Putting A Price Tag On TV Spectrum

[David Farber <dave () farber net>]

Begin forwarded message:

From: Charles Brown <cbrown () flyingcircuit com>
Date: December 2, 2009 7:53:45 PM EST
To: Dewayne Hendricks <dewayne () warpspeed com>
Cc: Brown Charles <cbrown () flyingcircuit com>, Dewayne-Net Technology List <xyzzy () warpspeed com>, dave () farber 
net, Robert Buaas <buaas () wireless net>, Cheponis Mike <Mike () Wireless Com>, "Berger Robert J." <rberger () ibd 
com>, Schear Steven <steven.schear () googlemail com>
Subject: Re: [Dewayne-Net] Putting A Price Tag On TV Spectrum


On Dec 2, 2009, at 5:19 AM, Dewayne Hendricks wrote:

> Putting A Price Tag On TV Spectrum
>
> [Commentary] Economist Hazlett knows that television broadcasters are sitting on valuable spectrum needed by mobile 
> devices -- so, he says, it is time to make a deal. He realizes that TV broadcasters' real desire is to secure cable 
> and satellite carriage. He believes broadcasters wouldn't give up any spectrum until they know three things: 1) How 
> much will they be paid? 2) How will their lives change? 3) How can they be sure that they won't get whacked by the 
> opportunists in Congress when they catch a clue that broadcasters are prepared to sell out? The first two questions 
> are answered by seeing what the FCC should do. It should split the TV band into seven overlay licenses of 42 MHz 
> each. Then auction all seven. At the same time, it should provide a mechanism to supply the 10 million households not 
> having a cable or satellite subscription with free broadcast video service for five or 10 years. This can be done by 
> vouchers, as with the DTV set-top box subsidies or via a procurement auction. It won't cost more than $3 billion 
> ($300 times 10 million), a small fraction of the spectrum auction receipts. The overlay licenses will embed 
> encumbrances — TV broadcasters. Existing stations would have the right to continue broadcasting, to relocate to 
> another channel assignment or to go off -air. No worries about coverage. The new spectrum owners will pay cable and 
> satellite operators to guarantee carriage. If not, broadcasters won't vacate. So "free" TV service remains, but the 
> delivery platform will be technology-neutral. And broadcasters will be part of the solution, for which they will be 
> compensated. How does something like $30 billion spread across 1,750 full-power TV stations sound?

I respectfully disagree.

Here we go again with the "spectrum as property" metaphor.  Why is it that everyone within commuting distance of 
Washington, DC thinks someone has to be paid billions of dollars for some oxymoronic "political right"?   Do the 
broadcasters have a political or legal right to this  spectrum?  How so?  And if you think that they do, why is it 
worth $30 billion and not what they have paid for it?

Satellite, cable, broadcast television, and the Internet are delivery mechanisms;  they all deliver bits.  Today, the 
physical distribution methods are intricately linked with content "ownership", which model is shielded by hoary 
copyright, communications and intellectual property pseudo-law.   Although this phenomenon exists by design, why not 
encourage a less centralized delivery and content model through communications policy?  On a policy level, one could 
well argue it is a boon to the general well-being of the Republic and its citizens, and backup that notion with reams 
of studies and papers.  We have the Public Broadcasting System, why not the Public Network System?  As Francis Ford 
Coppola once said (paraphrasing), what makes you think a fat girl in Iowa can't make a better movie than can be made in 
Hollywood?  Because she doesn't give her local Congressional Rep. or Senators a campaign contribution?  Aye, there's 
the rub.

Why should we care about "how the broadcasters lives will change?"   Aren't the broadcasters an anachronism of the 20th 
century and the result of bad technology policy?  Not only are they spectrum polluters - blasting energy via high power 
transmitters - they already know that their business models are broken;  see experiments like Hulu, Fancast, and so on. 
  Any particular TV (or radio) station that has a local or community value proposition could morph with the new 
delivery system, and have the opportunity to create better value propositions.

If we can agree that access to the Internet is a vital utility and a viable replacement for broadcast TV, why are we 
talking about playing the crony capitalism spectrum game?   Why not contribute the spectrum to the National Broadband 
Plan initiative as a means to supply every household and small business with low cost bandwidth to conduct their 
affairs?  Why does everyone assume spectrum has to be auctioned?  It doesn't, and I am certain that auctioning spectrum 
is not in my interest.

It is often stated that the US has the lowest cost per minute of cellular service in the world.  And the old, "if it 
isn't broken don't fix it" argument, with accompanying graphs of industry data is rolled-out to support it.  It is 
almost never stated that the US also has the highest ARPU (average revenue per user - a cellco metric) in the world.  
But don't worry, you can roll over those minutes and it's better than paying exorbitant fees for usage overage!  It's 
just like the shell game of broadband mapping at the FCC.

As Thomas stated above, it's much more practical to subsidize a basic service package of satellite/cable/other to 
displace broadcast TV. I agree that we can replace free TV with other transport but that is not a viable reason to give 
or sell radio spectrum rights to the S&P 500.   We have wasted billions supplying people with digital converter boxes 
for broadcast TV when better alternatives existed.   With the competitive pressures we are facing, is it wise for you 
and I to continue to subsidize "crony capitalism" in the communications industry?  At this critical juncture in our 
historical development?  The radio spectrum belongs to the American people, not Wall Street and Capitol Hill.  The 
model is broken.  Here's why.

I posit that allocating "open spectrum" to wireless entrepreneurs, like myself and others who read this list, and who 
would welcome an opportunity to develop new technologies that will enable more bandwidth, efficiency, egalitarian 
access to content, cost efficiency, and business model innovation, will spur the innovation required.  We will never 
see it under the current model.  "Self managed" radio technologies can be created and deployed by communities.  If all 
politics is local, then why isn't spectrum?  This model evolves through "de facto standards", as the Internet evolved, 
while providing people with the capability to conduct their affairs "without interference."  The economic boom would be 
enormous;  there are trillions of dollars in technology development, value and societal benefits to the American 
people.  The corresponding know-how that would result could spur future employment and economic competitiveness, as 
well as small business creation.

Why auction one more Hz on the specious claim of "spectrum ownership" when much more valuable models can be built soon 
enough?  The reason that capital has not flowed toward development and innovation of these technologies, and business 
model innovation thereon, is the result of the diabolical policies of the FCC, as promulgated by Congress.  There are 
reams of evidence and commentary in this regard as well.  In addition to the conspicuous example of the '96 Telecom Act 
fiasco, the FCC is now talking about repurposing the USF fund, which continues to fund boats and airplanes for rural 
telco owners, who are known to assiduously support their local congressman/woman.  What about clawing back that $200 
billion tax break for the telcos on which they never delivered?   We would do well to remember that spectrum resources 
are much more vital to every citizen than any rural telco, rural telco owner, tax break, or any member of the House, 
Senate, Wall Street firm, investor, or K-Street lobbyist.

The people who have known only broadcast TV would have an inaugural opportunity to access content other than what is 
served up by corporate broadcasting central.  We could put election advertising in it for free and make a big down 
payment on reforming campaign financing, with myriad other benefits for the American people.   Even if people had to 
suffer through commercial advertising in the process it might be an acceptable price to pay for a post-modern form of 
free speech, or, they could change the virtual channel.  An educational value might even be salvaged out of the 
original promise of "broadcast TV."   We have a big chunk of spectrum in the 2GHz band serving that purpose, which is 
now proximately controlled by Clearwire and Sprint, who are "valued" by Wall Street based on the value of that spectrum.

There are plenty of business models that could work under this scenario.  But, "incrementalism" isn't one of them.

For those critics who say that communications is a natural monopoly and does not lend itself to the Jeffersonian ideal 
of a nation of yeoman farmers (insert small businesses and self-sustaining communities), I respond with the following 
realpolitik.

First, Congress, the FCC, Wall Street and the courts are abject failures in enabling a survivable perspective in the 
post modern world of communications.

Second, consider who has the real leverage, and why, in this particular matter.  Then the question becomes, why are we 
talking about paying billions to broadcasters, their investors on Wall Street, and their political chattel?  We're 
having the wrong discussion;  ultimately, an irrelevant discussion.   Some form of "spectrum overlay" or "interference 
temperature" implementations are inevitable in the near to medium term, and therefore, there is no justification to pay 
anyone for spectrum, much less sell (license) it for what will inevitably result in a "copyright 2.0";  for another 
fifty years of "ownership" deposit here.   What the FCC can do is try to get funds to engineers and developers to use 
the spectrum more efficiently and explore new models of providing communications for the benefit of its owners, you and 
I.  But even though public and private funds are manipulated and restricted to maintaining the status quo, it will 
still happen.

Third, to "license" the concept of "overlay" may undermine the full potential of new technologies like cognitive radio. 
 There is probably a better  way to use the spectrum than the artifice of arbitrary classes of users;  I suspect there 
is, especially in terms of simplicity and scalability.   Good for legal fees and lobbyist though, and spectrum 
speculators.  One might view the initiation of spectrum auctions as analogous to the repeal of the Glass-Steagall Act;  
both have cost the body-politic trillions.

I say let the remaining broadcast spectrum lay fallow rather than sell "rights", or acknowledge the notion of 
"political rights" that get transferred  in some opaque nexus deal, which we then hear about later.  Cease spectrum 
auctions and licensing on the grounds that they are only in the interest of the corrupt nexus (economic and political), 
and an inane vestige of the "revolving-door" technocracy at the FCC.

I say, "Let'em eat bits."

Charlie

> [Thomas Hazlett is professor of law and economics at George Mason University. He formerly was chief economist of the 
> FCC.]
>
> <http://www.tvnewscheck.com/articles/2009/11/25/daily.12/>
>
> Courtesy of the Benton Foundation <http://www.benton.org>RSS Feed: <http://www.warpspeed.com/wordpress>





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