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The Wireless Bandwidth Crunch: Where Will We Find More Spectrum?

by Adam Thierer on November 21, 2009 · 612 comments

It’s truly amazing how fast mobile broadband demand is expanding. A couple of things caught my eye yesterday that really drove that home. First, I was reading Bernstein Research’s weekly (subscription-only) newsletter and Craig Moffett, one of America’s top media and communications analysts, summarized the growing mobile bandwidth crunch as follows:

To fully grasp the challenge facing wireless providers as we make the transition from wireless voice to wireless data, it is helpful to put some ballpark numbers around current usage levels. Today, the average voice-only customer consumes something like 50 megabytes of data every month. For that, they pay about $40, or about $0.80 per megabyte. That’s 70% of wireless industry revenues. Text messaging generates another $10 per month for a minuscule amount of data (in fact, arguably no throughput at all, since text messaging travels in a signaling band rather than in the carrier band itself). Let’s call it $1,000 per megabyte. That’s another 15% of industry revenues. On a blended basis, then, that’s $1.00 per megabyte for 85% of industry revenues. And then there’s the iPhone. By some estimates, the average iPhone user consumes as much as 800 megabytes per month. Take out their 50 Mb for voice and you’re looking at 750 Mb of data… for an additional $30. For the mathematically challenged, that’s a princely sum of… wait for it… four cents per megabyte. Worse, we noted that the FCC’s wireless net neutrality policies posed the risk of “bandwidth arbitrage,” where low bandwidth services (at $1.00 per megabyte) would be replaced with free or almost free applications that ride on $0.04 per megabyte data plans, and where carriers’ hands would be tied to prevent it. Taking a business that is currently getting $1.00 per megabyte down to just $0.04 per megabyte is, well, hard. And lest anyone think that this threat is idle fear-mongering, Google’s acquisition last week of Gizmo5, a wireless VoIP specialist, should give one pause.

Those are stunning numbers. And then I saw this new filing by CTIA listing some other statistics about growing mobile broadband demand:

Continue reading →

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event: Dec. 1st Debate about Future of Broadcast TV Spectrum

by Adam Thierer on November 18, 2009 · 7 comments

As I noted in a recent paper with my PFF colleague Barbara Esbin (“An Offer They Can’t Refuse: Spectrum Reallocation That Can Benefit Consumers, Broadcasters & the Mobile Broadband Sector“) an official at the Federal Communications Commission (Blair Levin) recently suggested that it might be possible to craft a grand bargain whereby television broadcasters get cash for some (or all) of their current spectrum if they return it to the FCC for reallocation and auction. Such a deal could, eventually, open up significant amounts of prime spectrum for next-generation mobile broadband and data services.

Is such a deal feasible and in the best interests of broadcasters? Is the arrangement necessary to encourage growth in broadband penetration consistent with the goals of the Recovery Act? Will Congress go along with the deal, or would it be blocked as contrary to “the public interest?” Alternatively, would lawmakers back the deal but seek a significant cut of the auction proceeds, leaving less available for broadcasters? These and other policy issues will be discussed at “ Let’s Make a Deal: Broadcasters, Mobile Broadband, and a Market in Spectrum,” a congressional seminar hosted by The Progress & Freedom Foundation. The event will be held Tuesday, December 1st from 9:00am to 11:00am in the Holeman Lounge, 13th Floor, at the National Press Club, 529 14th Street, NW in Washington, DC.

Panelists confirmed so far for the event include:

Blair Levin, Executive Director, Omnibus Broadband Initiative, Federal Communications Commission
Coleman Bazelon, Principal, The Brattle Group
David Donovan, President, Association for Maximum Service Television
Kostas Liopiros, Principal, The Sun Fire Group
John K. Hane, Counsel, Pillsbury Winthrop Shaw Pittman LLP
and 1 or 2 more to come!

I will be moderating the event. Those interested in attending can register here. Should be a spirited debate.

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Let’s Make a Deal: Broadcasters, Mobile Broadband, and a Market in Spectrum

by Adam Thierer on November 10, 2009 · 6 comments

Along with my colleague Barbara Esbin, the Director of PFF’s Center for Communications and Competition Policy, I have just released a new paper on discussing the possibility of reallocating a portion of broadcast television spectrum for alternative purposes, namely, mobile broadband. As I discussed here before, Blair Levin, the Executive Director of the FCC’s Omnibus Broadband Initiative, has been suggesting that it might be possible to craft a grand bargain whereby broadcasters get cash for some (or all) of their current spectrum allocations if they return spectrum to the FCC for reallocation and re-auction, likely to mobile broadband services.

In our paper, “An Offer They Can’t Refuse: Spectrum Reallocation That Can Benefit Consumers, Broadcasters & the Mobile Broadband Sector,” [PDF] Barbara and I argue that:

the benefits of such a deal could be enormous for wireless broadband providers, developers of digital technologies, and consumers. Expanding the pool of spectrum available for next-generation wireless broadband offerings will ensure that innovative new networks, devices, and services are made available to the public on a timely basis. Ultimately, that will mean more high-speed choices for consumers, especially those in rural areas harder to reach with high-speed wireline networks. Finally, more generally, anything that moves us in the direction of a freer market in spectrum is a good thing. But fairness to broadcasters lies at the heart of this spectrum reallocation plan. If a deal can’t be structured that broadcasters would find acceptable, they should not be forced to come to the table. When we speak of an offer they can’t refuse, we mean one so attractive that no rational businessperson or investor would pass it up. It is essential broadcasters be willing partners in the deal, and be full participants in the process of shaping its contours.

Read the entire thing here, or below the fold as a Scribd document. Continue reading →

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event reminder: “Coase’s FCC at 50” (Thur. 9am at George Mason Law School)

by Adam Thierer on October 26, 2009 · 5 comments

Just a reminder about this week’s event on the 50th anniversary of Ronald Coase’s seminal article, “The Federal Communications Commission.” As Jerry noted here before, Coase’s critique of the political allocation of radio spectrum, and his arguments for achieving efficient allocation by allowing the government to sell rights to the spectrum, has had a profound effect on the course of communications policy. This event will explore the impact of Coase’s ideas and the legacy of his article and life’s work on communications and media policy.

This event will take place on Thursday morning at 9:00 in Hazel Hall, Room 121 (ground floor) at the George Mason University School of Law in Arlington. The event is being co-hosted by The Mercatus Center at George Mason University and The Progress & Freedom Foundation and Jerry Brito and I will be co-moderating the session.

Opening remarks will be given by Commissioner Robert M. McDowell of the Federal Communications Commission and his remarks will be followed by a panel discussion that includes:

Prof. Thomas W. Hazlett, George Mason University School of Law
Dr. Jeffrey A. Eisenach, Empiris LLC & George Mason University School of Law
Dr. Evan Kwerel, Federal Communications Commission
John Williams, Federal Communications Commission

We hope you can make it! Please RSVP here.

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Cash-For-TV-Spectrum Scheme vs. A Property Rights Solution

by Adam Thierer on October 21, 2009 · 21 comments

Potentially huge FCC development here, and one they actually has some sense to it. According to Kim McAvoy over at TV News Check.com:

FCC broadband czar Blair Levin earlier this month met with leading TV broadcasters in Washington to discuss the nation’s urgent need for more spectrum for wireless broadband access to the Internet and the possibility of broadcasters’ relinquishing most of their spectrum to help meet that demand. According to sources familiar with the Oct. 8 meeting with the board of the Association for Maximum Service Television (MSTV), Levin suggested broadcasters might want to consider returning their spectrum in exchange for a share in the billions of dollars that would come from the auction of the spectrum to the wireless industry. Broadcasting would retain just enough spectrum so that each station could provide a lifeline standard-definition service to the millions of TV viewers who still rely on over-the-air reception. Broadcasters could no longer offer over-the-air HD and second channels and mobile video would be off the table, but they could continue to provide a single channel of TV to every home in their markets as they do today — in full-blown HD via cable and satellite carriage and SD via the over-the-air lifeline service.

Wow, this is a very big deal, folks, since we are talking about a mother lode of prime spectrum that could be put to any variety of excellent alternative uses. The problem is, broadcasters will—rightly, in my opinion—protest that they have occupied that spectrum for a long, long time and they have something akin to a property right in their allocations. Of course, paying them to relocate might be a very sensible way to get them off that spectrum voluntarily. But the question is whether they should be forced off of it and whether that is even legal. No doubt, any attempt to force them off would be held up in court for many years because of inevitable legal challenges.

There is another solution: Just give the broadcasters a full, unencumbered property right in their spectrum and let them sell it or use it however they wish. Some will protest that it’s not “fair” and that the broadcasters should never be given a property right in something they did not pay for to begin with. Yet, at some point we have to stop the endless search for what I have referred to as a “spectrum reparations policy” and just get on with life.

I think everyone can now agree that the old command-and-control regulatory regime for “zoning” spectrum has retarded innovation. Imagine if we told Apple back in the 1980s that, because they started in the PC business, they could never leave the PC business and offer other innovations. That would have been nuts! We’d never have the iPhone today. But that’s U.S. spectrum policy for broadcasting in a nutshell. As a broadcaster, it is illegal for you to repurpose your spectrum for alternative uses. Stated different, spectrum innovation is a crime. How pathetic.

It’s time to change the rules and move forward. I applaud Blair Levin and the FCC for offering at least one solution, but if it doesn’t work, we should try the other: property rights and flexible use rights in spectrum. And here are 4 or 5 other ways to get the job done.

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A positive agenda to promote sustainable net neutrality

by Jerry Ellig on October 21, 2009 · 0 comments

I like the idea of having a neutral Internet that allows me to go where I want to go and read what I want to read, all for the price of my monthly subscription. Sure, it took me awhile to figure out why anyone would want to access skype on an iphone (after all, an iphone is already a phone!), but now I can see why some people might enjoy making free international calls without having to plop down in front of the ol’ PC wedged into the guest bedroom.

At the same time, I don’t see a pressing need for regulation to ensure that we get whatever degree of neutrality is practical. Even in his speech announcing that he would propose net neutrality rules, FCC Chairman Genachowski could cite only the same three old anecdotes that have been tirelessly trotted out by others as proof that new regulation is required. Sure, by Washington standards, that’s two more anecdotes than are usually required to justify issuing a regulation. But it’s hardly proof of a broad, systemic problem that requires new rules (as Jerry Brito and I argued here.)

Nevertheless, as the saying goes, “You can’t beat something with nothing.” So I suggest a positive agenda to promote sustainable net neutrality.

Many of the arguments for a non-neutral net are based on the assumption that last-mile bandwidth is, at least sometimes, congested — or may soon become that way as people use more bandwidth-intensive applications. One solution is for the network operator to prioritize some packets over others, so if I have a heart attack, my wife’s VOIP call for an ambulance doesn’t get crowded out by the neighbor’s kid playing video games with his buddies in Australia. Another solution, though, is to make sure the network operators have adequate ability and incentive to build plenty of bandwidth. As an economist, I understand that some network management or usage-based pricing might be less expensive for consumers than building massive bandwidth. But that’s no reason to persist with policies that artificially constrain bandwidth.

For wired broadband, a positive agenda to promote sustainable net neutrality means avoiding regulations that impair incentives for investment that increases the capacity of the last-mile network. For wireless broadband, that means freeing up more spectrum to be auctioned for commercial wireless services.

And while you’re at it, FCC, maybe you can do something about the NIMBY problem that prevents me from receiving a decent 3G broadband signal in my house. Now that would expand last-mile bandwidth and promote competition to boot!

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Will the FCC regulate wireless phone rates?

by Jerry Ellig on September 30, 2009 · 4 comments

Today is the filing deadline in a somewhat unusual Federal Communications Notice of Inquiry that asks how the commission should revise its framework for evaluating competition in mobile wireless communications. Among other things, the FCC asks how it should measure wireless companies’ profits. It’s clear from an earlier public notice issued by the FCC’s Wireless Bureau that regulators are looking for a way to identify “abnormal” profits that might justify new regulation.

For 13 years, Congress has required the FCC to issue annual reports on wireless competition. These reports have usually found that wireless is pretty competitive by most conventional measures. There are now four national competitors, numerous regional ones that are growing larger, and a bunch of resellers. The FCC’s most recent report provides numerous examples of innovation in technology, pricing, and services.

About the only fly in the ointment is federal policies that severely limit the amount of spectrum allocated for “flexible use.” Limits on the amount of flexible use spectrum are like taxi medallions: they hinder entry and limit the amount of service the wireless firms can offer.

Nevertheless, the wireless industry’s performance has been impressive. Adjusted for inflation, average revenue per minute fell by 87 percent between 1997 and 2007, and average voice revenue per minute fell by 90 percent. Just during the last five years, inflation-adjusted average revenue per minute fell by 53 percent, and average voice revenue per minute fell by 61 percent.

Could regulation improve on these outcomes? In our comments to the FCC, Jerry Brito and I offer a little thought experiment. Suppose the wireless industry were subject to enlightened, highly efficient, and perfectly operating price regulation. Specifically, suppose the FCC had mandated a version of “incentive” regulation that allowed the wireless companies to increase their prices by no more than the rate of increase in the consumer price index minus an annual 7 percent offset to reflect increased productivity. (Seven percent is the highest productivity offset we’ve seen any telecommuncations regulator in the U.S. use in any context.) Would this be better or worse than what the market actually produced?

This graph shows the answer. If wireless had been subject to incentive regulation, even a 7 percent productivity offset would have reduced wireless revenue per minute by only 36 percent since 1997 and by 19 percent since 2002. In other words, the lightly regulated wireless market produced price reductions nearly 2.5 times as large as those that could have been expected under severe, highly efficient, perfectly operating regulation. And these results measure only the price effects, not the explosion of innovation that accompanied the price reductions.

Would the results have been even better if more spectrum were available for wireless services? Probably. But beyond that step, it’s doubtful that regulators could have done much else to improve on the 90 percent price reduction we’ve seen in the past decade.

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Economic Value of Unlicensed Spectrum

by Adam Thierer on September 24, 2009 · 9 comments

Over at his always-informative Spectrum Blog, wireless guru Michael Marcus brings to my attention a new report that will definitely be of interest to everyone here about “The Economic Value Generated by Current and Future Allocations of Unlicensed Spectrum.” It was written by Rich Thanki of Perspective Associates, a UK consulting firm. I haven’t had time to finish the whole thing yet, but it basically lays out the argument for opening up more spectrum, especially “white spaces,” to unlicensed use.

Anyway, Mike Marcus has an much better write-up of the report than I could ever do, so head over there to check out his discussion. One important thing that Mike stresses is the importance of technical flexibility:

But the key issue here is not the presence or absence of a license, the key issue is deregulation. A major reason why unlicensed networks have been so innovative is that the descendants of the FCC Docket 81-413 rulemaking, e.g. Wi-Fi, Bluetooth, and Zigbee have been in spectrum bands with great technical flexibility… If you overregulate unlicensed systems, they can stagnate just as much as licensed one often do.

I think that is an important insight and essential lesson that we should always keep in mind when it comes to spectrum policy, regardless of whether we talking about licensed or unlicensed spectrum. Although I’ve always been a bit torn about how much spectrum should be allocated on an unlicensed (or “commons”) basis versus auctioned (property rights model), as Marcus suggests, flexibility is crucial in either case. In all the heated catfights over licensed and unlicensed spectrum, that point sometimes gets overlooked.

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More on “Open vs. Closed” Technologies & Business Models

by Adam Thierer on May 10, 2009 · 20 comments

Over at the Verizon Policy Blog, Link Hoewing has a sharp piece up entitled, “Of Business Models and Innovation.” He makes a point that I have often stressed in my debates with Zittrain and Lessig, namely, that the whole “open vs. closed” debate is typically greatly overstated or misunderstood. Hoewing correctly argues that:

The point is not that open or managed models are always better or worse. The point is that there is no one “right” model for promoting innovation. There are examples of managed and open business models that have been both good for innovation and bad for it. There are also examples of managed and open models that have both succeeded and failed. The point is in a competitive market to let companies develop business models they believe will serve consumers best and see how things play out.

Exactly right. Moreover, the really important point here is that there exists a diverse spectrum of innovative digital alternatives from which to choose. Along the “open vs. closed” spectrum, the range of digital technologies and business models continues to grow and grow in both directions. Do you want wide-open, tinker-friendly devices, sites, or software? You got it. Do you want a more closed, simple, and safe online experience? You can have that, too. And there are plenty of choices in between.

This is called progress!

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Obama Wants to Tax Your Cell Phone

by Adam Thierer on February 26, 2009 · 19 comments

Looks like we can count on another tax landing on our cell phones soon thanks to the taxaholics in the Obama Administration. According to Jeff Silva of RCR Wireless:

Though details on the Obama budget are few and far between, some information was made available. The administration estimates that spectrum license fees would raise $4.8 billion over the next 10 years.

Don’t be fooled into thinking that wireless carriers will just eat those fees. Those fees will be coming to bill near you soon in the form of another stupid government tax burden on our wireless phones.

You know, because we’re not already paying enough in taxes on our phones.

(P.S. I’m actually a little surprised that the “progressives” in this administration would support this proposal since a tax on mobile phones will end up being about as regressive as taxes can get.)

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