AWS-3 Spectrum Plan Version 2.0: Unfiltered, but Still a Train Wreck

by on January 3, 2009 · 26 comments

The FCC’s much-maligned proposal to create a free, filtered wireless broadband network seemed all but dead earlier this week after FCC Chairman Kevin Martin stated in an interview with Broadcast & Cable that the proposal’s chances of surviving a full FCC vote were “dim.”

Now, Ars reports that Kevin Martin has changed his mind about the filtering requirements, caving in to pressure from an array of interest groups to drop the smut-free provisions from the plan. These “family-friendly” rules, which would have mandated that the network filter any content deemed unsuitable for a five-year-old, ended up acting as a lightning rod for critics across the ideological spectrum, and raised serious First Amendment concerns (as Adam and Berin have argued on several occasions).

Even with the smut-free rules having been removed, the proposal remains a very bad idea. Setting aside 25 mhz of the airwaves—a $2 billion chunk of spectrum—to blanket the nation with free wireless broadband (as defined by the FCC) would mean less spectrum available for more robust services. At a time when wireless firms are experimenting with a number of strategies for monetizing the airwaves, allowing a single firm’s business model—especially one that many experts have suggested is simply not viable—to reign over other, more effective models would hurt consumers who yearn for more than basic broadband service.

The case for setting spectrum aside for free wireless broadband is predicated on the myth that there exists an elusive “public interest” that the marketplace is unable to maximize. We’ve heard the same line many times before. It goes something like this: The forces of competition that we rely upon to allocate finite resources in nearly every other sector of the economy are incapable of fulfilling consumer needs when it comes to broadband. Washington DC intellectuals have figured out that the public really wants a free nationwide wireless network—yet this amazing concept has been blocked by evil incumbents that are bent on denying consumers the services they most desire.

This is all baloney, of course. As a group of economists demonstrated in a research paper published a few months ago, there’s strong evidence that the broadband market is actually functioning quite efficiently, and imposing conditions on spectrum operation hurts consumers more than it helps them.

None of these facts have deterred M2Z Networks, a startup wireless firm responsible for much of the advocacy behind the proposal, from conducting a massive, multi-year PR campaign to convince people that free wireless broadband is a worthy goal. But if the proposed network does ultimately prevail, it will owe its success not to actual market performance, but to astute political maneuvering.

Currying favor with Washington regulators by trotting out public interest rhetoric and asserting market failure has worked out quite well for firms recent years. It’s no wonder, then, that M2Z decided to try its hand at persuading the FCC that its plan justified the imposition of special rules. In an open auction without conditions, the price of the spectrum would undoubtedly be higher, and investors would likely be willing to make bigger bets on more viable business models.

The FCC should scrap the free wireless broadband proposal and instead auction off the 2155-2180mhz band with no strings attached. That way, all business models will get a fair shake, and consumer demand—rather than political considerations—will determine who succeeds and who fails.

Will there ever be a place for a nationwide free wireless broadband service in America? More than likely, the answer is yes. As advertisers get better at translating eyeballs into dollars, and engineers continue to improve upon the spectral efficiency of wireless broadband, it’s a safe bet that someday we will see some sort of a nationwide network that offers free Internet access to anyone who’s willing to see a few extra advertisements. But now is not the time for such a network.

  • http://srynas.blogspot.com/ Steve R.

    This post essentially reduces to the statement that if something cannot be monetized and placed into private ownership that it should not be allowed to exist. That leaves me unconvinced that the “free model” is somehow wrong.

    I will admit to having an incomplete understanding of how all this goes together. In summary, The New York Times article states: “While the language of the ruling has not been made public, it appears that any company that buys the new spectrum will have to leave it open to devices it does not approve or control. If, for instance, Verizon were to buy spectrum, consumers would have to pay Verizon for access to its network but they could use devices of their own choosing on it.” (Emphasis added). So it isn't free in the concept of fully free, it is simply free in the sense that you are not charged a toll booth fee to enter the property (the radio spectrum).

    To explain my position in greater detail. The FCC is entitled to LEASE radio spectrum, not sell it. The usage of the leased spectrum can be exclusive. Overall, free market competition (that uses radio spectrum) should be based on competition over who has the best products, customer service, etc. and not the ability to erect toll booths to collect tolls for access to the spectrum.

    The post states: “to blanket the nation with free wireless broadband (as defined by the FCC) would mean less spectrum available for more robust services.” I fail to see how the free wireless broadband would be either less or more robust. According to the Times article it would seem that the same equipment would be used, though it would not be designed in a restrictive proprietary manner. Seems to be a bit presumptuous to declare the “free model” approach dead before it has even been tested.

    The post states: “That way, all business models will get a fair shake,” If that is the case why not give the “free model” a chance at success? Isn't it a business model too? Nothing like a real experiment to see if it works or not. If it does not work, then you would have a case for re-auctioning the spectrum as you are proposing.

    PS: No network managed by either the government or private enterprise should be filtered.

  • Ryan Radia

    There are lots of competing business models out there. I don't know which one is the best, but neither does the FCC. Firms should be able to bid on the spectrum in an open auction with no conditions, and the winner should be allowed to do whatever it wants with the spectrum. M2Z can outbid all other auction participants if convinced that it can use the AWS3 band to build a free wireless nationwide network. If the M2Z model is smarter than other models, then investors should be willing to give M2Z the capital it needs to prevail at auction. Chances are that M2Z–like Frontline Wireless–is only viable if given special treatment by regulators, and the “free model” is probably not the most highly valued use of spectrum given the current economics of wireless services.

    I say the proposed network wouldn't be as robust because its focus would be on delivering low-cost, high-coverage connectivity. This means slow speeds–768kbps was the figure outlined in the original FCC proposal. Compare this with the speeds offered by WiMax already, and the experimental results from early LTE tests, and it's clear that the proposed free network would be very basic.

    The NY Times article, which I linked to in order to illustrate a historical example of public interest rhetoric resulting in the rigging of a spectrum auction, is discussing a separate issue: the open access conditions placed on the 700mhz spectrum auction from earlier this year. Back then, the debate was focused on whether the 700mhz auction winner should be forced to let consumers use devices of their choosing. With the AWS3 spectrum auction, however, the proposed conditions would the winner offer free Internet access to almost everybody in the United States.

  • Brian C

    RE: “the price of the spectrum would undoubtedly be higher, and investors would likely be willing to make bigger bets on more viable business models.”

    The bottom line should not only be about the money but the public service benefit to all the owners of the spectrum — the people of the United States! Imagine if all public parks in the US were instead controlled by companies that bid the most to lease them. And then they charged money for people to access the park. Lots of people would be locked out and that could have very negative social consequences. Sound ridiculous? The private sector interests arguing for the FCC to drop the “free” component of the spectrum argue it would result in the most viable commercial model but sometimes there are multiple bottom lines – it shouldn't just be about he money. Further, since communications technologies are a factor of production that have a far reaching impact into other sectors of society, then from a macro level, the increased competition would drive innovation and result in a more viable and competitive industry to the benefit of the overall US economy.

  • http://srynas.blogspot.com/ Steve R.

    Thank you for your response, I was responding with an incomplete understanding of how all the elements fit together. Though I support leasing spectrum to private entities, I am very adamant that the spectrum remain in public ownership and that it be managed for the “public good”. Hopefully, private enterprise can still flourish in situations even in situations where constrained by the “public good”.

  • Ryan Radia

    The trouble is figuring out what the concept of the “public good” really means when it comes to spectrum allocation. Lots of people think they know what is in the public interest, but no two individuals have exactly the same conception of what the advancing the public interest actually entails. Central planners such as the FCC are invariably constrained by a lack of information about consumer desires. That's why flexible spectrum auctions are so desirable–they allow the decentralized players in the marketplace to decide how to allocate spectrum instead of leaving such decisions in the hands of regulators. Private firms duke it out, competing to offer the most popular services. Of course, some mistakes will be made, and firms will sometimes invest in business models that turn out to be inferior to others. But so long as spectrum owners have the right to transfer their spectrum rights to other entities, then owners of spectrum can sell it if some other firm can extract greater value from it.

  • Ryan Radia

    The vast majority of land in the Untied States is in private hands, and government generally does not dictate to landowners how they must use their property. While government does own some land–far too much of it, in my opinion–we mostly rely on private entities to decide how land can best be used (subject to certain reasonable constraints, of course).

    The reason I want spectrum to be auctioned off without conditions isn't simply because they are what's best for the bottom line. Profits aren't an an end in themselves, but rather the means by which market economies make efficient use of scarce resources like spectrum.

    It is because communications are so important to our national economy that we must ensure the airwaves are used efficiently, which means separating political considerations from the spectrum allocation process. Some people think free wireless broadband is the best use of the AWS3 band, but others have an entirely different idea of how that spectrum could best be used. Open auctions are the best known method of resolving competing proposals for how to use the airwaves. Just as we rely on supply and demand to signal businesses how to use scarce resources when it comes to silicon, oil, or aluminum, the best way to allocate the spectrum is through a bidding process.

  • http://srynas.blogspot.com/ Steve R.

    Your response allows me to explain what I am getting at. Essentially, I am unclear as to what privatization means in concrete terms. What I have read on this has used abstract language that is short of providing concrete examples. Since I am somewhat conspiratorial, I find the absence of certain concrete examples to be a lack of disclosure for what is being proposed with spectrum privitization.

    The spectrum is used by many players. Some of those players include the military, government agencies, police, fire departments, Emergency services. The public already owns the spectrum, therefore these public agencies are entitled to use the spectrum at no expense since they already own it.

    I find that the call for privatizing the spectrum, without directly saying so, implies that the spectrum already owned by the public should be sold into private ownership thereby requiring that these agencies would have to buy it back in order to use it. That is ludicrous.

    What about the wireless router (if you have one) in your house? Also business band radios. Currently you can use these devices for free. Again, those who seem to advocate privatization don't disclose if that part of the spectrum would remain in public ownership allowing the public to use it for free, or if it would become privatized forcing the public to pay for it. (That is why I raised the toll booth concept in my first response.)

    When you use the term “spectrum owners” do you mean as a lessee or as fee owners? Even CATO, from what I read did not make a call for fee ownership.

    One major advantage of the lease approach is that companies that do not use the resource loose their rights to use that resource if it is not put do use within a certain period. It is not uncommon for some lessees (who have no intention of using the resource) to buy a bundle of leases in hopes of selling them to other companies. This would be very similar to what patent trolls are doing today. Nevertheless, as you point out, when you buy a lease you should have a certain entitlement of selling/trading that lease.

  • Ryan Radia

    The trouble is figuring out what the concept of the “public good” really means when it comes to spectrum allocation. Lots of people think they know what is in the public interest, but no two individuals have exactly the same conception of what the advancing the public interest actually entails. Central planners such as the FCC are invariably constrained by a lack of information about consumer desires. That's why flexible spectrum auctions are so desirable–they allow the decentralized players in the marketplace to decide how to allocate spectrum instead of leaving such decisions in the hands of regulators. Private firms duke it out, competing to offer the most popular services. Of course, some mistakes will be made, and firms will sometimes invest in business models that turn out to be inferior to others. But so long as spectrum owners have the right to transfer their spectrum rights to other entities, then owners of spectrum can sell it if some other firm can extract greater value from it.

  • Ryan Radia

    The vast majority of land in the Untied States is in private hands, and government generally does not dictate to landowners how they must use their property. While government does own some land–far too much of it, in my opinion–we mostly rely on private entities to decide how land can best be used (subject to certain reasonable constraints, of course).

    The reason I want spectrum to be auctioned off without conditions isn't simply because that's what is best for the bottom line. Profits aren't an an end in themselves, but rather the means by which market economies direct the use of scarce resources such as spectrum.

    It is because communications are so important to our national economy that we must ensure the airwaves are used efficiently, which means separating political considerations from the spectrum allocation process. Some people think free wireless broadband is the best use of the AWS3 band, but others have an entirely different idea of how that spectrum could best be used. Open auctions are the best known method of resolving competing proposals for how to use the airwaves. Just as we rely on supply and demand to signal businesses how to use scarce resources when it comes to silicon, oil, or aluminum, the best way to allocate the spectrum is through a bidding process.

  • http://srynas.blogspot.com/ Steve R.

    Your response allows me to explain what I am getting at. Essentially, I am unclear as to what privatization means in concrete terms. What I have read on this has used abstract language that is short of providing concrete examples. Since I am somewhat conspiratorial, I find the absence of certain concrete examples to be a lack of disclosure for what is being proposed with spectrum privitization.

    The spectrum is used by many players. Some of those players include the military, government agencies, police, fire departments, Emergency services. The public already owns the spectrum, therefore these public agencies are entitled to use the spectrum at no expense since they already own it.

    I find that the call for privatizing the spectrum, without directly saying so, implies that the spectrum already owned by the public should be sold into private ownership thereby requiring that these agencies would have to buy it back in order to use it. That is ludicrous.

    What about the wireless router (if you have one) in your house? Also business band radios. Currently you can use these devices for free. Again, those who seem to advocate privatization don't disclose if that part of the spectrum would remain in public ownership allowing the public to use it for free, or if it would become privatized forcing the public to pay for it. (That is why I raised the toll booth concept in my first response.)

    When you use the term “spectrum owners” do you mean as a lessee or as fee owners? Even CATO, from what I read did not make a call for fee ownership.

    One major advantage of the lease approach is that companies that do not use the resource loose their rights to use that resource if it is not put do use within a certain period. It is not uncommon for some lessees (who have no intention of using the resource) to buy a bundle of leases in hopes of selling them to other companies. This would be very similar to what patent trolls are doing today. Nevertheless, as you point out, when you buy a lease you should have a certain entitlement of selling/trading that lease.

  • Ryan Radia

    The trouble is figuring out what the concept of the “public good” really means when it comes to spectrum allocation. Lots of people think they know what is in the public interest, but no two individuals have exactly the same conception of what the advancing the public interest actually entails. Central planners such as the FCC are invariably constrained by a lack of information about consumer desires. That's why flexible spectrum auctions are so desirable–they allow the decentralized players in the marketplace to decide how to allocate spectrum instead of leaving such decisions in the hands of regulators. Private firms duke it out, competing to offer the most popular services. Of course, some mistakes will be made, and firms will sometimes invest in business models that turn out to be inferior to others. But so long as spectrum owners have the right to transfer their spectrum rights to other entities, then owners of spectrum can sell it if some other firm can extract greater value from it.

  • Ryan Radia

    The vast majority of land in the Untied States is in private hands, and government generally does not dictate to landowners how they must use their property. While government does own some land–far too much of it, in my opinion–we mostly rely on private entities to decide how land can best be used (subject to certain reasonable constraints, of course).

    The reason I want spectrum to be auctioned off without conditions isn't simply because that's what is best for the bottom line. Profits aren't an an end in themselves, but rather the means by which market economies direct the use of scarce resources such as spectrum.

    It is because communications are so important to our national economy that we must ensure the airwaves are used efficiently, which means separating political considerations from the spectrum allocation process. Some people think free wireless broadband is the best use of the AWS3 band, but others have an entirely different idea of how that spectrum could best be used. Open auctions are the best known method of resolving competing proposals for how to use the airwaves. Just as we rely on supply and demand to signal businesses how to use scarce resources when it comes to silicon, oil, or aluminum, the best way to allocate the spectrum is through a bidding process.

  • http://srynas.blogspot.com/ Steve R.

    Your response allows me to explain what I am getting at. Essentially, I am unclear as to what privatization means in concrete terms. What I have read on this has used abstract language that is short of providing concrete examples. Since I am somewhat conspiratorial, I find the absence of certain concrete examples to be a lack of disclosure for what is being proposed with spectrum privitization.

    The spectrum is used by many players. Some of those players include the military, government agencies, police, fire departments, Emergency services. The public already owns the spectrum, therefore these public agencies are entitled to use the spectrum at no expense since they already own it.

    I find that the call for privatizing the spectrum, without directly saying so, implies that the spectrum already owned by the public should be sold into private ownership thereby requiring that these agencies would have to buy it back in order to use it. That is ludicrous.

    What about the wireless router (if you have one) in your house? Also business band radios. Currently you can use these devices for free. Again, those who seem to advocate privatization don't disclose if that part of the spectrum would remain in public ownership allowing the public to use it for free, or if it would become privatized forcing the public to pay for it. (That is why I raised the toll booth concept in my first response.)

    When you use the term “spectrum owners” do you mean as a lessee or as fee owners? Even CATO, from what I read did not make a call for fee ownership.

    One major advantage of the lease approach is that companies that do not use the resource loose their rights to use that resource if it is not put do use within a certain period. It is not uncommon for some lessees (who have no intention of using the resource) to buy a bundle of leases in hopes of selling them to other companies. This would be very similar to what patent trolls are doing today. Nevertheless, as you point out, when you buy a lease you should have a certain entitlement of selling/trading that lease.

  • Pingback: No thanks, Mr. Martin, I’ll stick with Charter. « Technagora

  • Pingback: chinese conception chart

  • Pingback: no online order phentermine rx

  • Pingback: Diane Addington

  • Pingback: Topsail Island Rentals

  • Pingback: Last minutes

  • Pingback: Surrey house cleaning

  • Pingback: barclays premier league

  • Pingback: Unlock

  • Pingback: NHCPS on Twitter

  • Pingback: youtubeideo

  • Pingback: Suggested Webpage

  • Pingback: LinkedIn Profile Site

Previous post:

Next post: