In today’s digital landscape, the transformation to a world of wireless Internet access has shifted our mobile phones into virtual pocket computers. The Wireless Communications Association International (WCAI) has stated that smartphone users consume 30 times the data of a “traditional” handheld device, and AT&T alone reports that it is rolling out 2,000 additional cell towers in 2009 in response to a 5,000 percent growth in data usage over the last three years, largely due to the considerable popularity of Apple’s iPhone (Newman).
As technological improvement has made these smartphones progressively more affordable, the explosive demand for wireless innovation is testing the limits of a fundamental resource: the telecommunications spectrum. The spectrum is regarded as the “oxygen of the wireless world,” fueling every aspect of our mobile broadband ecosystem. And as more and more consumers use their wireless devices to watch videos, exchange pictures, listen to songs, and download the latest applications, the airwaves are growing increasingly choked and over-crowded.
As data use continues to skyrocket with the adoption of mobile smartphones, the question becomes: how will the federal government, in cooperation with the FCC, strategically mediate spectrum space in the face of data influx among competing mobile carriers? Extending the reach and performance of broadband will prove to a very delicate issue as the Commission works feverishly to keep up with the higher speeds that these mobile applications will continue to require in the near future. This urgency stems from a logistical constraint.
While the electromagnetic spectrum encompasses everything from microwaves to visible light to cosmic rays, only a fraction of it is suitable for telecommunications usage. This slim percentage is then split up further, with portions of the resource dedicated to activities ranging from government and military functions, to television broadcasts and consumer mobile phone services, to public medical and fire safety. Most of these entities, including mobile phone service providers, must obtain licensure to grant them exclusive usage of a given frequency.
Others, such as WiFi, are open to everyone, with no license needed, allowing them to serve as an fully accessible, inexpensive resource to rural communities, for instance. Given the natural parameters of how much information can be fed through a certain slot of bandwidth, spectrum must be allocated carefully and appropriately – to not only to make the best use of it for present services, but to anticipate the new technologies and platforms of coming generation.
And, predictably, as each community demands a larger piece of the bandwidth pie, identifying the most efficient way to divide up the spectrum is becoming increasingly contentious. In particular, for the manufacturers of the wireless equipment, ample spectrum is crucial to the expansion of business, to give them room to sell more of their products, applications and services. We might then ask: in the interest of business, consumer needs and innovation, how are the many conflicting demands on this important territory to be negotiated in policy and practice? How will all the slices of the spectrum be managed effectively?
Historically, the FCC has made spectrum allocation decisions based on comparative hearings. Theoretically, these hearings were to allow regulators to decide which applicant would put the spectrum “to its best use. ” However, over time, the process proved to be quite subjective and difficult to standardize. In his authoritative book, Putting Auction Theory to Work, Milgrom explains how comparative hearings often broke down into “lawyers and lobbyists arguing that their plans and clients were most deserving of a valuable but free government license” (Milgrom ).
Because of the questionable fairness of the comparative hearings, the FCC shifted its strategy in 1982 and began to use a lottery system instead. Despite good intentions, this new approach ended up wasting valuable spectrum when its dividends were often randomly allotted to mere industry speculators eager to cash in on their fair chance at the reward rather than to active, functioning mobile carriers. Milgrom (2004, p. 3) states: “Lottery winners were free to resell their licenses, encouraging thousands of new applicants to apply for licenses and randomly rewarding many with prizes worth many millions of dollars.
Economic resources were wasted on a grand scale, both in processing hundreds of thousands of applications and in the consequent need for real wireless operators to negotiate and buy licenses from these speculators. ” Moreover, he goes on to surmise that the lotteries actually “contributed to the geographic fragmentation of the cellular industry, delaying the introduction of nationwide mobile telephone services in the United States. ” Thankfully, the spectrum distribution process would evolve once more when, n 1993, the FCC realized that these random draws were deeply flawed and sought permission rather to literally auction off spectrum space. Congress agreed, and voted to allow the FCC to license spectrum blocks “through a system of competitive bidding,” amending the spectrum policies outlined in the Communications Act of 1934.  The objective would be to “avoid excessive concentration of licenses” by “disseminating licenses among a wide variety of applications” (Communications Act of 1934).
By 1994, the simultaneous multiple-round auction had been fully adopted as a mechanism to disseminate broadband telecom services. This new method would prevail through the present, as it ensured at least that the party who valued the spectrum space at the highest price for their business needs would win. Not to mention, part of the value would also be returned directly to the taxpayer, now that the resource was no longer being given away for free (Center for the Study of Auctions, Procurements and Competition Policy).
Frequencies began to hit the auction block as companies faced into the indisputable fact of finite spectrum — and the high stakes surrounding it. Controversy ensued, with numerous lawsuits being brought against the FCC. In 2002, the New-York based cellular service NextWave, for instance, went bankrupt, resulting in a legal skirmish over whether the FCC could revoke its spectrum licensure for not making payments on time. After going all the way to the Supreme Court, NextWave succeeded in winning bankruptcy protection.
Minor new precedents like this were continually established in the evolving industry. But the biggest problem remained that technological development in telecommunications was accelerating — fast. It still is. In the few short years since the onset of the FCC auctions, we have gone from the heavy, clunky house-phone sized mobile devices of the early nineties to sleek, UI-perfected touch-screens with built in custom applications. We have gone from cell phones being a luxury for a select few, to a public norm — both in business and at in personal usage.
And we now not only make cellular phone calls wherever and whenever, but we communicate a plethora of different ways while on the go. Consumers are no longer interested in just transmitting voice data, but text and — the even bigger issue — photographic images, video files, and website code. Indeed, at times, we even want to be able to “tether” our larger communication devices like laptop computers to our wireless phone networks. Like the Internet in the nineties, the spectrum is now a relatively wild virtual frontier, being colonized and re-colonized for new, mobile usage.
As if it were land, the question of how to divide it among the constituents – urban/rural, public/private — is becoming all the more imperative. With data being eaten up and ping-ponged back and forth across the spectrum at rates never before seen, the bottom line — for policy — is that the FCC must get ahead of the game. In theory, the auction would be the much more efficient approach, and it would certainly stand to be more just than hearings or lotteries.
But the policy was put to the test in January of 2008, following the 2007 mandate that television was to go fully digital by June, 2009. The switch from analog to digital TV meant that large blocks of spectrum in the 700 MHz frequency would be freed up for other usage, and would need to be sold and relicensed through an auction process. In the eyes of many, the high-profile “Auction 73,” as it is officially known, was seen as a phenomenal opportunity to break through the exclusive duopolies between mobile-provider giants that had begun to define the telecom industry.
Indeed, in the months leading up to it, the field was abuzz with discussion of the possibility of an alternative, more public allocation of spectrum that would serve hard-to-reach customers and be wholly open to innovative technologies and services. A startup, Frontier Wireless was poised to bid for “Block D,” a chunk of the spectrum that would go to public safety services – a non-consumer driven sector which might otherwise struggle for funding. And, adding to the excitement, open-source pioneer Google was to become a new and influential player in the auction, offering to place the $4. billion minimum bid for a key slice of the spectrum – deemed “Block C” – if certain conditions were met. As the rules for the auction were being finalized, Google pressed the FCC for open access policies that would require a winning company to allow any application or device to operate on its network without restriction and give the company permission to lease spectrum for wholesale prices. It turned out that Google’s requests would only be adopted by the FCC to a minor extent. But even so, there was no shortage of controversy.
As the rules of the auction were announced, Verizon promptly attempted to sue the FCC over the adoption of any form of open access, citing violation of the 1946 Administrative Procedures Act, a law which dealt with the extent to which government agencies are permitted to establish regulations. However, after failing to win an appeal for an expedited judgment, they dropped the case. CTIA – The Wireless Association also brought at lawsuit against the FCC, but they dropped it just as quickly. January 24,th 2008 finally came.
Predictions were made. 214 applicants were approved to bid. The whole process played out over 261 rounds in 38 days. All in all, $19. 592 billion was raised. FCC Chairman Kevin Martin hailed the auction as a great success, announcing that it would have a “transformative effect on the wireless industry in terms of a more open wireless platform. ” But in the end, open-access advocates were thoroughly let down. The two mammoth Telecom services dominated the auction, grabbing 84% of the available spectrum licenses.
They were now to become even more large and powerful. Six major regional licenses, the all-important “Block C,” went to top US mobile carrier Verizon for $1. 6 billion, making the corporation the largest auction winner. Meanwhile ATT – America’s number two carrier — was the runner up, also winning multiple significant bids. Nothing had changed. And all the high hopes for a public/private partnership around Block D were quashed when Frontier folded and the reserve of 1. 3 billion failed to be met.
In staunch opposition to Martin, FCC Commissioner Jonathan Adelstein, called the power play by Verizon and ATT “appalling” and referred to lack of bids on Block D as “nothing short of a tragedy. ” “Here we had an enormous opportunity to open the airwaves to a new generation that reflects the diversity of America, and instead we just made a bad situation even worse,” he stated in the auction’s aftermath. Despite the unfortunate outcomes of the 700 Mhz auction, all has not been lost.
Today, under the new administration of Obama and FCC Chairman Julius Genachowski, another monumental opportunity for Telecom reform looms as, per the American Recovery and Reinvestment Act, Congress is required to come up with a National Broadband Plan by February 17th, 2010 to dovetail with 7. 2 billion in stimulus grants for broadband. While the main goal of this Plan is to further bridge the digital divide and make Broadband accessible to everyone, it should offer a significant occasion to make positive change to spectrum allocation policy as well.
Spectrum scarcity will be a key issue for the Plan, particularly the question of whether additional spectrum, currently dedicated to broadcast television, could be reassigned to wireless. In attempt to address the rapid growth of the sector, mobile carriers in the US have begun to voice their concerns of spectrum shortages to the FCC, noting that 450 MHz of total spectrum just isn’t enough to keep up with consumer demand for wireless services.
As the companies explained in frequent FCC filings over the summer, the current strain on their networks is caused by an exponential data demand that has swept the country in the last few years — and they want the government to make more slots available to solve the problem. The International Association for Wireless Communications is urging the FCC “to look at TV broadcast spectrum as an option for more spectrum,” noting that, “ as the demand for broadband spectrum grows, the need for broadcast TV spectrum is decreasing. Indeed, since 1998, over-the-air TV viewership decreased by 56 percent, while smartphone subscriptions have increased by 690 percent (Luna). In light of both this never-before-seen demand and the shortfalls of Auction 73, Motorola is one provider that has taken actually an admirable stance toward spectrum allocation – one that embraces concepts like “shared spectrum space,” “technological neutrality” and “making adequate spectrum available for both licensed and unlicensed uses. ” Motorola points out that, “The real value in making spectrum available results from economic growth derived from increased efficiencies and new services.
Regulators must ensure that adequate spectrum is available to support public safety, government and other critical uses. ”  In a similar vein, the following broad, directional measures for spectrum policy are things that we hope might be addressed to some extent within the National Broadband Plan and perhaps considered by the FCC: – Adopt full, Open Access policies, similar to the steps proposed by Google – Adjust auction reserves so they do not favor incumbent bidders – Take rural and underserved consumers into account.
Verizon, and other major providers favor servicing more concentrated, profitable urban environments, but legislation needs to prevent the digital gap from further widening and ensure that rural America does not get left behind. – Push for technology neutrality and flexibility in services offered. – Build opportunities for local Wireless Internet Service Providers to serve their communities – Define a method to cap spectrum ownership once it becomes monopolistic and holdings get excessive. – Continue to develop other concrete solutions to open up significant parts of the spectrum to new, innovative bidders
Put simply, new ideas need supportive policies to be able to prosper and persevere, and increased regulation can help. Allowing mobile giants to snatch up and sit on large blocks of spectrum is a profound obstacle to innovation, fair competition and growth. While it is surely difficult to define what might differentiate a successful company from “too big a monopoly,” this is the new challenge for the FCC today. Ultimately, the goal of spectrum policy should go beyond selling to the highest bidder; it should protect innovation at all costs.
Innovation is perhaps the truest, most bipartisan and universal American value. Even in the deepest depths of crisis and recession, America’s spirit revolves around the promise of new ideas, new technologies, new paths forward. It always has. The FCC would do well to move rapidly towards policies that value such rich development. ———————–  48 Stat. 1085, as amended, 107 Stat. 387, 47 U. S. C. § 309(j)(1).  http://www. motorola. com/staticfiles/Business/Corporate/US-EN/government-affairs/policy-briefs-spectrum-allocation. html