IP: Spectrum as Property

[David Farber <dave () farber net>]

> From: "Kamman, Stephen" <Stephen.Kamman () us cibc com>
> To: "'farber () cis upenn edu'" <farber () cis upenn edu>
> Subject: Spectrum as Property
> Date: Thu, 30 Aug 2001 18:37:11 -0400
> X-Mailer: Internet Mail Service (5.5.2653.19)
>
> My two cents from experience in designing the worlds first (and I hope only)
> auction of point to point microwave spectrum (in Mexico, in a past
> professional life).
>
> An alternative approach is to draw a distinction between the right to use
> spectrum and the right to manage it.  This would mean selling spectrum
> blocks off to the highest bidder TO "SUB-LEASE" AS THEY SAW FIT.  It would
> be like selling someone the land BUT prohibiting them from building on it
> themselves.  Instead, they would have the right to sub-lease it to the
> highest bidding 3rd party developer to actually put buildings on it (or a
> factory or whatever).  The key to this system is that the spectrum
> owner/manager has an incentive to maximize utilization (to get the greatest
> return from his "inventory" of spectrum) and has every incentive to prune
> old uses of spectrum in favor of newer technologies that promise a higher
> value/per/hertz.
>
> In practical terms, that might mean that the owner of the UHF TV spectrum
> might decide that he'll get more dollars per hertz by switching over to
> offering wireless data.  Tough news for the UHF guys, but good news for
> society.  The problem now is that "ownership" of the spectrum lies somewhere
> between the government (who is lousy at resource allocation) and the system
> operator (who has zero incentive to use it for anything other than what
> his/her system was designed to do.  The result is new technologies jammed
> into crowded, gerrymandered spectrum while older technologies trundle along
> out of sheer intertia.
>
> Of course, a spectrum owner has a number of potential ways to abuse such a
> system (insider deals, overcharging, hold-up of existing users, etc...).
> But the aspiring and actual users of the system also have a strong incentive
> to uncover and document such abuses.  This natural conflict should give a
> regulator/arbitrator enough information and information to keep such a
> market working in a reasonably fair manner.
>
> You could also make accomodation for "public use" spectrum either by giving
> block to be "managed" by the governemt (for no fee) or by requiring public
> use set-asides within auctioned blocks (much like developers sometimes have
> to set aside land for public use).  Again, a lot of kinks in the system but
> at least it would create an incentive to maximize utilization and purge
> archaic applications.  Just a thought.
>
> Steve Kamman
> Executive Director - Networking and Internet Infrastructure Equity Research
> CIBC World Markets, 200 Liberty St. NY, NY  10281
> 212 667 5896, Fax 212 667 8430
> stephen.kamman () us cibc com
>
>
>
> -----Original Message-----
> From: David Farber [mailto:dave () farber net]
> Sent: Thursday, August 30, 2001 5:03 PM
> To: ip-sub-1 () majordomo pobox com
> Subject: IP: Response to David Reed
>
>
>
> > 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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