Subject: [NEXTEL-1] Industry Forum Wireless Spectrum Auctions: What If ...

From: Marcelrf <[email-masked]>
Date: Sun, 28 Mar 2004 14:11:04 -0500

March 2004

Industry Forum Wireless Spectrum Auctions: What If ...

The Bush Administration, eager to create new jobs, is
overlooking a major generator of economic growth and
employment right at its fingertips: unused wireless spectrum.

Anywhere from half to three-fourths of available spectrum
goes unexploited each week, and over 99.99 percent is
underutilized. Yet by rigidly proscribing both spectrum
ownership and spectrum applications, government policy
stifles innovation and cuts off a substantial, recurring source
of revenue and productivity.

Just look to the Internet to recall how unlocking a closed,
top-down communications system to bottom-up entrepreneurship
can open up massive economic activity. This is no facile
comparison. Indeed, it's easy to forget just how many in the
telecom industry derided the Internet and its potential as
recently as a decade ago.

But today, you need big-time lobbyists and billions of dollars
to purchase a slice of spectrum. This quashes any chance of
experimentation, locks out the small entrepreneur, and forces
innovation to occur in tiny, over-crowded and over-regulated
unlicensed bands.

Everyone recognizes how television and cellular telephony
changed the economic and cultural communication landscape.
But these two applications were delayed by decades of study
and are constrained by monopoly ownership and outdated
standards. Imagine a world filled with 10 times as many markets
as large as TV and telephony.

The combination of unused spectrum and current technological
capabilities offer a rare opportunity for dynamic growth.

We need to recognize that the arguments for tightly regulating
spectrum have become obsolete. Technological advances, such
as thousands of inexpensive transmitters replacing a few broadcast
antennas and the ability to split signal spectrum and allocate slices
on demand, were undreamed of when the government began parceling
out spectrum in the 1930s. Incumbent spectrum applications have
become less valuable since cable replaced broadcast as the prime
vehicle for television transmission and MP3 players and Internet audio
diminished the value of traditional radio.

In short: The argument for regulating spectrum as a public good
has evaporated.

To be sure, the FCC has recently shown a modest inclination to free
up spectrum and is now soliciting comments on proposals that would
do just that. But these proposals - including transactions such as
one-to-one spectrum swaps between cellular companies - still bear
all the marks of the FCC's traditional command-and-control mentality.
A level playing field is the only proven way to innovate and create
value. The FCC process is too slow, too little and too late. We need a
spectrum-usage revolution today.

But where to begin?

Many, including myself, believe auctions are the best way to free
spectrum from a regulatory deep-freeze. We should treat spectrum
as the perishable commodity it really is.

The government could authorize a private NASDAQ-like spectrum
exchange to trade spectrum on a second-by-second basis. Or it
could permit current spectrum owners to auction it off to whomever
the owner chooses, for whatever use they choose. The auctioning
of other public goods such as air rights and pollution credits have
demonstrated effective new ways to harness market forces for
increased efficiency. The important thing is to remove virtually all
our current restrictive regulations on spectrum use and give
entrepreneurs the opportunity to experiment.

Many will object. One counter-argument is "fairness." Purchasers who
spent billions of dollars on spectrum for 3G will want their money
back. Fine. Indeed, both purchasers and the government would benefit
if license holders were able to recover their lump-sum investments and
offer the government, instead, an indefinite 5 percent fee on all
spectrum sales. Both sides would profit enormously, and the market
would continuously adjust the value of the wireless asset to match its
true, underlying value.

Others will worry about the possibility of bedlam when thousands of
highly varied organizations compete in the same space. "Central
control is essential," so the arguments will run, "capacity will never
grow," or "quality will be poor." If these arguments sound familiar,
it's because they were once made about the Internet - and with equal
validity.

The most powerful objections, however, will be made quietly behind the
scenes, as current spectrum owners seek to maintain their position in
what has always been a highly political process.

Perhaps our best shot at influencing the current administration to
free up spectrum will arise with the confluence of free-market ideology
and the interests of large corporations. If just one corporate Bush
supporter sees the potential for faster growth and better returns by
replacing its current business model with the spectrum auction model,
the floodgates could open. Sometimes self-interest is the public
interest
in disguise.

Greg Blonder, formerly chief technical advisor to AT&T, is now a
partner at Morgenthaler Ventures (gblonder @ morgenthaler.com).

 http://www.telecommagazine.com/default.asp?journalid=3&func=articles&page=0403t08&year=2004&month=3

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