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?
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