Open Access, Competition, and Spectrum Auctions
This past week, the Federal Communications Commission (FCC) in the US announced the winners of their 700Mhz spectrum auction, with Verizon and AT&T being the big winners. In bidding 19.6 billion dollars in the process, the winners secured rights to broadcast on a very desirable swath of radio frequency that penetrates deeper into buildings with less energy. Moving forward, the telecommunication giants will be able to fulfill increasing demand for data-intensive wireless communications services.
Of particular note, Verizon secured the rights to what was known as the ‘C’ – block of spectrum in the auction. This block of spectrum has conditions that require the telecommunications provider to allow any device to connect to its network, and to allow any application to run on these devices. Currently, in the US, as it is in Canada, the wireless service provider controls the type of device a customer can use, and the applications that can run on those devices. This creates problems with portability, as switching carriers often means not being able to take your phone with you or run the applications which you’ve already purchased. This new C-block spectrum will thus undoubtedly reshape the wireless landscape in the US as the current bottleneck of the network operator will be loosened with resultant increased competition in handset manufacturers, application providers, and carriers. (For further discussion of the way things currently are, see Tim Wu, “Wireless Carterfone” . International Journal of Communication, Vol. 1, p. 389, 2007 Available at SSRN: http://ssrn.com/abstract=962027)
A little closer to home, this past week, Industry Canada announced the participants in a spectrum auction of our own set to take place in May. As Professor Geist noted, the Canadian government will not mandate open access rules on the use of this spectrum. While this is disappointing from a consumer perspective, the rules about new entrants and mandatory roaming agreements should nevertheless inject more competition to the Canadian wireless space.
Are auctions even necessary?
Despite all the excitement surrounding open access for telecommunications services, a nagging question still remains, i.e., should we be having spectrum auctions anyway?
With the advent of ‘smart’ radio receivers, which are able to “determine instantaneously when and where a bit of spectrum is going unused and switch their communications accordingly to avoid interference” (effectively ‘navigate the noise’ so to speak), is it even necessary to parcel off spectrum anymore? Why not just have unlicensed ‘white space’, since the resource is no longer necessarily scarce? Is this just a cash grab for the government? Professor Lessig articulates the argument this way:
The argument is that we deregulate spectrum. “Deregulate” not in the sense that we auction spectrum. Auctions require a gov’t created property right; that’s a form of spectrum regulation. “Deregulate” in the sense that we set off large swaths of spectrum for unlicensed use. Congress has made this impossible in the short term for any significant chunk of spectrum. But we do have an important opportunity to set free “white space.”
The argument might be best introduced with the following hypothetical:
Imagine the government nationalized the hotdog market, and then sold to the highest bidder the “right to sell hotdogs” at in a particular place for a particular period of time. These rights — the right to sell hotdogs — could be structured to be a kind of property. The market would thus allocate them to the highest valued use. And the initial sale would raise lots of money for the federal treasury.
Are you in favor of that? And if not, then why are you in favor of spectrum auctions? “Because certain uses require regulation,” you say. But then why not push towards uses that don’t require regulation?
Professor Lessig has a great video further elucidating his argument: link
Since the auctions are already completed in the US, and are already in full swing in Canada, this preliminary question may indeed be moot for this round of auctions. Moving forward however, this may be a relevant issue to consider. Is giving a monopolistic property right necessarily the best way to derive the most value from this public good anymore? Or, since technology has progressed to a point where it is no longer necessary, might it be better to just deregulate the use of radio frequencies altogether?