Category Archives: Spectrum Research

Washington Post on “a remarkable new book by Clemson University economist Thomas Hazlett.”

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By Larry Downes

Broadband’s future is in the crosshairs of the FCC’s ‘political spectrum’

The Federal Communications Commission, once a sleepy regulatory backwater, has become a deeply political agency, governed less by the science of radio waves than by pressure from inside-the-Beltway groups. If nothing else, the decade-long debate over net neutrality, reignited this year by Chairman Ajit Pai’s proposal to undo a 2015 decision to turn Internet service providers into public utilities, makes that clear enough. TV comedians regularly weigh in, while paid protesters disrupt FCC meetings. Pai has even received racist death threats.

How did we get here? The answer, according to “The Political Spectrum” (Yale University Press 2017), a remarkable new book by Clemson University economist Thomas Hazlett, is that the agency began life with a political agenda, one that continues to override its technical experts.

Hazlett, a former child actor who served as the FCC’s chief economist in the early 1990s, knows where the bodies are buried. He tells a chilling story of an agency that has always been both more and less than it appears to be.

On the outside, the commission’s charter is simple: to oversee the assignment of increasingly valuable swaths of radio frequencies, “as the public interest, convenience, or necessity” requires. But throughout the FCC’s nearly 100-year history, there have always been more ominous motives behind the agency’s action — or, in many cases, inaction.

With the skill of a TV detective, Hazlett reveals how the undefined “public interest” standard has proven itself a potent and malleable political weapon. As new information technologies are invented — from radio and TV to cable, satellite, cellular and now broadband — the FCC has wielded its power both intentionally and recklessly to benefit a changing cast of favored industries, restricting competition and all but the most mainstream content.

The result early on was both scarce and homogenized over-the-air content, almost entirely lacking in news or public affairs programming. In 1961, FCC Chairman Newton Minow famously complained that over-the-air broadcasting had become “a vast wasteland.”

What Minow didn’t say, however, was that the barren media landscape was an environmental disaster entirely of the FCC’s own making, aided and abetted by politically connected broadcasters and their friends in Congress. (Sometimes they were one and the same. While a senator, for example, Lyndon B. Johnson was allowed to monopolize Austin’s radio and TV market in exchange for securing the FCC’s budget.)

And where the “public interest” is used to limit who gets a license, the agency also exaggerates claims of spectrum scarcity and invents vague “technical reasons” to justify denying or delaying by decades the introduction of competing new services and new applications.

Often, as Hazlett details, the delays are manufactured by favored incumbents, worried that their technologies will be rendered obsolete and the frequencies assigned to them reallocated for better uses. (To help ungrease the wheels, the Federal Communications Bar Association has more than 2,000 members, mostly in Washington.)

Wireless telephones, for example, were demonstrated as early as 1947 but were rejected by the FCC as a “luxury.” Cellular technology, which vastly increased the capacity of wireless, was ready for deployment by 1973, but had to wait another decade. Cable TV and satellite radio experienced similar delays.

This was nothing new, however. Engineered scarcity and the corresponding need to micromanage both content and technology has poisoned the FCC’s operations from the beginning, Hazlett says, starting with then-Commerce Secretary Herbert Hoover.

Hoover deviously orchestrated a breakdown in federal oversight of AM radio licenses in 1926, launching “chaos” in interference and channel-jumping that undid the previous decade of orderly expansion.

The only solution to the “anarchy in the ether” Hoover had created was, conveniently, comprehensive new legislation he previously had been unable to advance. Congress duly enacted the Radio Act of 1927, which created a new regulatory agency that canonized Hoover’s belief that spectrum was a unique and limited public good, licensed only to applicants who proved their willingness to bow to the ever-changing “public interest.”

The age of permissionless innovation in radio was over, along with hundreds of stations — many nonprofits — that were forced to shut down. From then on, innovators hoping to introduce new technologies first must plead their case to the FCC, often waiting decades.

If Hoover, Minow and their congressional co-conspirators are the villains of Hazlett’s tale, its hero is economist Ronald Coase, who argued outrageously in 1959 that airwaves should simply be auctioned to the highest bidder, letting consumers decide the best uses rather than well-intentioned (or not) regulators bestowing “free” licenses with political strings firmly attached.

Hoover was simply wrong: Spectrum was no different from any other critical resource a business needed — and no scarcer. And although the market was far from perfect, Coase argued, allowing regulators to micromanage spectrum under the cover of the opaque “public interest” was worse, introducing vast inefficiencies and unintended consequences. For one thing, unlike the market, there was no accountability when the regulators failed, which they did repeatedly.

It took the FCC 30 more years to hold its first auction, by which time Coase’s work had earned him a Nobel Prize. In the interim, the agency’s parade of disasters plodded depressingly along. Hazlett shows how the FCC serially delayed or destroyed AM radio, and then FM, VHF, UHF, cable, satellite radio, wireless phones, pagers, low-power FM radio, digital TV and satellite Internet — filling what Hazlett calls “the FCC’s start-up cemetery.”

That trend was partly reversed with the remarkable success of smartphones, starting with the 2007 introduction of Apple’s iPhone. As mobile call volumes exploded with better and cheaper technology, the FCC finally gave in to demand for mass market wireless telephones, making new frequencies available beginning in the early 1980s.

The public interest-based application process, however, proved unwieldy. Buried in mountains of paper it had invited, an overwhelmed FCC was forced to conduct simple license lotteries, resulting in immediate license transfers at enormous profit to lucky winners who had no intention of building anything.

Congress, finally seeing how much money it was leaving on the table, authorized the FCC to begin auctioning airwaves to the highest bidder in the early 1990s.

A New Book Proves That In Wireless The Government Is Never There To Help

Forbes

You may or may not be looking for a book full of historical nuggets on the inventors, innovators, regulators, and politicians involved in all facets of the wireless telecom industry over its one hundred plus year existence, but you should be. Thomas Hazlett’s The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone (Yale University Press, 2017) is a perfect blend of economic insight, historical anecdotes, and lessons that present and future regulators in any industry can use to benefit citizens and society rather than being guided by their own aims, biases, or fears. Anybody interested in telecom, politics, regulation, or economics should read this book; they will learn much.
Workers perform contract maintenance work on a cellular phone mast in Cape Town, South Africa. Photographer: Dean Hutton/Bloomberg

 

The book opens with a technology overview, tracing the history of radio and television broadcasting through key regulatory changepoints. We see a perfect example of Say’s Law, as the increased supply of spectrum capacity leads, over and over again, to the development of new hardware and software that grows demand for bandwidth to absorb all the new capacity that technology has provided. Along with this clear economics lesson we also are treated to an early glimpse of the book’s central thesis: government regulation has repeatedly delayed, blocked, and shifted the advancement of wireless communication.

Hazlett’s thesis is that government identifies a problem but misdiagnoses the market failure involved and how to address it. Regulations are then promulgated in a political bargaining process, creating barriers to entry for new entities that don’t exist yet and, thus, are excluded from the political bargaining. Eventually, evidence that the resulting government regulations are stifling consumer-benefiting innovation becomes overwhelming and the government relaxes its regulation. The suddenly-freed market then succeeds, delivering massive consumer benefits, for which the government claims credit, thanks to its new regulatory environment.

Hazlett also makes clear that Coasian solutions are available to these problems. Currently the vast majority of spectrum is wasted, underutilized thanks to government regulation that has assigned it to users who do not take full advantage of its potential. Ronald Coase won a Nobel Prize in economics for the basic theory he developed for this exact situation. He showed that the inability to buy and sell spectrum capacity led to economic inefficiencies and that better defining the property rights to spectrum would lead to social welfare-increasing outcomes. This led him to favor spectrum auctions as well as the right for the auction winners to resell, rent, or otherwise make deals that let them reallocate spectrum to its highest and best use.

The book contains numerous humorous anecdotes of government regulations that make no economic or technological sense, but rather reflect either political power of interested parties or the whims of the regulator of the moment. Even such regulatory burdens as the Fairness Doctrine and must-carry content rules are covered along with descriptions of how these once-thought innocuous rules designed to uphold public benefits actually stifle innovation and restrict profitable businesses from forming.

At the end of the book, Hazlett concludes with some recommendations for a reform agenda. His policy prescriptions begin with auction overlay rights, for both traditional licensees and government agencies. He also recommends liberalizing wireless licenses, taking a lesson from land use planning. Subject to a few limits, license holders would have presumed approval for new uses.

The scope of this book is impressive and the insights it provides are considerable. Anyone interested or working in telecommunications should read this book. Government regulators should be required to read it, whether they are involved in telecom or not. Anybody who wants to learn more about public choice economics and political economy would be well served by reading The Political Spectrum. Whatever your motivation, everybody who reads this book will be glad they did and much better informed on public policy as a result.

Jeffrey Dorfman is a professor of economics at The University of Georgia. His last popular press book is an e-book, Ending the Era of the Free Lunch. You can follow him on Twitter @DorfmanJeffrey

Valuing Spectrum Allocations

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Thomas W. Hazlett, Clemson University
Michael Honig, Northwestern University

Abstract

Observing trends in which Wi-Fi and Bluetooth have become widely popular, some argue that unlicensed allocations hosting such wireless technologies are increasingly valuable and that administrative spectrum allocations should shift accordingly. We challenge that policy conclusion. A core issue is that the social value of a given spectrum allocation is widely assumed to equal the gains of the applications it is likely to host. This thinking is faulty, as vividly seen in what we deem the Broadcast TV Spectrum Valuation Fallacy – the idea that because wireless video, or broadcast network programs are popular, TV channels are efficiently defined. This approach has been appropriately rejected, in key instances, by spectrum regulators, but is similarly applied in other instances regarding unlicensed allocations. While traditional allocations have garnered widespread criticism for imposing rigid barriers tending to block innovation, and flexible-use spectrum access rights have gained favor, the regulatory methods used to allocate (or reallocate) bandwidth remain embedded in a “command and control” process. Reconfiguring spectrum usage to enable emerging wireless markets often requires lengthy, costly rule makings. The expense of this administrative overhead is generally omitted from spectrum allocation policy analysis. Yet, it constitutes an essential component of the consumer welfare analysis. We propose a more fulsome policy approach, one that includes not only the appropriate measures of marginal value and opportunity cost for rival allocations, but incorporates transaction costs. Instead of regulators attempting to guess how much bandwidth should be allocated to various types of licensed and unlicensed services – and imposing different rules within and across these allocations – a more generic approach is called for. By better enabling spontaneous adjustments to changing consumer demands and technological innovation, spectrum allocations can be more efficiently brought into their most valuable employments.