This is a cross post/guest post by one of our guiding lights at USV, Yochai Benkler. Yochai is a law professor at Harvard, author, and a deep thinker about the Internet and its impact on economics, law, and society. We are huge fans.
-------------------------
As the deficit supercommittee searches every corner to make budgetary ends meet, one solution they are considering, "incentive auctions" of the TV bands, could threaten the future of wireless innovation. These auctions may lock in an outdated regulatory paradigm, strengthen the dominant mobile broadband carriers, and block the path for some of the most innovative wireless technologies that could improve mobile broadband speed and reduce its price over the next decade. In return, the revenue they will raise is a very modest 1.5 percent of the 1.6 trillion dollar package. The auctions would trade off a small short-term revenue gain for less growth and innovation over the coming decade.
The proposed spectrum auctions are being promoted under the
false premise that boosting mobile broadband, smart grid
communications, inventory management systems, mobile payments,
and health monitoring requires auctioning exclusive pieces of
licensed spectrum. In reality, these markets are fast
developing through unlicensed wireless applications, like
WiFi. When the iPhone crashed AT&T's mobile broadband
capacity, the company didn't buy more spectrum on secondary
markets; it used WiFi to carry much of the data. In the past
year WiFi traffic on AT&T's hotspots has tripled. Today,
about half of iPhone and 90 percent of iPad page views are
carried over WiFi. Indeed, almost two-thirds of all smartphone
and tablet data traffic is carried over WiFi rather than over
the carriers' networks, whose hunger is driving the demand for
auctioning TV bands. In Japan, a good place to see the near
future of mobile broadband, the second largest mobile carrier
contracted a California firm to roll out 100,000 hotspots as a
core strategy for its next generation mobile broadband
network.
But it's not only mobile broadband. When you use your E-Z Pass
at a toll booth or Speedpass at the gas station, you use
unlicensed technology like WiFi, but in a different band. When
Wal-Mart moved its field-defining inventory management system
to the next generation, it used technology that uses spectrum
on the same principle: unlicensed wireless. Almost the entire
market for inventory management and access control is now
driven by unlicensed wireless technologies. Almost seventy
percent of U.S. Smart Grid communications market is served by
firms that use WiFi and similar technologies, and by a one
recent account, about eighty percent of the wireless market in
the healthcare sector depends on an array of unlicensed
strategies.
These dynamic markets are telling us something new: The future
of wireless will likely be mostly unlicensed, with an
important, but residual role of auctioned, licensed services.
And yet the drive to auctions simply ignores the evidence from
actual markets in favor of an outmoded regulatory ideal that
is the opposite of what cutting edge radio engineering and
dynamic markets show.
Most of these applications were developed using junk bands,
where regulators dumped industrial equipment and microwave
ovens. They thrived even in these harsh conditions, but in an
effort to open up new, less wasteland-like areas for these
dynamic, innovative technologies, the last Republican and
current Democratic FCC chairs presided over the bipartisan
creation of TV White Spaces, a policy that permits device
manufacturers to expand the capabilities of unlicensed devices
by sharing the TV bands with broadcasters. The TV Band
auctions being pushed through the supercommittee threaten to
displace these white space devices. As we look at the enormous
success of unlicensed wireless strategies across the most
dynamic markets, we see that doing so is penny wise, pound
foolish.
Not only will auctions burden development of unlicensed
strategies, if the last major auction is any indication, they
will allow AT&T and Verizon to foreclose competition in
their markets. When AT&T argued in defense of its T-Mobile
merger, it said that T-Mobile wasn't much of a competitor
"without the spectrum to deploy a 4G LTE network." But the
reason T-Mobile lacks that spectrum is that Verizon and
AT&T already own 78 percent of the spectrum bands needed.
The new auctions would extend Verizon and AT&T's
foreclosure to the TV Bands as well, constraining not only
competitors like T-Mobile, but the whole field of unlicensed
strategies as well.
As a revenue source, spectrum auctions are a particularly
pernicious tax on wireless innovation. They pick the wrong
technology for wireless infrastructure by regulatory fiat, and
strengthen the market dominance of already-dominant players.
The costs of this policy to innovation and growth greatly
outweigh its revenue benefits, and the supercommittee simply
does not have the time to learn enough to avoid doing more
harm than good.