My Vision of the Future of American Spectrum Policy
Remarks of FCC Commissioner Kathleen Q. Abernathy
Before the Cato Institute’s Sixth Annual
Technology & Society Conference
Washington, D.C. – November 14, 2002
As prepared for delivery
Over the last few months, I have devoted significant energy to organizing and honing my views on spectrum policy. I now know why so many Commissions have struggled with this issue – it is extremely complex. But regardless of the difficulties, I believe I and the FCC have an obligation to tackle it.
My remarks today will focus on four areas: first, why spectrum management is important; second, the contours of the spectrum policy debate and the FCC's role; third, the key values and considerations I believe should guide that debate; and fourth, where we go from here. Just as the FCC’s Spectrum Policy Task Force has sought to create a framework for debate, I have independently struggled with these questions and tried to develop organizing principles. My hope is that these points contribute to the larger debate and help me evaluate the proposals developed by the Task Force.
I. Why is spectrum management important?
Although it may seem obvious, explicitly identifying the answer helps to guide and focus the spectrum debate.
In my view, managing spectrum is important because it is a finite natural resource with immense potential value to the American people. Fallow spectrum, in general, has little value since developing the potential value of commercial spectrum is the task of private parties The goal of the FCC should be to create regulatory policies that foster effective investment and stimulate the delivery of services to the American people. If private parties don't invest – any theoretical spectrum policy is meaningless – because the Commission must rely on the private sector to make it all happen.
Making it happen is exactly what our licensees have done in many spectrum bands. The mobile phone industry is transforming Americans lives, increasing penetration rates, continuing their build out, and driving innovation. Our DBS satellite licensees have broken the monopoly hold of cable. The unlicensed service bands are creating a vast series of wireless local area networks that are solving the "last hundred feet" problem. And that is only what is happening today; there is much more on the horizon for tomorrow.
II. The Contours of the Spectrum Policy Debate
Given that spectrum policy is so important, we must better understand the regulatory environment that exists today, because we are not writing on a blank slate. We have shared responsibility with NTIA, and our discretion is also statutorily constrained. My job is not to question these constraints but rather to work within them. In addition to the legal limitations, we are also limited by the fact that the spectrum is largely encumbered. There are exceptions, of course, but, most bands under our jurisdiction have significant incumbencies, which means that any new spectrum policy must be implemented with a recognition of the rights of incumbents.
Within these legal and factual limits, the FCC is charged with three main stages of spectrum decision-making. First, the Commission promulgates an allocation – for example, fixed or mobile, aeronautical or satellite. Second, the Commission develops service rules to guide the use of the spectrum within the confines of the allocation. Third, the Commission adopts a method for distributing the rights (defined by the allocation and service rules) to private parties. In performing these tasks, the FCC also must exercise its fundamental responsibility to limit harmful interference to spectrum users.
I will discuss each of the three roles played by the Commission. Unfortunately, I believe there has been a "squish problem" in the spectrum policy debate. Advocates tend to squish all the respective roles and stages of spectrum policy together. This undermines policymakers' ability to focus on the tasks at hand. So, in an effort to prevent the "squish problem," I will assess each aspect of the policy process separately.
Spectrum policy making at the FCC begins with an allocation. The radio spectrum is divided into blocks or bands of frequencies for categories of services. Allocation decisions, more than any other aspect of spectrum decision-making, is closely linked to international decision-making. For example, it may do little good for the United States to allocate a spectrum band for an international non-geostationary satellite service, unless the rest of the world is prepared to do the same. This global approach is necessary because non-geostationary satellites must have the ability to traverse the globe and utilize roughly the same spectrum bands in each country in order to be viable. Even outside the satellite context, harmonized international allocations can create the scale economies that are essential for the private sector to invest resources in, and in turn for Americans to be able to utilize, the spectrum resource. In this regard, the International Telecommunications Union process and the World Radio Conferences in particular play a significant role in spectrum management. Therefore, United States leadership in these forums is essential to robust spectrum management that opens the door to innovation and fosters successful markets.
There was a time when allocations - like most spectrum management - were very detailed and narrow. For example, an allocation would allow for Fixed Point-to-Point Microwave and nothing more. Times have changed at the Commission; we are now increasingly inclined to grant broad and flexible allocations where internationally permitted to do so. Now allocations are more often very broad, for example, by including all fixed and mobile uses. Gaining such flexibility has been, and continues to be, our goal in international fora, such as the ITU. I believe this is clearly the right approach.
B. Service Rules
We have similarly evolved in our approach to service rules. There was a time when the Commission would decide that a licensee would provide mobile wireless services to the forestry industry in this band and load at least "X" number of mobiles per base station within "Y" months. Thankfully, that approach has now changed. Today the Commission uses its broad discretion in crafting service rules in the public interest to grant far more flexibility to our licensees.
A couple quick caveats that apply to both the trend towards flexible service rules as well as flexible allocations:
First, the Commission remains committed to preventing harmful interference. If the Commission is going to create an environment conducive to investment and deployment, we must recognize that service providers and investors need clear interference rules.
Second, Congress has limited the Commission's authority to decide on a license distribution mechanism based on the type of allocation or service rules involved. So, for example, spectrum allocated and used for international satellite services cannot be distributed via auction.
Bottom line: to the extent the Commission has discretion to act, the Commission will generally grant significant flexibility in the allocation and service rule stages of spectrum policy. However, interference concerns and/or distribution considerations may limit that flexibility.
C. Rights Distribution
Over the years the FCC's spectrum rights distribution mechanism has evolved – from first-come, first-served to comparative hearings, and from lotteries to auctions. This has largely resulted from shifts in the Commission's statutory authority and mandate. As a result, there is no current uniformity in the distribution mechanism used across spectrum bands – even among like services. So today's broadcaster may pay at auction, while yesterday's did not. Cellular licensees did not pay, yet PCS did.
In response to this environment, I believe policymakers should make the "Legacy Concession." That is, we cannot go back and make everyone equal - and it will tie us in knots if we try. Instead, the Commission must maximize the public interest from where we sit today. Although I recognize what may appear to be the "unfairness" of this approach, I cannot think of any paradigm that would allow us to achieve retroactive uniformity. So I believe making the "legacy concession" is a condition prerequisite to a productive discussion of future spectrum policy.
And this third decision point – deciding how to distribute this bundle of spectrum rights – is where Congress has most limited the agency's discretion to act and where some of the most heated spectrum battles are likely to be waged in the years ahead.
III. The Key Battleground in the Spectrum Debate: How to Decide Who Gets the Rights?
A. To License or Not to License?
So what is FCC licensing?
It's a way of government distributing a good and sanctioning its appropriate use.
What should be the Commission's goal?
To maximize the efficiency of commercial spectrum use by promptly getting as many rights as possible into the marketplace, while protecting licensed uses from harmful interference.
Two effective paradigms of rights distribution mechanisms have developed (1) private property rights and (2) the "commons."
An example of the property rights paradigm is real estate. Land is distributed through market-based mechanisms and, in a second step, government sanctions the appropriate use of that land through zoning, building permits, and liability rules. The rules provide protection against owners that may otherwise be able to externalize costs to other, often adjacent, land owners.
Alternatively, government may distribute rights via the "commons" model by allowing some goods to be enjoyed by all people so long as certain government-sanctioned norms are adhered to. So, for example, while land is largely distributed by a market-based private property mechanism, the use of the roads that connects the various private lands is sanctioned as a common. So long as users obey certain government imposed norms – such as, don't speed, use a safe vehicle, have reasonable eyesight, have insurance -- users are free to use the common.
The distribution of rights to spectrum can be analyzed as a continuum between these two paradigms; from a full property rights model to a pure commons model.
B. Law or Technology Triumphs?
The private property-like rights model is a lawyer's dream: spectrum rights are distributed like any other piece of property. Ideally this occurs mostly in a secondary market with limited government involvement. But full implementation of this model is foreclosed by the statutory bar on ownership interests in spectrum licenses. Section 301 of the Communications Act states: "It is the purpose of this Act to provide for the use of such channels, but not the ownership thereof." In recent years, however, the Commission has utilized the flexibility granted under the Act to move towards a quasi-property rights model through the auction process. Under the property-like approach, maximizing flexibility in service rules and allocations serves the public interest by allowing the "property" to be developed to the greatest degree. The "property" is then sold to the highest bidder in a very efficient auction process, and the government role is complete. The market in spectrum then becomes a series of secondary transactions with little government intervention.
In contrast, the pure commons approach, as exemplified by the FCC's unlicensed bands, is an "engineer's dream." The unlicensed bands do not provide for any real interference protection or for any exclusive licensee rights to spectrum. Instead, guided by some technical limitations, the bands are open to all comers so long as they operate approved equipment. This openness eliminates the entry barrier created by the auction price in the property-like rights model, but creates a different kind of barrier by imposing the more detailed technical rules of the common. In unlicensed bands, users rely on technology to overcome the risk of the traditional tragedy of the commons by engineering their devices so as to avoid any harmful interference.
IV. Where do we go from here?
In light of these two polar views of spectrum policy, what is a regulator to do?
I believe the Commission is well served by utilizing both the property-like rights approach and the commons model to fully maximize the value of spectrum.
Let me begin by discussing licensed spectrum policy, and I will differentiate between virgin spectrum bands and spectrum with incumbencies.
A. Virgin Spectrum Bands
For virgin bands to be licensed, the Commission must determine whether the likely potential uses are mutually exclusive. Mutual exclusivity is important because it is the statutory trigger as to whether the Commission is required to auction the spectrum (although of course there are statutory exceptions).
Unfortunately, flexibility in the Commission’s service rules and allocations has made it difficult to predict the types of uses likely in a given band. Without any certainty about the types of services that would be offered in the band, it is virtually impossible to state that mutual exclusivity will not occur. Therefore, in order to maintain the viability of flexibly allocated bands with similarly broad service rules, the Commission generally presumes mutual exclusivity and requires an auction. This ensures that any resulting licensee will be free to provide their service of choice and gives licensees flexibility to allow the services to evolve to higher valued uses over time.
Auctioning also requires us to address the auction exemptions. We have a number of ongoing dockets looking at these issues, but I will only note that there should be auction-exempt spectrum specifically designated for public safety, noncommercial and educational broadcasters, and international satellite services. But we must not allow the existence of these exemptions to undermine flexibility.
Now, there are some rare cases where the allocation, the service rules, or the nature of the technology are so discrete and narrow that the Commission can say with certainty that mutually exclusive applications will not be filed. In those cases, the Commission should move promptly to distribute the rights. Unfortunately, there has been a tendency within the FCC to feel compelled to auction everything. Although that approach has an appealing symmetry, it is not what the statute requires, and it does not fit every factual circumstance. So, while I believe auctions do offer an efficient rights distribution mechanism, it does not mean all auctions all the time.
B. Spectrum with Incumbencies
In the vast majority of spectrum proceedings, the FCC will be faced with incumbents occupying the band. The FCC will be asked to evaluate whether new services should be permitted into the band either to share with the incumbent or to supplant it. When faced with incumbent licensees in this situation, the Commission should first ask itself: what is the bundle of rights associated with the current licensee? Licensees must be granted certainty about the bundle of rights they have acquired to enable investment and innovation.
Once government affirms the bundle of rights held by the incumbent, the Commission must turn to the advocates of the new services. Does the incumbent hold the rights to the spectrum use proposed? If the answer is yes, I believe one possible approach is to allow the advocates of the new service to negotiate with the rights-holding incumbent to obtain (or not obtain) the necessary authorization. Of course this policy preference is only possible if there is an effective secondary market for spectrum – a topic I will return to in a moment.
If the answer is no, that is, if the incumbent does not hold the rights to the spectrum use proposed, then we must figure out whether sharing is possible.
This question depends on whether the proposed new uses are mutually exclusive with the current use. In other words, would sharing result in harmful interference or substantial efficiency losses? There are times when this question is easier to answer than others, but it is a critical inquiry.
Why? Because if sharing is possible, then I believe the Commission should treat the subset of rights available as a “virgin” spectrum resource. For example, if a domestic satellite use can be made available without harmful interference or substantial efficiency losses to the incumbent terrestrial licensee, the Commission should get those rights into the hands of commercial interests expeditiously, and, most often, that will occur by auction.
If sharing is not possible, the Commission is faced with yet another question: should the incumbent be forcibly moved, or should the proposed new rights be granted to the incumbent? When granted discretion, I begin with the presumption that relocation of incumbent service providers is complex, imposes costs on the economy, takes times, and may undermine investment incentives. Moreover, I am generally very reluctant to insert government into the marketplace on the basis of some asserted “better understanding” of what is the “right” service offering in a band.
Nonetheless, there may be cases where government is fairly certain that a new use is higher valued than the current use or that the incumbent would not rationally exercise the rights if they were granted to them. I have defined three situations where it may be justifiable for government to forcibly relocate incumbents: (1) Failure of the Secondary Market, (2) The Irrational Holdout Problem, or (3) Temporal Urgency.
(1) Failure of the Secondary Market
Why do we care so much about the secondary market for spectrum? It is because granting incumbents rights that they may not themselves use works only if there is an effective secondary market in spectrum rights (something we do not have today). Absent a secondary market, incumbents may be unable to sell the additional rights, thus preventing spectrum from evolving to its higher-valued use. There may be situations where the sheer number of incumbents or their identity (such as public safety licensees) may also inhibit a secondary market. In these cases, forced relocation may be the only way to allow for the introduction of new services. Obviously if the incumbent will utilize the rights itself, the importance of a secondary market in rights distribution is less significant.
Nonetheless, our secondary markets proceeding is an essential piece of our future spectrum policy. We must have effective and legally defensible secondary markets if the property-like rights-driven license model is to succeed.
(2) The Irrational Holdout Problem
The irrational holdout problem is why government has eminent domain – namely to prevent any individual property holder from irrationally blocking the property from evolving to its highest valued use. This can be a real problem even in fully functioning markets. So, on rare occasions, the Commission should be prepared to step in to remove holdouts from a band. If the secondary market is functioning, however, I generally believe the Commission should do so only reluctantly, and on a case-by-case basis.
(3) Temporal Urgency
Finally, government may consider forcible relocation when there is some temporal urgency. Sometimes markets take time to develop and in extremely rare circumstances the Commission may need to intervene to enable the offering of some new service that is immediately essential to the public welfare.
That brings me to unlicensed spectrum, which is at the other end of the spectrum continuum from the property-like rights/licensed approach. Unlicensed spectrum services evolved as the first spectrum-based service at the broadband party. And our history of regulatory restraint in these bands provides a useful lesson in the benefits of allowing nascent services to develop. Unlicensed devices have rapidly become commonplace in the American home and office. They are relied upon for many everyday functions in consumers' lives, encompassing appliances from cordless phones, computers, baby monitors, garage door openers, and PDAs to wireless local area networks. As an example of this growth, in 1990 there were only 50 authorizations for unlicensed spread spectrum devices, compared to close to 350 authorizations in 2000. Today, millions of unlicensed devices are in operation, either independently or complimenting licensed services. Ironically, this explosion of services and providers was largely unanticipated when unlicensed services were first authorized. Our challenge will be to exercise restraint today when everyone knows the stakes are high. Regardless of how we got here, unlicensed spectrum services dramatically illustrate the power of spectrum-based services and effective regulatory policy.
1. The Rules of the Common
The success of the unlicensed approach depends in large part on the Commission's willingness and ability to clearly define the rules that govern the service. This is important if capital, and in turn, services, are to flow to the American people. The threat of the tragedy of the commons is real. And the Commission must recognize that risk and respond accordingly if it is to protect the vital contribution of unlicensed services.
But we also must be clear what the unlicensed bands are not. They do not create property-like rights but rather focus on communal use. Some will be tempted to change the common into individual property by squatting or other forms of adverse possession, and we must not give in to the temptation to transform these spectrum rights. Instead we must protect their inherent communal nature without restricting use to the point of creating quasi-property rights for individual uses or users.
In supervising these unlicensed bands or designating new ones, our rules should be as clear as practicable. And they should be strictly enforced to maximize utility. Some commons may have more stringent rules than others, but that justifiably allows for diverse uses. People don't drive their cars on the bike trails, or have picnics in the middle of a highway. But each use is a valuable common, and society benefits from the picnickers and drivers so long as they are in the appropriate spot with similarly situated neighbors.
I also believe there is significant benefit to internationally harmonizing unlicensed bands where practicable. Unlicensed bands benefit from the scale and scope that international harmonization can provide. And it is incumbent on the FCC to lead the international effort to ensure U.S. commercial interests are advanced through global harmonization of licensed and unlicensed bands.
And we must also resist the temptation to constantly change the rules of the common and therefore undermine investment. The commons is a precarious place. Although the temptation at times will be great, constantly changing rules do not benefit anyone. We must endeavor to craft rules in the first instance that allow for technological advancement without a technological trainwreck. Our rules should be flexible and agile enough to provide the foundation on which to continue to build an industry.
2. New Commons?
We also have to ask ourselves when and where to implement spectrum commons.
Based on limitations in our statutory authority, I believe that at present, government is unlikely to force the relocation of existing licensees to permit new unlicensed use. Most significantly, it is not clear that government would be prepared – or is currently authorized – to pay the price tag for moving incumbents to create a new common. Unlike the property-like model, which has new entrants willing to pay at auction and to relocate incumbents, government creates and maintains the commons - and only government is currently available to pay the price to move incumbents. And there may come a day when, like a state building a new highway, government will pay auction revenue or tax dollars to relocate spectrum licensees to make way for common use. Going forward, I think the FCC and the industry must think creatively as to what can be done on the regulatory side – and the industry and Congress must similarly think creatively on the statutory side. We must assess where and how new commons opportunities can be created.
In addition to relocation, the FCC could establish a commons through an overlay authorization. Under this regime, the Commission would conclude that sharing between current users and unlicensed devices is possible and issue corresponding technical rules. Any sharing would be designed so as to allocate only those rights not granted to existing licensees. So, for example, when the Commission permitted Ultra-Wideband devices, it concluded that they must operate below the current noise floor and would not cause harmful interference. I am generally skeptical of these types of overlay unlicensed operations because of the difficult technical issues involved and the degree to which they may diminish the property-like rights associated with licensed services. Nonetheless, it remains yet another way to develop additional unlicensed services.
Finally, there are some finite opportunities to create additional commons in virgin spectrum. But first the Commission must make a call about the most valuable use for a given band. In reaching this policy, the challenges faced by the unlicensed community are somewhat unique: the decision to allocate to unlicensed use must be made as part of the initial allocation and service rules. Plus, the unlicensed community by definition will not "own" the spectrum rights. Thus, there is little incentive for any individual company to invest in advocacy for the creation of a commons – a challenge similar to that faced by the environmental community to buy land as communal green space. So, there is some imperative for the unlicensed community to organize and to identify potential virgin bands extremely early in the process and then press for designation for unlicensed use. I think it is fair to say that between the positive experiences with the rights-driven model and the revenue associated with spectrum auctions, the quest for additional unlicensed bands from virgin spectrum may prove difficult.
There is no doubt, however, that the power of the unlicensed bands – and the corresponding boom in consumer utility – is one of the great success stories of US telecommunications policy. No doubt we have learned important lessons from those experiences that can inform and shape future spectrum policy.
In closing, it is evident that the importance of our spectrum resource commands a thoughtful and deliberate approach to its management. That is why I am supportive of the Spectrum Policy Task Force efforts to develop new approaches for the FCC to consider. The United States cannot afford to use spectrum inefficiently or allow it to lay fallow. Although difficult, the task of developing a new spectrum management paradigm is not insurmountable. Rather, we must build on what we have learned, be creative in our policies, and focus on maximizing spectral use.