IP: Response to David Reed

[David Farber <dave () farber net>]

> From: "Gerry Faulhaber" <gerry-faulhaber () home com>
> To: <farber () cis upenn edu>
> Subject: Response to David Reed
>
> I am impressed that David Reed, one of the greats of this field, has given
> us such a thoughtful reply.  I will try to respond appropriately, cognizant
> that (to paraphrase Dave) I'm no engineer.
>
> Let me first remind your readers that in proposing a property rights-market
> system, I am not claiming that it's perfect -- only that it is infinitely
> better than what we have now.  Paraphrasing Winston Churchill (in speaking
> of democracy), I don't have to show it's perfect; just that it's better than
> the available alternatives;-)
>
> David Reed argues that a good must be subdividable into easily transferable
> lots without loss of value in order to ensure a market works.  This is
> pretty close to true; in fact, the good must be both subdividable and
> aggregateable; which one does depends upon what use what has in mind.
> Surely subdividing real property into 1" square lots is pretty useless ...
> unless you are selling souvenir plots of Graceland.  For example, it's
> pretty hard to get a driveway and sewer and water lines into a tiny plot of
> land.  Similarly, subdividing spectrum (increasing wastage from guard bands)
> has the same sort of limit.  Users will aggregate or subdivide to meet their
> own needs (as an apartment builder aggregates smaller properties or a home
> builder subdivides former farmland for new homes).  I may be guilty of a
> "faulty understanding of the physics" here, but I don't think David has made
> the case.  Simply asserting that subdivision has costs, while true, doesn't
> quite do it.
>
> He also mentions that markets work if the good is expensive to produce.
> This is not quite true; markets work well if the good is scarce, either
> because it is expensive to produce or because people want more of it than
> exists.  I recently had the privilege of buying waterfront property on a bay
> in Delaware; very expensive, and nobody (at least on this earth) created or
> produced it.  And the developer wisely chose the appropriate subdivision to
> enhance marketability for him and usability for me.
>
> David also indicates that property rights work well if one person's use of a
> good doesn't interfere with another person's use of his good.  This is
> certainly true; but land certainly doesn't fit that model and yet it has
> been adapted to the property rights model extremely well.  I would argue
> that the number of possible uses of land that interfere with my neighbors is
> way more difficult to control that interfering uses of spectrum.  For
> example, my neighbor is currently building a house next to me, and the
> construction crew needs an on-site outhouse.  Do I like having an outhouse
> next door?  Not really.  Is this an "interfering use?"  Yeah.  Are there
> laws/ordinances to cover this?  Yes there are.
>
> David Reed then mentions the all-important network effects issue.  If
> systems interoperate/interconnect, they are more valuable to
> customers/citizens.  He mentions the failure of Marconi-Telefunken
> interoperability "in the days of the Titanic," implying this had something
> to do with that disaster (which it didn't).  I (and Dave) are all for
> interconnection of systems; but this has nothing to do with spectrum, or
> spectrum ownership.  I can use my Verizon cellphone to call a friend on a
> Cingular phone without problems, thus realizing the benefits of one giant
> phone system (thanks to the FCC's interconnection policies, *not* the
> market).  They don't have to share the same frequencies in order to gain the
> advantages of network effects.  Again, perhaps I am misunderstanding the
> technical aspects of this, but interoperability at the application level
> (rather than the hardware/spectrum level) is the issue, and that is
> completely transparent to spectrum ownership.  This is not to say it is not
> a huge problem (Dave and I wrestled mightily with this at the FCC in the
> AOL-Time Warner merger), it is just not a spectrum ownership problem.
>
> David then goes on to suggest that the future of radio is in cooperative
> technologies that make much more efficient use of the spectrum, such as
> software defined radio, ultra-wide band, etc.  These advances are very
> difficult for the current system to accommodate; they work fine if
> restricted to Part 15 spectrum, but the flurry of innovation is finding
> these bands increasingly crowded, and the current spectrum allocation
> mechanism cannot respond in a timely way to these new needs.  But I would
> argue that a property rights-market model is extraordinarily effective at
> adapting to new needs (after all, property rights have been around a very
> long time, and we still find them highly useful, in part because these
> system continue to adapt to new technology).  There are two ways in which
> cooperative systems could fit well into a property rights regime (details to
> be worked out later; this is conceptual): (i) a large number of bandwidth
> owners could be induced to sell/lease an "easement" on their property to
> accommodate, say, very low power uses (UWB) or opportunistic uses (SDR).
> (ii) public agencies or private parties could establish a wide swath of
> spectrum in which cooperative sharing could occur, either priced or not.  As
> I mentioned originally, we have public parks where people come together for
> a shared experience, and I suspect we'd have parks in spectrum space where
> people can share.  David sets up a bit of a straw man when he argues that
> property rights implies partitioning and closedness.  It doesn't.  Much of
> private property is about sharing -- office parks, condominiums, apartments,
> etc., are all about private property and sharing.  His argument is that
> radio innovation is all about sharing and cooperation, which is antithetical
> to private property.  In fact, it is not antithetical to private property
> and can be accommodated quite easily.
>
> Let me also go on record that property rights and markets are all about
> encouraging innovation; as an historical fact, the capitalistic country in
> the world (that would be the US) has the best record of innovation
> (certainly for the last 60 years).  Markets aren't the only means to
> encourage innovation; the Internet did very well on innovation without
> markets, and the Soviet Union did some very impressive innovation as well in
> its time.  But I will put my money on markets to out-innovate just about
> anything else. David's blanket statement that a market model will stifle
> innovation is wrong both in its particulars and in general.
>
> At the risk of spouting pretentious social philosophy: cooperative ventures
> work well when there's a tight community that can discipline inappropriate
> behavior through social mores.  We all experienced this during the
> pre-commercial days of the Internet.  But when the resource in question
> increases in value and millions demand it, community changes and economic
> values predominate, as they do in today's Internet.  Remember those Westerns
> in which the cattle guys wanted to drive their cattle anywhere on the open
> range, and the sheepherders built fences to keep their sheep enclosed?
> Eventually, the fence-builders win (and lease some land to the cowboys),not
> because fences are good, but because private property is the more efficient
> way to organize markets for scarce resources.  I believe we are long past
> the point where we can all play cooperatively in the E/M sandbox.  The
> resource is way too valuable to be managed by the government, and too
> valuable to be run as a commons.  There will have to be adult supervision,
> and that's what a market will do.  The market can accommodate a wide variety
> of sharing technologies easily; but it will not accommodate anarchy.



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