilities and the owner expects that technological change or uncertainty could render current investments obsolete. The antitrust laws would, of course, apply. And interference claims would initially be addressed through negotiations, with ultimate recourse to the courts.
An interim “expert” agency would initially configure the entire set of spectrum “parcels,” which would then be auctioned. Winning bidders could subsequently buy and sell so as to reconfigure their parcels and renegotiate beyond-boundary signal-strength limits among themselves. As new technologies open new possibilities and as economic demands for spectrum-use change, the owners of parcels would be free continually to reconfigure the parameters of their parcels. Formal or informal spectrum markets, with brokers and other intermediaries, would surely develop rapidly to help owners buy, sell, lease, or rent parcels. This would not be “privatization;” it would be “propertyzing.” Under the new regime, government agencies could bid for and become owners of spectrum, just as they currently hold and own real estate and other forms of property. Current government/public uses of spectrum – public radio and TV broadcasting, defense and public safety communications, emergency communications channels, radio astronomy, etc. – could continue, so long as taxpayers are willing to fund the purchase and maintenance of the spectrum facilities. To facilitate transactions and assist in the enforcement of property rights, a national registry of spectrum ownership would be maintained, comparable to local land registries.
How to Get There from Here Imposing this ideal structure on the current spectrum system would be politically impossible. There are tens of thousands of incumbent holders of FCC-issued licenses, and virtually all of them treat their licenses as de facto property. Many bought their licenses indirectly by purchasing companies that already owned licenses. Tens of billions of dollars of investments in facilities, equipment, personnel, and brand-name reputation surround those licenses. The owners of these licenses could then sub-divide, buy, sell, lease, or rent their parcels. Further, they could begin to adjust their input combinations, so long as they did not violate the interference restrictions that are implicit in the license, or they could negotiate mutually advantageous arrangements with transmission “neighbors.” Interference disputes that could not be settled by negotiation would, during an initial transition period, be referred to the FCC for arbitration. The FCC should hasten this process by offering (quickly) to redefine the input-oriented licenses into roughly equivalent output-oriented licenses. After the transition period, disputes would be referred to the courts rather than to the FCC, and the FCC would transform itself into a restricted-scope “pollution (interference) control” agency, with economic efficiency as its goal. Bands of spectrum that are currently under-utilized should be auctioned. Government agencies would receive the same property rights to their currently held spectrum licenses as would other holders; but Congress should require government agencies to make a special evaluation of their spectrum inventories and to auction the surplus. The government currently holds a claim on about a third of the usable spectrum, which is substantially in excess of what it needs. In the late 20th century, Congress successfully legislated disposals of surplus military real estate (military bases); it could do the same with surplus spectrum. The market prices for spectrum that will quickly emerge will provide a valuable benchmark for the Congress and spur disposal decisions.
Benefits of Propertyzing There are many benefits to this approach. In a property rights regime, the owners of spectrum could flexibly adapt their uses – for broadcasting, telephone, data transmission, Internet, mobile radio, and any new uses that might arise – to new technologies and new economic demands. A spectrum “drought” would be impossible; artificial scarcities could not exist. The scarcity justification for the First Amendment restrictions on broadcasting would vanish. With the FCC (and Congress) removed from the processes of spectrum allocation and assignment, radio and television over-the-air broadcasting, cable transmission, local microwave (wireless cable) transmission, and satellite-based transmission would be unleashed to compete. Similarly, cellular telephone and other mobile communication services would be freed from regulatory shackles; an even greater cornucopia of competitive innovations would surely follow.
A Brave New World Some might object that this scheme would lead the FCC to abandon its charge to maintain the “public interest.” But the “public interest” is a vague, ill-defined concept, which has led the government to establish far too many anti-competitive, anti-innovative, inflexible, output-limiting, anti-First Amendment regulatory regimes. Others might argue that the property rights regime might favor large and powerful corporations over individual entrepreneurs. But most holders of current FCC licenses – including large corporations such as General Electric (NBC), Viacom (CBS), Disney (ABC), Verizon, and AT&T – are not exactly the meek and the poor. The FCC stewardship and licensing system has in fact imposed severe limitations on general access to spectrum use, and the limitations have favored rich individuals and sizable companies. Though spectrum ownership would surely mimic the distribution found for other kinds of property – richer individuals would own more – a property rights system would democratize this valuable resource. Antitrust laws would apply to spectrum markets, just as they apply to most other markets in the U.S. The transformation is not likely to be friction-free or uncontroversial. Though aggressive actions by a “propertyzing” minded FCC could surely move spectrum policy strongly in the right directions, ultimately the Congress would have to pass new laws. But under a property rights system the spectrum truly would approach real estate in its rights and uses. And the U.S. economy would be all the better for it.
Lawrence J. White is the Arthur E. Imperatore professor of economics at NYU Stern. |
nfortunately,
the spectrum is mired in a system of all-encompassing federal regulation
that sometimes makes the former Soviet Union look like a paragon of
efficiency. The time is long overdue for fundamental reform. The answer
lies not in reinventing government jargon, but in the simple language
of one of America’s oldest and most entrepreneurial sectors:
real estate. Only by “propertyzing” the spectrum –
i.e., applying real-estate-like property rights to the spectrum –
will we unleash the full potential of this immensely valuable but
invisible national resource.
evertheless,
Congress, desperate to raise budgetary revenue, authorized auctions
in 1993. As of June 2001, 34 auctions, many of them for cell phone
spectrum usage, had raised about $42 billion. Despite some glitches,
the auctions have been a substantial success. Cell phone usage has
exploded; over a third of total U.S. telephone “lines” today
are cell phones. But while they were a welcome improvement, the auctions
have affected only a small fraction of the usable spectrum. Use and
service restrictions still apply even for the slivers of spectrum
that have been auctioned. In the end, auctions have been simply another
assignment method occurring within the larger FCC allocation process.
quick
comparison easily shows the absurdity of these expectations. Imagine,
for a moment, that private ownership of real estate was not permitted
in the United States and that a single federal agency made all decisions
as to the specific uses to which specific land parcels could be put,
the technologies that could be used on them, and who would be allowed
to use the land rent-free, with indefinitely renewable leases.
ut
we can start from where we are today. The FCC’s licenses constitute
a set of de facto properties, with protections against interference.
Unfortunately, the licenses are often defined in terms of inputs (the
power of a transmitter, the height of the transmitting tower) rather
than in the output terms of a signal’s strength beyond a territory
perimeter. Nevertheless, these licenses should simply be assigned,
as is, to their incumbent holders in perpetuity, with the existing
protections against interference. This would appear to be a giveaway
of valuable public properties. But the FCC has already given away
most of the usable spectrum through its licenses, with their near-automatic
renewals. And it is unrealistic to believe that incumbent holders
of these licenses would readily yield them back to the Federal Government
at zero cost. (Because the new flexibility in use could be a “windfall”
for incumbents, the possibility of taxing some of the windfall gains
ought to be considered.) 
f
course, a system of property rights and markets for spectrum use would
sometimes reach outcomes that, with the benefit of 20/20 hindsight,
aren’t the most efficient. Entrepreneurs make mistakes; markets
are not perfect. But a system of property rights and markets for spectrum
would be far less likely to be biased toward incumbency and discouraging
innovation, as the FCC has been. In the fast-changing world of the
21st century, a “propertyzed” spectrum’s flexibility
and responsiveness would surely bring high returns to the U.S. economy.