How the FCC Killed a Nationwide Wireless Broadband Network

by on January 9, 2015 · 8 comments

Many readers will recall the telecom soap opera featuring the GPS industry and LightSquared and the subsequent bankruptcy of LightSquared. Economist Thomas W. Hazlett (who is now at Clemson, after a long tenure at the GMU School of Law) and I wrote an article published in the Duke Law & Technology Review titled Tragedy of the Regulatory Commons: Lightsquared and the Missing Spectrum Rights. The piece documents LightSquared’s ambitions and dramatic collapse. Contrary to popular reporting on this story, this was not a failure of technology. We make the case that, instead, the FCC’s method of rights assignment led to the demise of LightSquared and deprived American consumers of a new nationwide wireless network. Our analysis has important implications as the FCC and Congress seek to make wide swaths of spectrum available for unlicensed devices. Namely, our paper suggests that the top-down administrative planning model is increasingly harming consumers and delaying new technologies.

Read commentary from the GPS community about LightSquared and you’ll get the impression LightSquared is run by rapacious financiers (namely CEO Phil Falcone) who were willing to flaunt FCC rules and endanger thousands of American lives with their proposed LTE network. LightSquared filings, on the other hand, paint the GPS community as defense-backed dinosaurs who abused the political process to protect their deficient devices from an innovative entrant. As is often the case, it’s more complicated than these morality plays. We don’t find villains in this tale–simply destructive rent-seeking triggered by poor FCC spectrum policy.

We avoid assigning fault to either LightSquared or GPS, but we stipulate that there were serious interference problems between LightSquared’s network and GPS devices. Interference is not an intractable problem, however. Interference is resolved everyday in other circumstances. The problem here was intractable because GPS users are dispersed and unlicensed (including government users), and could not coordinate and bargain with LightSquared when problems arose. There is no feasible way for GPS companies to track down and compel users to use more efficient devices, for instance, if LightSquared compensated them for the hassle. Knowing that GPS mitigation was unfeasible, LightSquared’s only recourse after GPS users objected to the new LTE network was through the political and regulatory process, a fight LightSquared lost badly. The biggest losers, however, were consumers, who were deprived of another wireless broadband network because FCC spectrum assignment prevented win-win bargaining between licensees.

Our paper provides critical background to this dispute. Around 2004, because satellite phone spectrum was underused, the FCC permitted satellite phone licensees flexibility to repurpose some of their spectrum for use in traditional cellular phone networks. (Many people are appalled to learn that spectrum policy still largely resembles Soviet-style command-and-control. The FCC tells the wireless industry, essentially: “You can operate satellite phones only in band X. You can operate satellite TV in band Y. You can operate broadcast TV in band Z.” and assigns spectrum to industry players accordingly.) Seeing this underused satellite phone spectrum, LightSquared acquired some of this flexible satellite spectrum so that LightSquared could deploy a nationwide cellular phone network in competition with Verizon Wireless and AT&T Mobility. LightSquared had spent $4 billion in developing its network and reportedly had plans to spend $10 billion more when things ground to a halt.

In early 2012, the Department of Commerce objected to LightSquared’s network on the grounds that the network would interfere with GPS units (including, reportedly, DOD and FAA instruments). Immediately, the FCC suspended LightSquared’s authorization to deploy a cellular network and backtracked on the 2004 rules permitting cellular phones in that band. Three months later, LightSquared declared bankruptcy. This was a non-market failure, not a market failure. This regulatory failure obtains because virtually any interference to existing wireless operations is prohibited even if the social benefits of a new wireless network are vast.

This analysis is not simply scholarly theory about the nature of regulation and property rights. We provide real-world evidence that supports our notion that, had the FCC assigned flexible, de facto property rights to GPS licensees like the FCC does in some other bands, rather than fragmented unlicensed users, LightSquared might be in operation today serving millions with wireless broadband. Our evidence comes, in fact, from LightSquared’s deals with non-GPS parties. Namely, LightSquared had interference problems with another satellite licensee on adjacent spectrum–Inmarsat.

Inmarsat provides public safety, aviation, and national security applications and hundreds of thousands of devices to government and commercial users. The LightSquared-Inmarsat interference problems were unavoidable but because Inmarsat had de facto property rights to its spectrum, it could internalize financial gains and coordinate with LightSquared. The result was classic Coasian bargaining. The two companies swapped spectrum and activated an agreement in 2010 in which LightSquared would pay Inmarsat over $300 million. Flush with cash and spectrum, Inmarsat could rationalize its spectrum and replace devices that wouldn’t play nicely with LightSquared LTE operations.

These trades avoided the non-market failure the FCC produced by giving GPS users fragmented, non-exclusive property rights. When de facto property rights are assigned to licensees, contentious spectrum border disputes typically give way to private ordering. The result is regular spectrum swaps and sales between competitors. Wireless licensees like Verizon, AT&T, Sprint, and T-Mobile deal with local interference and unauthorized operations daily because they have enforceable, exclusive rights to their spectrum. The FCC, unfortunately, never assigned these kinds of spectrum rights to the GPS industry.

The evaporation of billions of dollars of LightSquared funds was a non-market failure, not a market failure and not a technology failure. The economic loss to consumers was even greater than LightSquared’s. Different FCC rules could have permitted welfare-enhancing coordination between LightSquared and GPS. The FCC’s error was the nature of rights the agency assigned for GPS use. By authorizing the use of millions of unlicensed devices adjacent to LightSquared’s spectrum, the FCC virtually ensured that future attempts to reallocate spectrum in these bands would prove contentious. Going forward, the FCC should think far less about which technologies they want to promote and more about the nature of spectrum rights assigned. For tech entrepreneurs and policy entrepreneurs to create innovative new wireless products, they need well-functioning spectrum markets. The GPS experience shows vividly what to avoid.

  • Farmer

    Basic content seems to be that if the rules were different the outcome would be different. But the rules were made that way for a reason, to protect a valuable resource. It was a business management failure. Not understanding the technology of what you are trying to do was a LightSquared management failure. Pretty emlmentary and pretty stupid. That’s why it failed. Saying that if something had been done differently 15 years ago the outcome would be different is kind of obvious and rather ridiculous in this context. The FCC actually tried to mess things up in this case but, when faced with overwhelming evidence that they were wrong, ended up doing the right thing.

  • Chuck Jackson

    I’m a little confused.

    When you say, ” By authorizing the use of millions of unlicensed devices adjacent to LightSquared’s spectrum, the FCC virtually ensured that future attempts to reallocate spectrum in these bands would prove contentious.”

    The FCC did not license GPS or authorize the use of unlicensed devices in the GPS band. The relevant transmitters are owned and operated by the Federal government—DoD starting operating the first GPS satellite in about 1980 and has probably spent well in excess of $10 billion on the GPS system. There are unlicensed GPS receivers—but, with few exceptions, the FCC has never regulated receiver performance or licensed receivers.

    As I understand it, the big screw up was that the GPS industry was involved and represented in the rulemaking and had assented to the new rules. But, somehow, when LightSquared was close to operation, various parties in the GPS world took a closer look and became quite concerned. However, by then, LightSquared, possibly relying on the seeming acceptance of their plans by the GPS industry, had invested billions.

    Perhaps part of the problem arose from the bifurcated spectrum regulatory system in the United States—GPS satellites are authorized under the President’s authority—not the FCC’s.

    Chuck Jackson

  • SpecEng

    The crux of this matter is that the private GPS industry (Garmin, Rockwell Collins, Exelis, Trimble, Raytheon, Lockheed, etc.) relied heavily on an “understanding” that this band of spectrum would never be used for non-satellite-based communications. This understanding was never explicitly codified in regulation or law. Rather they pinned their significant profiteering off a free, and extremely expensive U.S. taxpayer-paid service via USAF on the assurance that lobbying would prevent any kind of higher-powered service that may possibly disrupt the usability of a weak satellite signal using whatever receiver design that allowed them to profit the most while meeting consumer demand — demand coming from both the private and public sector. As to-be Defense Secretary Ashton Carter has said, “the idea that we are all hooked to a satellite – formerly bought by me to my great resentment – in a semi-synchronous orbit that doesn’t work in certain circumstances, does not work indoors or in valleys in Afghanistan, is ridiculous. Twenty years from now, everything you have that is manufactured for you, including your phone, will have on the chip a clock, a gyro and an accelerometer. It’ll be set the moment it’s manufactured and henceforth it will forever know what time it is, where it is, what its spatial orientation is. And it will never need a satellite.” And he prefaced this statement made in June 2014 by saying he hates GPS.

    Read Carter’s full statement here: http://a16z.com/2014/06/24/how-government-drives-innovation-a-conversation-with-former-deputy-secretary-of-defense-ashton-carter/

    I believe the technology used on satellites, including GPS satellites, is improving so that one day, this discussion may be moot. But until that day arrives, everybody has to realize this is a two-way street with transmitters AND receivers and GPS receiver manufacturers should have a responsibility to use the spectrum inside their band efficiently and not have to depend on an “understanding” that essentially uses 1000 MHz of prime mid-band spectrum (outside the RNSS bands) as guard bands. This responsibility on the part of private manufacturers should be taken gravely since they do not have to pay a user fee and are free-riding on a taxpayer supported government service – and making billions upon billions in profits in doing so.

  • Farmer

    GPS is one of the true success stories of our government research and development at work. It was developed as a military system which did, and still does to date, one helluva job. Selective degradation was turned off and it became

    a usable tool to the civilian world. Now we have a bunch of Johnny come lates that want to make a bunch of money streaming videos to little Johnny at tremendous cost to transportation, public safety, agriculture, civil engineering, research, and the list goes on and on. This battle has been fought. But LightSquared keeps sending the trolls out. It’s not public relations, it’s physics,

  • bskorup

    The FCC did not … authorize the use of unlicensed devices in the GPS band.

    I don’t know what to make of this statement. Of course, the purpose of unlicensed devices (GPS or otherwise) is that users don’t need formal FCC authorization if the device complies with the Part 15 emissions limits. In short, I’m essentially equating “refusing to prohibit” with “authorize.” With unlicensed devices, it seems like this is a fair characterization. In my view, consumer GPS devices are like other unlicensed devices that are “authorized” by the FCC because they all must comply with the FCC’s Part 15 rules.

    But your question made me pull up my NTIA wall chart to search for confirmation. The chart says the 1559-1610 band is shared between government and nongovernment users. The NTIA Redbook further says that the nongovernment devices in the band are subject to the FCC’s Part 87 rules, so that indicates some FCC involvement. The strongest evidence for “authorization” is that the consumer GPS user manuals typically state the devices comply with the FCC’s Part 15 rules. I’ll point out that this includes the StarFire units that were at the heart of the LightSquared dispute.

    To me, since these devices are designed by the manufacturer to comply with Parts 15 and 87 of the FCC’s rules, the FCC has (ostensible) authority to declare the devices in violation of its rules and prohibit their use. If the devices are subject to FCC rules about emissions and can be prohibited by the FCC, it seems accurate to say they are “authorized” by the FCC. (The purely government systems are another story.)

    In any case, while accurately describing the facts is important and I appreciate the clarification, whether it was the FCC or the NTIA that “authorized” the use of thousands of unlicensed GPS devices in the L Band doesn’t really change our analysis. In either case, the “regulatory commons” is present and helps destroy the secondary market, thus the social value, of spectrum. (As discuss briefly in the paper, government ownership of spectrum has the same effect, by the way, in that it eliminates the secondary market for spectrum.) The FCC should avoid creating similar circumstances in the future.

    I agree completely with the rest of your comment. I think the bifurcated system of spectrum allocation is an increasingly costly problem.

  • SpecEng

    GPS is a great taxpayer-funded resource – of that there is little doubt. The fact the USAF and US Government gives away the service and the 1000+ MHz of prime spectrum it requires for free is dubious and deserves either a revisiting of the policy and/or a new policy that works towards ensuring that a reliance on weak GPS signals do not cause a single point of failure for the multitudes of fields you mention such as transportation, public safety, agriculture, etc. Defense Secretary Carter is correct – at the end of the day, relying on a weak signal coming from thousands of miles away without taking the steps to better ensure the reliable usability of that signal on the receiver side without impinging on non-GNSS spectrum is not just dumb – it creates a vulnerability in our economy and is a huge national security risk. Sure, hundreds of millions of GPS end-users benefit from the free GPS service taxpayers have funded. But the profit-motive of free-riding GPS making companies have poured hundreds of millions of dollars into lobbying to bend the (unlicensed) spectrum rules so they don’t have to play by them. Right now, there’s no accountability. Most commercial GPS devices come with an FCC Part 15 warning – it must accept interference as an unlicensed device. But given that disclaimer to their end-users, the GPS companies are telling policymakers that their GPS devices are so critical in some use cases that they can’t be allowed to be even slightly interfered with — even if the interference doesn’t prevent the device from working. It’s like taking a dog to a public dog park to play fetch and then trying to make the case that other dogs shouldn’t be allowed in the dog park because they disrupt playing fetch.
    You’re right that this should be about physics. But it’s also about law and policy. The rules of physics are immutable. So GPS device makers should have known and used those rules of physics when making GPS devices in a way that also heeds the law. Relying on an “understanding” that is not explicitly codified in any way has now put our nation at significant risk.

  • farmboy

    http://www.thefiscaltimes.com/Columns/2011/12/22/Obama-Betting-Another-Iffy-Company

    It’s an opinion piece, sure, but it does a decent job of defining what this company tried to pull on the American people. This whole discussion has gotten beyond laughable. Bye

  • Charles Jackson

    You wrote:

    “To me, since these devices are designed by the manufacturer to comply with Parts 15 and 87 of the FCC’s rules, the FCC has (ostensible) authority to declare the devices in violation of its rules and prohibit their use.”

    Under which part of the statute is the FCC authorized to shut down consumer GPS receivers? If the Federal Government wanted to deny public use of the GPS signal, they could just turn Selective Availability back on.

    It is clearly U.S. policy to permit open use of GPS and has been for three decades—but it was not the FCC that made that policy.
    Statement by Deputy Press Secretary Speakes on the Soviet Attack on a Korean Civilian Airliner

    September 16, 1983

    In their recent statements on the Korean Air Lines tragedy, senior Soviet officials have shocked the world by their assertion of the right to shoot down innocent civilian airliners which accidently intrude into Soviet airspace. Despite the murder of 269 innocent victims, the Soviet Union is not prepared to recognize its obligations under international law to refrain from the use of force against civilian airliners. World opinion is united in its determination that this awful tragedy must not be repeated. As a contribution to the achievement of this objective, the President has determined that the United States is prepared to make available to civilian aircraft the facilities of its Global Positioning System when it becomes operational in 1988. This system will provide civilian airliners three-dimensional positional information.

    The United States delegation to the ICAO [International Civil Aviation Organization] Council meeting in Montreal, under the leadership of FAA Administrator J. Lynn Helms, is urgently examining all measures which the international community can adopt to enhance the security of international civil aviation. The United States is prepared to do all it can for this noble aim. We hope that the Soviet Union will at last recognize its responsibilities and join the rest of the world in this effort.

    Note: Deputy Press Secretary Larry M. Speakes read the statement during his daily briefing for reporters, which began at 12:30 p.m. in the Briefing Room at the White House.

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