Should White Spaces be Unlicensed?

by on April 2, 2008 · 16 comments

The white space debate has been the subject of much attention lately, with Microsoft, Dell, and Google pitted against the CTIA on the question of how to allocate white spaces between UHF channels. The two competing proposals are 1) auction off white spaces, similar to the 700mhz auction, or 2) leave them unlicensed and managed (like 2.4Ghz) but allow devices which don’t cause interference.

This controversy again raises the issue of the desirability of unlicensed spectrum. I’ve been reading about the merits of unlicensed spectrum, inspired by a 2006 exchange between Jerry Brito and Mike Masnick on TLF and TechDirt. Jerry makes a compelling argument that command-and-control commons rules might hinder the emergence of superior networks operating with devices emitting greater than 4w EIRP.

The public interest is to allocate the spectrum in the most economically efficient manner, so if unlicensed spectrum uses do not make the best use of scarce airwaves, unlicensed bands should be auctioned off. Tim envisions privately managed commons that would provide for much the same openness now offered by unlicensed spectrum, but without a monolithic regulator imposing centralized rules.


Privately managed commons are naturally appealing to libertarians, as they accomplish the virtue of openness and participation without the need for government intervention. But there’s the question of whether a spectrum commons would actually emerge. With the immense profit potential that comes with owning even a tiny chunk of spectrum and offering restricted communications services, it’s not easy to imagine firms ponying up billions simply to manage spectrum for open, unrestricted use—unless each user must pay to become a commons member. Supporters of licensed spectrum suggest that wireless device manufacturers could confer spectrum usage rights to the end user for a small fee, rolled up in the cost of the product. But with myriad small wireless devices now on the market made by upstart overseas companies, abolishing unlicensed spectrum would necessitate that each device have some privately granted right to broadcast, possibly adding new entry barriers. And what about the geek who wants to build a low-power, home wireless device with off-the-shelf parts from Radio Shack? Does she have to buy spectrum rights from a third-party in order to broadcast in her own home without facing “spectrum infringement” litigation? If so, perhaps Faraday Cages will one day become a nerd luxury.

Currently, mobile phone services run fairly well using licensed frequencies. People spend hundreds (if not thousands) of dollars a year for wireless service plans. Perhaps the ability of unlicensed spectrum to greatly reduce transaction costs explains its appeal to consumers and producers alike. According to the Coase theorem, unhindered market allocation of property rights should generate a Pareto optimal outcome. But that outcome might be skewed if transaction costs eat up a huge portion of consumer and producer surplus. The ability to broadcast a Bluetooth signal ten or fifteen feet, for example, is far less valuable than mobile phone service.

The amazing success of the unlicensed 2.4Ghz band, even compared to widely deployed 3G networks like EVDO, suggests there’s something to the argument for unlicensed, lightly regulated spectrum. Who would have envisioned a mere 73mhz chunk of spectrum playing such a major role in technology?

Unfortunately for unlicensed spectrum management, the economic calculation problem is unavoidable. The FCC cannot possibly ascertain the socially optimal rule-making scheme for unlicensed spectrum. Who knows if 4W EIRP is too much, or too little? Despite this problem, 2.4 Ghz has still arguably resulted in a hotbed of innovation rivaling the achievements of any other band on a megahertz-for-megahertz basis.

To be sure, spectrum rights should be sold on the free market, with the federal government acting as a registrar of spectrum deeds. The real question is, should every last bit of the spectrum be licensed, or is there a valid case for setting aside a small portion of the airwaves for open, unlicensed, government-regulated use?

  • dimitris

    To be sure, spectrum rights should be sold on the free market, with the federal government acting as a registrar of spectrum deeds. The real question is, should every last bit of the spectrum be licensed, or is there a valid case for setting aside a small portion of the airwaves for open, unlicensed, government-regulated use?

    That statement contains assumptions that perpetuate the existing system’s built-in barriers to entry.

    Depending on a target area’s population desity, and with software-defined radios becoming more common in commercial devices, you don’t need a command-and-control decision about the size of the minimum biddable spectrum “quantum”. The lack of the ability to bid on just a few MHz is simply incumbent-protecting market rigging.

    There are business models which can work with very very thin slices of spectrum/bandwidth. Think texting/chat, or Twitter, or walkie-talkie functionality – where not only bandwidth requirements are low but latency – and therefore spectrum contention – tolerance is higher.

    However, due to the aforementioned barriers to entry, the only way to gain access to this bandwidth now is to submit to the “big picture” business model of an incumbent. Of course no telco is going to offer feasible terms to what would, for them, be a “skimming” competitor.

    Another way to put this is that Soviet-style setting of the minimum biddable chunk, to something much much bigger than what dictated by radio technology, prevents efficient margin price discovery. If Verizon really needs that last MHz in, say, Atlanta, well, they really should have to bid it quite high, shouldn’t they?

    Or, risk some wireless Twitter startup eating their ARPU. To which I’d say, yay for the invisible hand.

  • dimitris

    To be sure, spectrum rights should be sold on the free market, with the federal government acting as a registrar of spectrum deeds. The real question is, should every last bit of the spectrum be licensed, or is there a valid case for setting aside a small portion of the airwaves for open, unlicensed, government-regulated use?

    That statement contains assumptions that perpetuate the existing system’s built-in barriers to entry.

    Depending on a target area’s population desity, and with software-defined radios becoming more common in commercial devices, you don’t need a command-and-control decision about the size of the minimum biddable spectrum “quantum”. The lack of the ability to bid on just a few MHz is simply incumbent-protecting market rigging.

    There are business models which can work with very very thin slices of spectrum/bandwidth. Think texting/chat, or Twitter, or walkie-talkie functionality – where not only bandwidth requirements are low but latency – and therefore spectrum contention – tolerance is higher.

    However, due to the aforementioned barriers to entry, the only way to gain access to this bandwidth now is to submit to the “big picture” business model of an incumbent. Of course no telco is going to offer feasible terms to what would, for them, be a “skimming” competitor.

    Another way to put this is that Soviet-style setting of the minimum biddable chunk, to something much much bigger than what dictated by radio technology, prevents efficient margin price discovery. If Verizon really needs that last MHz in, say, Atlanta, well, they really should have to bid it quite high, shouldn’t they?

    Or, risk some wireless Twitter startup eating their ARPU. To which I’d say, yay for the invisible hand.

  • Timon

    To be sure, hot-dog selling rights, and rights to play little league, and rights to make souffles, should be sold by the government on the free market.

    It is a total evacuation of the idea of property rights to say that they come into existence on the day a government agency creates them. I suppose they could make a killing “auctioning” the 2.4 mhz band now, couldn’t they?

  • Timon

    To be sure, hot-dog selling rights, and rights to play little league, and rights to make souffles, should be sold by the government on the free market.

    It is a total evacuation of the idea of property rights to say that they come into existence on the day a government agency creates them. I suppose they could make a killing “auctioning” the 2.4 mhz band now, couldn’t they?

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    The spectrum should remain in public ownership and held in trust for the public. The government should operate the spectrum spectrum as a business and lease as economics allow.

    In recognition of the spectrum as a “public common good” certain portions of the spectrum should be set aside for public safety, military, aviation, and low powered unlicensed uses.

    The assumption that everything must have a $$ value attached to it and that it can only be used if it is privately held is simplistic.

    The assumption that the market will somehow be “freer” (less regulation) if in private ownership is a flawed assumption. There would be virtually no difference between an FCC regulation and a Corporate EULA.

    Spectrum management is a complex issue. Currently we have the a government FCC, lets assume that the spectrum is transferred into private ownership. For interoperability to work, the corporate owners of the spectrum will need to get together and develop some ground rules. Presto, an industry association will be formed to develop rules-of-the-road to promote interoperability. In the end we will have a private FCC promulgating many of the same vilified regulations currently imposed by the government FCC.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    The spectrum should remain in public ownership and held in trust for the public. The government should operate the spectrum spectrum as a business and lease as economics allow.

    In recognition of the spectrum as a “public common good” certain portions of the spectrum should be set aside for public safety, military, aviation, and low powered unlicensed uses.

    The assumption that everything must have a $$ value attached to it and that it can only be used if it is privately held is simplistic.

    The assumption that the market will somehow be “freer” (less regulation) if in private ownership is a flawed assumption. There would be virtually no difference between an FCC regulation and a Corporate EULA.

    Spectrum management is a complex issue. Currently we have the a government FCC, lets assume that the spectrum is transferred into private ownership. For interoperability to work, the corporate owners of the spectrum will need to get together and develop some ground rules. Presto, an industry association will be formed to develop rules-of-the-road to promote interoperability. In the end we will have a private FCC promulgating many of the same vilified regulations currently imposed by the government FCC.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    I have been thinking of analogy that would demonstrate that privitization of spectrum is uneconomic.

    Think of the Ocean, in this case the Atlantic with London and New York being two ports. The Atlantic ocean would be equivilant to the “spectrum” and the ports would be eqivilant to the sender and receiver. Ships, the information being transported.

    The economic “value” of the goods being transmitted and received is between the transmitter and the receiver, the medium (the Ocean) adds no value. So why put up a toll booth at the transmitting and receiving ends??? This adds an unecomic third party that collects an unearned rent. To pay this “rent” the price of the product has to be increased which deprives the product creator of some revenue and forces the consumer to pay more. This discourages economic growth. There is an economic benefit to “free”.

    Of course, my analogy above is simplistic, what about congestion management if there are too many ships in the shipping lanes? This is where the FCC does have a role. Again, I would not see any benefit of a private FCC over a government FCC. In theory the government FCC would be making decisions in the “public interest”, but we all know how slippery that is.

  • http://www.techliberation.com/contributors/ryan_radia.php Ryan Radia

    Steve, the ocean isn’t much like the airwaves. With a few limited exceptions, the open seas are a non-rival good. There is so much space for relatively few ships that every firm can transport goods across the ocean without preventing any other. Spectrum, however, is quite scarce, and there are plenty of firms which would love to utilize the airwaves if only barriers to entry were not so high.

    Also, even having several “private FCCs,” with each owning a separate chunk of spectrum, would be far superior to the status-quo. Competition would enhance social welfare by spurring product differentiation through market incentives. Currently, a single regulatory agency is in charge of the whole spectrum, and firms relying on spectrum have no choice but to work within the constraints of the current system.

    Treating the spectrum like a public good for a benevolent government to parcel out is the wrong approach. Eminent domain should still apply to the spectrum, of course, as it applies to land. But like land, private ownership is key to efficient resource allocation. What if instead of buying a piece of land from a realtor, you had to convince a bureaucrat you would utilize land for a legitimate public purpose?

    Dimitris, you make a good point, but many of your concerns would be addressed by spectrum liberalization. If firms could truly control the spectrum with no usage mandates or transfer limitations, secondary spectrum markets would surely emerge. People won’t just be able to buy the rights to airwaves from the government–they would be able to purchase comparatively small chunks from spectrum resellers. Again, high entry barriers resulting from the artificial scarcity imposed by the FCC preclude truly vibrant secondary spectrum markets.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    I have been thinking of analogy that would demonstrate that privitization of spectrum is uneconomic.

    Think of the Ocean, in this case the Atlantic with London and New York being two ports. The Atlantic ocean would be equivilant to the “spectrum” and the ports would be eqivilant to the sender and receiver. Ships, the information being transported.

    The economic “value” of the goods being transmitted and received is between the transmitter and the receiver, the medium (the Ocean) adds no value. So why put up a toll booth at the transmitting and receiving ends??? This adds an unecomic third party that collects an unearned rent. To pay this “rent” the price of the product has to be increased which deprives the product creator of some revenue and forces the consumer to pay more. This discourages economic growth. There is an economic benefit to “free”.

    Of course, my analogy above is simplistic, what about congestion management if there are too many ships in the shipping lanes? This is where the FCC does have a role. Again, I would not see any benefit of a private FCC over a government FCC. In theory the government FCC would be making decisions in the “public interest”, but we all know how slippery that is.

  • http://www.techliberation.com/contributors/ryan_radia.php Ryan Radia

    Steve, the ocean isn’t much like the airwaves. With a few limited exceptions, the open seas are a non-rival good. There is so much space for relatively few ships that every firm can transport goods across the ocean without preventing any other. Spectrum, however, is quite scarce, and there are plenty of firms which would love to utilize the airwaves if only barriers to entry were not so high.

    Also, even having several “private FCCs,” with each owning a separate chunk of spectrum, would be far superior to the status-quo. Competition would enhance social welfare by spurring product differentiation through market incentives. Currently, a single regulatory agency is in charge of the whole spectrum, and firms relying on spectrum have no choice but to work within the constraints of the current system.

    Treating the spectrum like a public good for a benevolent government to parcel out is the wrong approach. Eminent domain should still apply to the spectrum, of course, as it applies to land. But like land, private ownership is key to efficient resource allocation. What if instead of buying a piece of land from a realtor, you had to convince a bureaucrat you would utilize land for a legitimate public purpose?

    Dimitris, you make a good point, but many of your concerns would be addressed by spectrum liberalization. If firms could truly control the spectrum with no usage mandates or transfer limitations, secondary spectrum markets would surely emerge. People won’t just be able to buy the rights to airwaves from the government–they would be able to purchase comparatively small chunks from spectrum resellers. Again, high entry barriers resulting from the artificial scarcity imposed by the FCC preclude truly vibrant secondary spectrum markets.

  • dimitris

    Ryan,

    People won’t just be able to buy the rights to airwaves from the government–they would be able to purchase comparatively small chunks from spectrum resellers.

    My point is that there is no need for the additional friction/barrier of the resellers. The government actually has considerable experience working with the retail investor.

    Furthermore, reselling is going on now. However, one of these days, take a look at the fine print in your (perhaps “unlimited”) wireless data plan. You’ll likely find some interesting language about how, in order to protect its business plan – excuse me, its network – the operator reserves the right to define any application it likes as “bad” for the network. In other words: Browsing is good, (competitive) messaging et al, bad. Your barrier at work.

  • dimitris

    Ryan,

    People won’t just be able to buy the rights to airwaves from the government–they would be able to purchase comparatively small chunks from spectrum resellers.

    My point is that there is no need for the additional friction/barrier of the resellers. The government actually has considerable experience working with the retail investor.

    Furthermore, reselling is going on now. However, one of these days, take a look at the fine print in your (perhaps “unlimited”) wireless data plan. You’ll likely find some interesting language about how, in order to protect its business plan – excuse me, its network – the operator reserves the right to define any application it likes as “bad” for the network. In other words: Browsing is good, (competitive) messaging et al, bad. Your barrier at work.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    Ryan, I respectively disagree, but we need to move on to a further concern. You wrote: “his controversy again raises the issue of the desirability of unlicensed spectrum.” My concern relates to the granularity of the proposed spectrum property “right”. Few details have been disclosed as to what this would really mean for the consumer.

    Basically, are you actually advocating that every square inch of the radio spectrum become private property? The obvious implication, would a homeowner have to lease/buy spectrum from company X in order to run his wireless LAN inside their own house?

    Radio waves also don’t stop at some predefined property line. Additionally the radio spectrum consists of an infinite number of frequencies, not to mention a very large number of operating modes, AM,CW,TV,FM,digital etc. Given an essentially infinite mix of frequencies, distance, and operating modes how are the property rights to be defined??????

    This privatization scheme seems to me more of a full employment program for the lawyers.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    Ryan, I respectively disagree, but we need to move on to a further concern. You wrote: “his controversy again raises the issue of the desirability of unlicensed spectrum.” My concern relates to the granularity of the proposed spectrum property “right”. Few details have been disclosed as to what this would really mean for the consumer.

    Basically, are you actually advocating that every square inch of the radio spectrum become private property? The obvious implication, would a homeowner have to lease/buy spectrum from company X in order to run his wireless LAN inside their own house?

    Radio waves also don’t stop at some predefined property line. Additionally the radio spectrum consists of an infinite number of frequencies, not to mention a very large number of operating modes, AM,CW,TV,FM,digital etc. Given an essentially infinite mix of frequencies, distance, and operating modes how are the property rights to be defined??????

    This privatization scheme seems to me more of a full employment program for the lawyers.

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