Last night, Representatives Jay Inslee (WA-01), Fred Upton (MI-06) and Rick Boucher (VA-09) introduced Spectrum Relocation Improvement Act of 2009 (H.R. 3019), which would update the spectrum relocation process. This morning, I issued the following statement in response to the introduction of the House bill:

          "We look forward to working with Congressmen Inslee, Upton and Boucher on this matter.  
          With the lessons learned from the AWS-1 auction, we believe this is a good time to review the
          process to see where improvements can be made."

You’ve heard (and read) us talk about how the U.S. is the most efficient and effective commercial users of spectrum in the world.  We do more with less than anyone else.

But we are at a very important crossroads – and we must figure out how we are going to continue to encourage and foster innovation while recognizing that there is a finite amount of spectrum available.

We commissioned a report , conducted by Rysavy Research, which essentially laid out the current situation we are facing and what needs to happen now.  It also said that without more spectrum, all users will find themselves with a slower connection on wireless devices which will impact everything from text messaging to mobile broadband. The report  said it was vital that the conversation starts now because the 700 Mhz auction took a decade or so for a conclusion.

Both WIRED and New York Times bloggers wrote about the paper and both had an interesting take on what this means for the industry.

But my favorite line comes from Professor William Webb, Head of Research and Development, Ofcom (British communications regulator) who wrote the report's forward.  He said, "...it is also worth noting that while innovation occurs in commons it also happens in licensed bands, and indeed many of the most important innovations of the last decade such as GPS, wireless email, mobile TV, texting and more have all occurred in licensed spectrum."

On March 20th, CTIA-The Wireless Association® President & CEO Steve Larget issued the following statement on the introduction of the “Radio Spectrum Inventory Act” (S. 649) in the U.S. Senate:

“I applaud Senator John Kerry (D-MA) and Olympia Snowe (R-ME) for their sensible spectrum inventory legislation.  We know that additional spectrum will be needed for commercial providers to meet consumers’ increasing appetite for mobile broadband services, and the Kerry-Snowe bill is a good first step toward identifying where that spectrum will come from.  Given the long lead time that is often involved between identifying spectrum for commercial use and moving it to market, this is a very timely proposal.”

There has been some discussion lately about spectrum caps, which to us seems to be a policy at odds with reality and at war with other deeply desired policy objectives.

Capping spectrum would be much like doing the same with computer speed. Being generous, we won’t compare it to a Commodore Computer Cap, and only say it would be like setting a computer cap based on a 1992 computer's specs - it would be like adopting a cap of 4 MB RAM and a 40 MB hard-drive and saying that no new applications can be written requiring more than that.

Or you can compare it to limiting the number of lanes for a highway – like saying no highway should be more than two lanes, no matter how many people need to use it.  Two lanes for the Beltway, anybody?

Spectrum caps ignore the fact that capacity (and speed) are a function of not only technology, but of applications, demand, and spectrum. Are spectrum cap advocates eager to limit the speed of downloads and uploads? Do they favor preventing the development of new applications that are - heaven forbid - more spectrum intensive? Should service providers and developers only introduce applications that will appeal to a very few customers, so that more spectrum won't be required since demand is so low? 

Another way of thinking about spectrum caps is to compare it to restricting the number of coffee shops a company could have in a given city. No matter how good their coffee was and how much people wanted it, you could only go to one or two places to get it. The lines and wait would be long, and many people who wanted that great coffee would be denied. Coffee drinkers certainly wouldn't stand for that, and wireless consumers shouldn't have to tolerate the inferior climate spectrum caps could create, either.

Analog AMPS-based cellular service was a limited application - voice only - but even there demand wildly exceeded expectations, and new technologies, and more spectrum, wound-up being required to meet the number of would-be users and deliver the wide variety of applications people proved to want.

In fact, a key question should be: is a spectrum cap compatible with the desire for universal broadband service?

Spectrum caps sound great in theory, if you assume every possible application can be done for everyone with a fixed resource. But with reality in mind, a spectrum cap is a rigid constraint. And while the genius of wireless has been innovation, the harder you make it to do things, the more  investors look elsewhere.

“The definition of insanity is doing the same thing over and over again and expecting different results.”

-Albert Einstein

If we are to judge M2Z’s broadband proposal in the AWS 3 proceedings by Einstein’s criteria, then someone is clearly missing the point. We’ve seen publicly-financed broadband wireless networks fail again and again.    See San Francisco.  See New Orleans.  See Philadelphia.   In fact, the Philadelphia Inquirer just wrote an article on the subject. (link)

It’s not that free broadband isn’t an intriguing idea:  it is.  And companies should have the latitude to voluntarily provide such a no-cost service.  There’s just one problem: it’s not a feasible, working model.  Many have already tried and failed. That we know for sure.    

Forget the basic economics of the proposal, and how one of its fundamentals is the significant role bonds would play in the business funding. My guess is that financial interest in this kind of risky venture might have waned somewhat given our recent economic turbulence. That in itself is a substantial factor which the FCC should take into account. But when looking at the M2Z proposal in terms of pure policy, I think before we start to tailor policy to pursue a specific end, we need to dispassionately assess the status quo: What’s the problem with broadband in America today? 

According to the FCC’s latest data, there were more than 100 million high-speed connections in the US as of June 2007 – and that data is now more than year old.  Estimates peg June 2008 broadband subscribership at more than 130 million – that’s an impressive number, and one that is assuredly going to grow as wireless service providers continue to expand their 3G networks.   

While it is critically important that all of those wanting broadband access receive it, it's also interesting to note that many of those citizens who don’t have broadband connections aren't clamoring for them.  According to the Pew Internet & American Life Project, 19% of dial-up users say “nothing could get them to switch to broadband.”

Wireless companies spend billions of dollars annually improving and expanding broadband networks.  There is wireless broadband in places today that there wasn’t yesterday, and there will be wireless broadband in places tomorrow where there isn’t any today.  Service providers will continue to expand their networks, but 100% broadband adoption is an unrealistic goal because there just isn't a market for it. Selling spectrum subject to heavy conditions to benefit a specific business model, which has repeatedly failed in the past, is a terrible waste of taxpayer money and valuable spectrum. The failed Muni WiFi experiments were based on false assumptions, and giving the concept another shot in the form of M2Z is just... well...  Einstein was a pretty sharp guy, wasn't he?   

Just because we’re in San Francisco this week doesn’t mean the work in Washington stops.  Today CTIA filed an FCC ex parte on behalf of hundreds of  companies expressing united opposition to the adoption of any "free" broadband mandates in the AWS 3 proceeding.

Our position: while any company should be free to voluntarily provide a "free" advertising-based service to consumers, a regulatory mandate for such a service will harm consumers and potentially delay access to next generation broadband services, especially in rural areas. 

A free service will harm consumers?  How?

Think about it:  At best, given a “free” service’s limited revenue opportunity in any market – a case exacerbated in rural areas – the licensee would have little incentive to invest and build-out the service, thereby defeating its original purpose.  At worst, having to compete with a “free” service could potentially drive most competitors out of any market, which means a reduction in broadband choice and availability.  The FCC will have essentially provided a disincentive for other companies to deploy broadband networks at a time when it should be promoting broadband build-out. 

We know that tailoring auction rules to a specific company's business plan won’t increase broadband adoption in the United States – recall the recent D Block debacle.  The US broadband market is already intensely competitive and is characterized by intra and intermodal competition, multiple business plans and innovative service packages.  

If the Commission wants to see further US broadband adoption, it should seriously consider the multiple currently pending proceedings aimed at doing just that. 

Few of us like anyone telling us how to do our jobs, but in the case of the FCC, it is a required part of the job. The most recent round of  ‘tell us what you think’ pertains to spectrum in the 2155-2175 band, so-called AWS-3. This is the same chunk of spectrum that M2Z made a run at not too long ago, pitching the FCC on the idea that M2Z should be given the spectrum so it could offer ‘free’ advertising-based service. The FCC wisely rejected that silly notion, but now the Commission appears to be weighing another M2Z proposal to auction off that same spectrum, with the string attached that the winner must offer free service in that spectrum. It’s not literally the giveaway M2Z wanted in the first go-round, but it still amounts to suggesting the FCC stack the rules in favor of a specific company, providing them a proverbial free lunch at American taxpayers’ expense and harming consumers and licensees that have already ponied up billions of dollars in past auctions to offer wireless services. That’s a bad idea, and no agency of the US government has any business playing that game.  
 
There are all kinds of legal grounds on which arguments can be made as to why the FCC should not custom fit the rules for M2Z’s benefit. In fact, the Commission only has to consider fundamental principles to figure out the best means of going forward. For example, what’s worked in the past, and what hasn’t?

M2Z’s business model is nothing new. It’s been rolled out several times in the past, and has been an unquestionable flop. (For a current reference, see ‘Muni-WiFi’). At the same time, the FCC’s auction process has encouraged competitive bidding on unencumbered spectrum, historically resulting in service providers adding billions of dollars to the U.S. Treasury, and fierce competition that has led to a multitude of consumer benefits. The auction process works, and M2Z’s business model doesn’t. Simple, right?
 
Another basic consideration is the spectrum that has already been made available via auctions, such as AWS-1, and what rights those licensees hold. They spent nearly $14 billion to buy that spectrum, and many more billions to build-out their networks… and did so under the existing FCC rules. Is it fair now to play the shell game with them, change the rules to the advantage of a specific business plan, as well as disregard the numerous interference issues that M2Z acknowledges, yet continues to shove under the rug? The interference that will be caused by M2Z’s “AWS-3” operations is real, as is a similar problem for PCS licensees that will arise under the proposed rules in the so-called AWS-2 “H Block”.  American consumers, not to mention the companies which have already sunk billions of dollars into their competitive businesses, deserve better.

There is universal agreement that broadband deployment can be a key social and economic driver in the U.S., and the FCC’s statistics show that Americans are significantly favoring wireless as their newest on-ramp to the Internet. But, the reach of wireless broadband is being extended in a vibrantly competitive free market, and government intervention by arbitrary rulemaking is doomed to fail.  

There’s just no good reason why the FCC should morph the rules so that a well-funded company such as M2Z can lap the field with the commission’s help. I’m not going to join the chorus and tell the FCC how to do its job. That’s what an ex parte is for. But if the commission truly believes in its historically successful auction process, and creating the best possible communications environment for American consumers, then it should stay out of the business of trying to select winners and losers, and stick to what works and is fair for everyone.