The dawn of a new spectrum policy? (Briefly Noted).

Thierer, Adam

IN WHAT MAY BE A WATERSHED MOMENT IN the history of American telecommunications policy, the Federal Communications Commission's Spectrum Policy Task Force recently released its eagerly awaited report and proposed nothing less than a revolution in federal spectrum management. The task force was established by FCC chairman Michael Powell in June 2002 to explore improvements in spectrum management and conduct the first-ever comprehensive review of spectrum policy at the agency. The resulting report not only does an excellent job of laying out the problems associated with federal management of the electromagnetic spectrum, it also outlines a refreshingly bold set of policy recommendations to correct the problems associated with nearly a century's worth of central planning in wireless telecommunications.

The report begins by acknowledging, "The time is ripe for spectrum policy reform. Increasing demand for spectrum-based services and devices is straining longstanding and outmoded spectrum policies." It notes that the FCC'S traditional "command-and-control approach" to spectrum management is the primary cause of the regulatory failure because that approach has imposed significant restrictions on spectrum use and users.

Exclusivity or a commons? The task force goes on to suggest a bold vision for governing spectrum in the future that has as its cornerstone the principle of flexible use. The report notes that there are two ways to achieve the goal of increased flexibility: through exclusive-use rights or by way of a "commons" model of governance.

Under an exclusive-use model, spectrum holders would be granted clearly defined rights and have the ability to use or sell their spectrum however they wish. That is really just a good old-fashion private property rights regime for spectrum allocation, even though the FCC does not call it that. By contrast, the commons model would allow users to employ frequency-hopping technologies to scan the spectrum for unused frequencies. Using smart antennas, software-defined radios, and mesh networks, spectrum users would increasingly be able to simultaneously operate alongside other users if "overlay" or underlay" rights are permitted for low-power, non-interfering devices and transmissions.

A new debate The intellectual battle between adherents to the property rights and commons models of spectrum governance has been a refreshing telecommunications debate for two reasons. First, at the heart of both models is a desire to promote increased flexibility, innovation, and efficient use of the spectrum resource. More important, both groups generally agree that the current command-and-control system is a complete failure and must be replaced. Indeed, both commons and property rights proponents question the continuing need for the FCC in this process at all. Second, and perhaps because of those preceding points, this war of ideas has not been characterized by the rancor typically witnessed in other telecom industry disputes. Advocates of both models have been willing to listen to one another, take seriously the criticisms of the other side, and even integrate some of their suggestions into each other's models.

There is good reason for them to do so. Ultimately, the future of spectrum governance cannot come down to an either/or choice between the two models; rather, it must reflect a synthesis of the two schools of thought. Property rights proponents are correct to stress the important benefits of exclusive use in the spectrum resource because many users want the freedom to own, sublease, combine, or sell spectrum on their own terms. Moreover, many current incumbent users of the spectrum will argue that they have de facto rights in their spectrum licenses and should be granted unconditional property rights anyway.

On the other hand, the commons crowd is correct in stressing the importance of preserving certain portions of the spectrum for shared, nonexclusive use by companies and consumers. Such shared use could take one of two forms. First, government could designate (or, better yet, purchase at auction) certain bands of spectrum for commons use, much as it purchases large portions of land for public parks and opens those areas to common use. In addition, overlay and underlay areas should be allowed throughout the spectrum as long as users do not interfere with other users. That is a quite practical solution, as such "easements" already exist in some bands of the spectrum, but many other underutilized portions could be opened up for such homesteading. Finally, it is important to acknowledge that private spectrum owners will likely contract with independent users to create commons areas within their exclusive allocations. Just as shopping mall owners lease store or sidewalk space to third parties, so too will private s pectrum band managers sublease portions of their property for other uses, including commons areas.

Rapid transition Now that the Spectrum Task Force has done such an outstanding job of laying out the problem and some potential solutions, the next logical question is when and how policymakers will respond. Ironically, another remarkable report issued by the FCC the same day as the task force report may offer a first step. In a new working paper entitled "A Proposal for a Rapid Transition to Market Allocation of Spectrum," authors Evan Kwerel and John Williams of the FCC's Office of Plans and Policy outline an ingenious scheme to expedite the transition to a spectrum free market. Kwerel and Williams, who have done pioneering work on spectrum policy at the FCC, propose to auction off untapped or underutilized spectrum while encouraging incumbent licensees who control large swaths of spectrum to put their holdings on the auction block. Although incumbents would have the right to opt out of the auction entirely, if they put their spectrum on the block they would have the ability to buy back that spectrum and ga in complete and immediate operational flexibility. If they do not put it up for auction, flexible use would be denied for five years. They would also have the right to accept the highest bid for their spectrum and just walk away. For incumbents, such a scheme would help reveal the market price of spectrum and give them an idea of what the true opportunity costs of holding that spectrum really are. For others desiring more spectrum, the process would finally give them a chance to get their hands on it.

Sea change Even if the FCC takes no more action on this issue, the Spectrum Task Force report and the new OPP study would likely constitute an important legacy of the Bush administration's FCC. But there is good reason to believe that the agency will take action; it has already taken several other important steps on that front, and its leaders remain committed to the task of spectrum reform. For example, in a recent speech, Chairman Powell argued, "Today's marketplace demands that we provide license holders with greater flexibility to respond to consumer wants, market realities, and national needs without first having to ask for the FCC's permission. I believe license holders should be granted the maximum flexibility to use -- or allow others to use -- the spectrum (within technical constraints) to provide any services demanded by the public." During the Cato Institute's annual Technology & Society conference last fall, FCC commissioner Kathleen Abernathy delivered a sweeping set of remarks on spectrum reform that mirrored the task force report's findings.

It would have been unthinkable for an FCC official to say such things just 10 years ago. This is a stunning sea change in opinion on federal spectrum management. The FCC, and the Spectrum Task Force in particular, deserves high praise for this ground-breaking report and breathtaking set of policy recommendations.

Adam Thierer is the director of telecommunications studies at the Cato Institute. He can be contacted by e-mail at atheirer@cato.org.