Competitive v' TopDown: The TV Band White Space Issue

1
Competitive v. Top-Down The TV Band White
Space Issue

• Thomas W. Hazlett
• Professor of Law Economics
• George Mason University
• twhazlett_at_gmail.com
• INNOVATION, TECHNOLOGY, AND SPECTRUM POLICY
• Information Economy Project
• George Mason University School of Law
• Sept. 21, 2006

2
Current TV Band Proceeding

• Unlicensed use of white space
• Devices approved by FCC for sharing spectrum
  without causing harmful interference to others
• Overlays defining exclusive rights and assigned
  to owners (presumably via competitive bidding)

3
The FCC Evaluates, Top-Down

• comparing bands in the public interest
• crafting rules specific to each allocation
• weighing pleas from interested parties
• radio spectrum held hostage
• command and control reigns
• case-by-case stalls deployments

4
Incorrect Valuation Model

• popularity of devices curious metric
• backwards looking
• incremental spectrum values going forward
• Ofcom (2004)
• Hazlett-Spitzer (2005)
• Bazelon (2006)
• S. Korean hotspots
• access regime conflated w/ property regime
• low-power devices used in licensed or un
• fails to account for costs of non-ownership

5
Consumers Suffer, Broadband Lags

• Take killer app ? mobile telephony
• 1 trillion annual MOU (USA)
• 120 billion annual revenues
• gt 150 billion annual consumer surplus
• Spectrum starved
• Absolutely ? demand for marginal MHz high
• consumer value of marginal MHz 10X license
  value
• Relatively ? US allocation v. EU, e.g.

6

• December 1, 2004
• Cingular to Upgrade Data Network
• By MATT RICHTEL
• Cingular Wireless, the nation's largest cellphone
  service provider, announced plans yesterday to
  upgrade its high-speed data network, allowing
  faster downloads than are now available on many
  home broadband connections
• In October, Cingular Wireless closed its
  acquisition of ATT Wireless, creating the
  nation's largest wireless company with 47 million
  subscribers. Cingular said the acquisition gave
  it the additional radio spectrum necessary to
  deploy the high-speed network.

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GigaOM
Written by Katie Fehrenbacher- Posted Friday,
October 6 at 1006 AM T-Mobile said it would
spend a total of 2.64 billion on a 3G network in
the U.S. that it would start to deploy in the
fourth quarter of this year. The company said
most of the work on the 3G network would be
completed in 2007 and 2008. The 2.6 billion is
in addition to the 4.2 billion the company has
already spent as the top bidder in the AWS
wireless spectrum auction, in which T-Mobile US
won 120 licenses. The company needed the spectrum
licenses to build an effective 3G network.
T-Mobile US said the auction doubled its
spectrum nationally
8
Cellular Spectrum vs. GDP/cap

Source Hazlett (2004)
9

Cellular Spectrum vs. GDP/cap

USA lags by 100 MHz
Source Hazlett (2004)
10
One outcome industry consolidation

• Cingular buys ATT Wireless (2004)
• Sprint buys Nextel (2005)
• 6 national networks reduced to 4

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World's leading market showcase for wireless
data
Feb. 18, 2005

• Sydney "has become the world's leading market
  showcase for wireless data services, says U.S.
  technology research Gartner in Australia A
  reason wireless broadband is taking off here The
  government sold off radio spectrum for such
  services relatively cheaply. Privately held
  Personal Broadband snapped up its license in 2001
  for only about US7.5 million.

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Sheeps Clothing

• How we got white space
• Not WiFi (1995)
• Not FCC TV Band NOI (2002)
• Federal Radio Act (1927)
• Coase (1959) identified as inefficient
• Tragedy of the Commons
• or anti-commons

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8 TV channels per market

• 67 channels set aside per market

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The U.S. Broadcast TV Band
Channels 2 4 5 6 7 13
14 36 38 -
69 MHz 54 72 76 88 174
216 470 608 614
806
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The U.S. Broadcast TV Band
Channels 2 4 5 6 7 13
14 36 38 -
69 MHz 54 72 76 88 174
216 470 608 614
806 Allocated
1939 1945
1949 - 1953
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DTV TransitionTop-Down State of the Art

• 8 channels of analog (1700 sta/210 TV mkts)
• using 402 MHz of VHF/UHF
• 50 channels of digital
• using 294 MHz of VHF/UHF
• plus unlicensed devices performing under FCC
  specifications
• and zero opportunity to transact for more
  efficient organization of TV Band

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Efficient Solution

• Overlays
• PCS test drive
• reallocation of microwave links a political
  obstacle
• 1996 Pressler plan
• enabling complex spectrum sharing
• as in flexible use licensed bands
• producing tens of billions in annual consumer
  gains
• leaving option to use MHz for low-power devices

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Spectrum Sharing

• Most intense under constraints of
• private ownership
• economic competition
• Unlicensed access plausible when
• sharing is simple
• few parties involved
• Unlicensed efficient when it cannot be nested in
  private property rights solution

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Technologies Cited as Rationales for Spectrum
Regime Shift

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Valuing Spectrum Property Rights

• The Broadcasting Method
• Define a market by regulation
• Count all activity as a product
• The Economic Method
• marginal social gain from particular rights
• measures value of outputs enabled
• Ex WISP as supplier
• unlicensed WISPs buy other inputs
• Clearwire or Verizon buy spectrum inputs

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Unlicensed Valuation

• The most immediate debate-forcing fact is the
  breathtaking growth of the equipment market in
  high-speed wireless communications devices, in
  particular the rapidly proliferating 802.11x
  family of standards (best known for the 802.11b
  or Wi-Fi standard), all of which rely on
  utilizing frequencies that no one controls.
• Yochai Benkler (2002), p. 30.

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Counter Revolution

• The passion behind this counter-revolution
  comes from the success of the most important
  spectrum commons so farthe unlicensed spectrum
  bands that have given us Wi-Fi networks.
• Lawrence Lessig, Spectrum for All, CIO Insight
  (March 14, 2003)

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Uses Broadcast Method

• Counts devices
• 300 million TV sets, by analogy, value TV band
• Ignores property rights of network elements
• DSL, CM subscriptions driving WiFi LANs
• Ignores alternative property rights regimes
• which could host low power devices
• Ignores opportunity costs of regulation
• coordination by power limits exclude, e.g., many
  efficient WANs

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Residential Broadband (2004, USA)

• 35.3 million households (year-end, FCC)
• 21.4 million cable modem
• 13.8 million DSL
• 0.5 million wireless (including satellite)
• 8.7 million Wi-Fi homes
• 50/50 home networking market split

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Low Powered Apps

• can be supplied via exclusively owned spectrum
  rights
• Microsoft owned radio space
• FCC owned radio space
• just as a Central Park supplied via exclusively
  owned land rights
• But WWANs need exclusive ownership
• Coordination complex
• Wi-Fi not a competitor in 120B mobile market
• Low power devices, spectrum sharing, all over
  licensed cellular bands

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Under Utilized ISM Bands
 
Source McHenry
McCloskey (2004, p. 95)
27
Source Results are estimates based on
empirical model calibrated in Thomas W. Hazlett
and Roberto Muñoz, Welfare Effects of Spectrum
Policy (Aug. 2004).
28
Source Morgan Stanley, Q2 2005 Global Technology
Databook, Global Equity Research (June 1, 2005),
18, 20.
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The Irony of the Optimal Spectrum Commons

• You cant get there from here
• Using administrative allocation
• Efficiencies of market allocation vital
• Reveal rival opportunities
• Embrace open entry in access regimes
• Exclusive ownership rights, with appropriate
  competition, discover the commons

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Ethernet spectrum in a tube

• Who creates the spectrum commons?
• Spectrum tube owners.
• And the general case corporations
• Common property
• Created by exclusive ownership rights
• Confusion between
• Attractive access regimes
• Optimal property regimes

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Unlicensed Command Control

• Apple proposed U-PCS
• FCC allocated 30 MHz (1993)
• Consumer welfare disaster
• Regulation (LBT) proved unworkable
• Regulation endogenous
• Reallocation long and difficult
• Tragedy ? not revealing the demands of Cisco,
  Microsoft, Intel, or Google

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Thank you.