IP: Comment on Big Bang Auction and reply by Faulhaber for the authors

[David Farber <dave () farber net>]

> From: Jock Gill <jock () jockgill com>
> Date: Tue, 18 Jun 2002 19:36:37
> To: Dave Farber <farber () cis upenn edu>
> Subject: Big Bang Auction
>
> Dave,
>
>  I have the greatest respect for you and Gerry but I also have a few 
> questions about your proposed Big Bang Auction proposal.
>
>  While an auction might be appropriate if spectrum were a scarce 
> resource, it may be the case that so called spectrum scarcity is simply 
> an illusion produced by the state of technology in the 1930s when the 
> foundations of the FCC regulatorium were established.  Reed, as you know, 
> argues this in his web page on Open Spectrum 
> <http://www.reed.com/OpenSpectrum/>. If capacity is what we should be 
> measuring, then the property model of spectrum may be ill advised and 
> counter productive.  Should we not resolve this question before we go for 
> a Big Bang which might be next to impossible to undo?  Should we not at 
> least preserve an option for choice and innovation, as Reed says, in 
> order to escape from the obligation and coercion of old style regulations?
>
>  Further, it is possible that an auction approach violates a lesson 
> learned from the Internet's success and the severe business problems 
> currently being faced by the cable and cell phone business model. Namely, 
> what is the source of capital to finance the next technology wave of 
> wireless device to device communications?  The success of the Internet 
> appears to be related in no small part to the fact that it was financed 
> to a large degree by end user capital.  At the same time, the problems in 
> the cell phone and cable business appear to be related to their reliance 
> on very large scale, centralized, financing from VCs and banks.  Who owns 
> the set top box in your home?  Who paid for the PC you are reading this 
> on?  Where is the next wave of capital going to come from?
>
>  As Reed and Lipmann point out: We need to  further the idea of networks 
> that are
>
>          a) largely user-financed,
>          b) undifferentiating between producer and consumer,
>          c) architected so that cooperation gain creates most of the value.
>
>  Unlike the broadcasters and the telecom (telephony) networks, we need an 
> approach which promotes edge-based value creation.  These are key lessons 
> learned from the Internet experience.
>
>  It would seem that a Big Bang Auction approach may well make the above 
> goals more difficult to reach.  Can you argue that a Big Bang approach 
> makes these goals easier to obtain?
>
>  Lastly, what is the metric we should use to evaluate our communications 
> regime today and going forward?  I would argue that there are a number of 
> issues that a metric for 2002, a metric which takes every bit of 
> technology we have on hand today into account, must address: 
> technological, economic and political at the least.  It must also allow 
> for our imperfect knowledge, the we don't know factor, and permit 
> evolutionary change as the state of knowledge and technology changes as 
> we know it will.
>
>  It is not clear that the Big Bang approach you propose escapes the 
> limits of what we knew in 1930, before we had radar, Shannon, computers, 
> micro chips or GPS.  For example, Dewayne Hendricks argues that current 
> FCC regulations make little or no use of the time dimension.  Now why is 
> that?  Would a Big Bang approach promote modernizations to over come 
> these deficits?  Or would a Big  Bang merely entrench the incumbents even 
> deeper, making change even more difficult?
>
>  Perhaps, before we engage in any hard to reverse Big Bangs, we ought to 
> look at the basis of current regulations to make sure they are sound and 
> NOT unintended consequences of the state of affairs before 1940. For 
> example, is interference an engineering truth or an artifact of 
> conditions in 1930s?  Reed made a compelling argument to the TAC in May 
> that loss of information happens because of bad architecture and poor 
> technology at the receiver side, NOT because signals interfere with one 
> another in the 'ether'.  Before we close the door on the option for a 
> Spectrums Commons based upon Open Spectrum, we ought to take a time out 
> to evaluate the possible existence of other engineering truths that are 
> not truths except in artificially constrained situations.
>
>  We should not accept a regulatorium and its derivative policies if they 
> are, in fact, based upon the self referential arguments based upon 
> unintended consequences.  Until we resolve these issues, I suggest it is 
> premature to consider a Big Bang approach.  In any case we should only 
> support a solution which maximizes our chices going forward.  It is not 
> clear to me that a Big Bang passes that test.
>
>  Regards,
>
>  Jock
>  Jock Gill
>  <www.jockgill.com>
>  Autographic Portraits
>  The image of who you are


reply

> From: "Faulhaber, Gerald" <faulhabe () wharton upenn edu>
> To: 'David Farber' <dave () farber net>
> Subject: RE: Big Bang Auction
>
> A very thoughtful response, Jock; thanks.  One small but very important 
> point: this is not our idea, although we like it a lot.  It was invented 
> by Evan Kwerel and John Williams at the FCC.
>
> Dave and I agree that the current spectrum "shortage" is based on 
> regulation not on science.  As our presentation to the FCC made clear, the 
> Big Bang auction is designed to free up that spectrum and get it into 
> use.  We expect that when all the spectrum is in the market, the shortage 
> will disappear.  Prices for certain parts of the spectrum will remain 
> fairly high, such as wireless-friendly frequencies and legacy 
> broadcasting.  But in the relatively short run, spectrum will be available 
> (we believe) rather cheaply.  When any commodity is abundant, its price is 
> low, and that's what we expect.
>
> I don't really think it's the job of public policy to determine how 
> advances are to be financed.  It is the job of public policy to make sure 
> there's a business there.  The US has the deepest and richest capital 
> markets in the world and in history; we are fully confident that sensible 
> business plans will find financing, as they do today.  Are the crazy days 
> of 1999 over?  Of course; investors are being cautious.  But I think 
> asking us to solve the "problem" of capital markets (if there is one, 
> which I don't believe) is going a bit far.
>
> I understand the popularity of edge-based systems among those familiar 
> with the growth of the Internet (Larry Lessig, etc.).  I am less than 
> theological about this; I would suggest reading the Dave Clark/Marjorie 
> Blumenthal piece "Rethinking the Design of the Internet: The End-to-end 
> Arguments vs. the Brave New World".  And it is not at all obvious this is 
> the optimal design for wireless markets.  So, no, I don't buy the argument 
> that we have to make the case that the Big Band will result in edge-based 
> systems.  It may, and it may not, but we are not willing to accept that it 
> *must*.
>
> I'm not sure I understand what Jock has in mind by "metric."  Usually, 
> economists use the idea of economic efficiency, which includes not only 
> technical efficiency (are the resources being used most effectively?) but 
> allocational efficiency (are they getting to those who value them most?); 
> a good microeconomics textbook should cover this in Chapter 1.  That's why 
> we want to move toward markets; when they work, they tend toward 
> efficiency (which is why economists like them).  By that standard, it is 
> pretty obvious that spectrum use is very inefficient; examples abound.
>
> A related issue: we understand that the US is linked to the rest of the 
> world through various agreements and an ITU standard.  We have no simple 
> fix for this; but we note that when the US deregulated its airlines, it 
> was similarly linked to the rest of the world through a variety of 
> bilateral and multilateral agreements, all of which required 
> renegotiation.  Similarly when the US deregulated international 
> telephony.  It is no doubt difficult and complicated, but we've dealt with 
> this type of problem before.  We don't have to be locked into a system 
> that is obviously failing simply because the rest of the world is locked 
> into it.
>
> Professor Gerald R. Faulhaber
> Business and Public Policy Department
> Wharton School, University of Pennsylvania
> Philadelphia, PA 19104
> 215-898-7860

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