(As prepared for delivery)
"Spectrum Management -- Myths and Realities"
I am delighted to be with you again.
We just observed the first anniversary of the passage of the Telecommunications Act of 1996. It wasn't a time for rejoicing, especially compared to the exuberance exhibited on February 8, 1996.
Many are complaining that they haven't seen the benefits so optimistically predicted when the Act was passed a year ago. Long distance rates are up. Cable rates are up even more. Local telephone rates have not come down. The new services, the additional choices, and the lower prices have yet to permeate the market.
But it takes time for these profound changes to take hold. Not all of the rules of the game have been issued -- and some of the most important ones have been stayed by a court. Yet, I remain confident that the promise of competition with its attendant benefits will be realized in the near future.
Here at Wireless '97, there is much to celebrate. The industry continues to grow. PCS is being rolled out -- to great acclaim -- in markets across the country. Cellular is accelerating the conversion to digital. Consumers are just beginning to see many new features, new competition and lower prices. Wireless subscribership continues to rise.
Of course, PCS is a product not of the Telecom Act, but of 1993 legislation that authorized spectrum auctions for commercial mobile radio service. So it takes time for competition to arrive.
I greatly admire the wireless industry. You have accomplished a great deal. I also believe that government has contributed to this success story. Your success is a testament not only to your own entrepreneurial spirit, commitment of capital, patience and innovation, but also to the FCC's increasingly enlightened policies of spectrum management.
The Value of Spectrum
Spectrum has always been regarded as a valuable public resource. We all have become much more aware of the real value of the airwaves as a result of spectrum auctions.
It is nothing short of astounding that the PCS auctions garnered over $20 billion for the U.S. Treasury. To put this amount into perspective, $20 billion is just about the net worth of Bill Gates, and more than 60 times the total FCC budget for the past 63 years, combined.
Auctions changed more than just the mechanism for assigning licenses. Auctions also changed the views of industry, of Congress, and of FCC Commissioners on the importance of spectrum policy. Spectrum has become not just a vehicle for communicating, but also the goose that lays the golden budget egg.
So the spectrum decisions we make have far-reaching consequences.
But what makes spectrum valuable? And what can we learn from policies that have worked, and those that have not?
Spectrum, itself, is not intrinsically valuable. Rather, its value derives from its use, whether that use be free, over-the-air broadcasting, dispatch of police officers and fire fighters, air traffic control, baby monitors, commercial mobile radio services, or countless other applications.
The ability to use spectrum for such purposes rests on a number of factors, including:
FCC spectrum policies directly impact these factors.
The Myth Capital
U.S. spectrum policy is established, for the most part, in Washington, D.C. Washington is a town of myths. It is often said of someone that "he is a legend in his own mind." Our press corps regularly creates and then shatters myths.
Today, in typical Washington fashion, I'd like to walk you through some myths and realities regarding FCC spectrum management.
Myth #1 -- The FCC still administers spectrum the way it used to.
I was amazed to read a recent op-ed article in the Wall Street Journal that attacked the Commission on spectrum management.
The author claims that, at the FCC, "market-based policies are still viewed with suspicion." He asserts that the FCC is "unable to keep up" with new spectrum demands and scolds the FCC for resisting even "creeping flexibility" in spectrum service rules.
This author is "off the spectrum chart." His criticisms apply to the Commission of yesteryear, not the Commission of today.
Reality: As the attendees of Wireless 97 know well, the Commission has abandoned the rigidity that previously characterized the FCC's administration of the radio spectrum. Today's spectrum decisions are distinguished more by speed, flexibility, and emphasis on marketplace forces than ever before.
- This is the Commission that imbued Personal Communications Services, with much-praised service flexibility to provide both fixed and mobile services, to aggregate and disaggregate licenses, and to partition spectrum as licensees see fit.
- We have embraced rapid technological change by not adopting detailed technology-specific standards -- as other countries do.
- We have streamlined and privatized commercial wireless licensing functions and instituted electronic filing to eliminate paperwork and accelerate licensing.
- We have greatly abbreviated and expedited satellite licensing.
- We have used auctions to award licenses fairly, swiftly and efficiently.
- And we have facilitated the development of countless innovative low-power products and services by rapidly approving spectrum bands for unlicensed uses.
Indeed, entrepreneurs and equipment manufacturers alike expressed delight and astonishment that the Commission had moved so rapidly -- and so much faster than their own product development efforts -- to deploy the new 5 GHz National Information Infrastructure band.
Myth #2 -- The Commissioners are unwilling to adopt a comprehensive spectrum policy.
The same Wall Street Journal article accuses three members of the Commission -- including me -- of "unceremoniously reject[ing]" a proposed spectrum policy.
Reality: All of the Commissioners have devoted substantial attention to spectrum management. One year ago, at my suggestion, we held an en banc hearing at which witnesses -- including CTIA -- addressed a wide range of spectrum issues. I maintained then, and still do today, that the logical outgrowth of that effort would be to adopt a comprehensive spectrum policy.
A comprehensive spectrum policy statement would provide guidance -- both to the Commission and to others -- on principles to be applied in specific dockets. These themes apply to all services that use the airwaves.
There was substantial agreement among the Commissioners on the spectrum policies. Unfortunately, we did not issue a document that reflected our collective views. Instead, a staff "working paper" was released that does not enjoy the support of a majority of the Commissioners.
I disagreed with that decision. I firmly believe that we can and should formulate a consensus statement on spectrum policy. Although the views of each of the Commissioners are not entirely the same, there is far more agreement than disagreement. Our differences are of degree, not direction.
And this brings me to ...
Myth #3 -- If substantial flexibility is good, then absolute total flexibility must be better still.
Reality: We have moved a long way toward allowing greater flexibility in our spectrum allocation decisions. But we should not allocate spectrum by auction -- as opposed to assign it by auction.
I strongly support the flexible approach we took when we established the PCS service rules. And I agree with our decision to allow for most fixed uses, as well as mobile uses, in the PCS bands.
Last week's exciting announcement from AT&T demonstrated the wisdom of the flexible approach. But this does not mean that total flexibility for the entire universe of spectrum would be even better.
Traffic on a busy city street moves more swiftly, reliably and efficiently if everyone is moving in the same direction. Also, traffic lights, when appropriately placed, speed traffic along. At one time or another, you've all been frustrated trying to get through an intersection when the traffic light was out.
So, too, spectrum bands are generally most efficient when the services within the band are similar. More insulation is needed to separate incompatible uses. Equipment becomes more expensive if it is manufactured for limited bandwidth.
Our critics accuse us of bureaucratic paternalism for suggesting that some guidance as to expected use of the spectrum is welcome. But this isn't a debate between ideologies and overzealous government bureaucrats. It's a debate between those who decide on the basis of theory and those who listen to what the manufacturers and service providers, inventors and investors are telling us.
We tried total flexibility in conjunction with the GWAC's band at 4.6 GHz. It is two years later and still no one wants to play.
In another recent proceeding many commenting parties, including CTIA, Sprint, Motorola, and Lucent Technologies, argued that not defining a specific service or services for specific spectrum would:
- slow the development and deployment of new technologies;
- discourage service innovation and efficient spectrum use;
- raise equipment costs to users; and
- retard manufacturer investment.
These are very real concerns. They need to be factored into our spectrum policies, along with economic, technical, and legal analyses.
It is particularly noteworthy that most manufacturers who submitted comments agreed with that assessment. In 1996, the single largest source of financing for the wireless industry, accounting for 55% of all financing, was equipment manufacturers offering credit to operators for equipment purchases.
All spectrum need not be totally flexible or totally inflexible. Allocations for broad categories of services -- such as the PCS allocation -- have worked well, especially for emerging technologies. And licensees should not have to get FCC approval to adjust their services to meet market demand where there is no interference.
Myth #4: The spectrum should be sold as property in fee simple.
Reality: The spectrum belongs to the public. We license for a renewable term of years, but the spectrum remains a national asset.
Some argue that existing and future licenses should be awarded in fee simple. The government must have the ability to review usage and to reallocate spectrum, to increase efficiency, or to introduce new, innovative services.
If spectrum were sold in fee simple, it would have been extraordinarily difficult to assemble 120 MHz of continuous spectrum for PCS.
Myth #5: Every Hertz of spectrum should be sold to the highest bidder.
Reality: I am an avid fan of auctions for assigning commercial spectrum licenses to those who value them the most. It is fair, efficient, and swift. And it compensates the public for the use of its valuable resource. Auctions should be our principal means of assigning mutually exclusive licenses.
But our focus should be serving the public interest, not maximizing revenues for the U.S. Treasury. Spectrum policy should be set by telecom policymakers, not by budgeteers.
For example, I would prefer to set aside -- not auction -- spectrum for law enforcement and public safety. It is outrageous that in a disaster, our federal, state and local police, fire, and rescue teams cannot communicate with one another because they do not have frequencies in common. That is not to suggest that the agencies that protect our health and well-being should have license to be spectrum hogs. We must design incentives for spectrum efficiency.
Similarly, the public benefits from low-powered, unlicensed spectrum bands, where entrepreneurs can battle it out, tinkering with their systems to accommodate sharing with other users. Garage door openers, cordless phones, remote home and auto security devices, and wireless access to the Internet are just a few examples of consumer products and services sharing these crowded bands. I would set aside and not auction these bands.
Television broadcasters should be permitted to convert from analog to digital, provided that the analog spectrum is returned as soon as is feasible, repacked, and auctioned. I am concerned that consumers experience a smooth transition.
There are also private users, such as the railroads or pipeline companies, that monitor breaks in the train tracks or gas lines. These, too, provide valuable service, which might not be available if all spectrum were auctioned in large geographic areas to the highest bidder. Other private users may be able to acquire needed spectrum from CMRS licensees under our partitioning and disaggregation rules.
In all events, the public should be compensated for the use of its spectrum. In many circumstances, bandwidth based fees might be an effective way to accomplish that objective, where area-wide licensing by competitive bidding would be inefficient or wasteful.
In the Telecommunications Act of 1996, Congress instructed us to collect such value-based fees from TV broadcasters who use a portion of their digital signal for non-broadcast services. This might serve as a model for future charges to other spectrum users.
Myth #6: Private warehousing of spectrum is good public policy
Reality: A fee simple approach tolerates spectrum warehousing. Allowing spectrum to be unused, like storing gold in a vault, may be privately profitable. But allowing spectrum to be warehoused will not necessarily maximize its value to the public. Warehousing means that the public is denied new services. Nor will the economy benefit from the jobs that otherwise would be created.
Just imagine if the winner of the 1 GHz LMDS license decided to warehouse that spectrum for ten years instead of offering a new service.
Economists tell us we should permit spectrum warehousing. Congress has told us otherwise in Section 309(j)(2)(B) of the Communications Act. I agree with Congress.
Myth #7: Spectrum management policy should be driven by economists, not engineers ... or, let's repeal the laws of physics.
Reality: Would you drive your car across a bridge designed by an economist? Seriously, spectrum involves complex technical considerations. Spectrum policy needs to take into account the differing characteristics of radio waves at different frequencies and the many ways in which use of one frequency can impair operation of a different service at another frequency.
Economists have a lot to contribute to the development of spectrum policy. But so do engineers. We neglect them at our peril.
Myth #8: We should amend our rules every time we have an idea for better service rules or auction procedures.
Reality: Regulatory certainty is critical to entrepreneurs and the financial community. Particularly in the auction environment, business plans are made and commitments signed weeks and months in advance of auction.
While it is tempting to "fine tune" our rules every time we have a better idea, we must recognize that each rule change alters the assumptions on which business plans were built. Revisions intended to benefit bidders may have the opposite effect.
Worse, marketplace behavior may begin to reflect the assumption that our rules will continue to evolve and that there is no need to comply with those already on the books. That would be grossly unfair to those who diligently follow the rules as written, and would unduly reward those who camp out on the Commission doorstep.
Myth #9: The FCC should design and mandate technical standards; The FCC should play no role whatsoever in establishing standards.
Reality: Both statements are wrong. Consumers are generally best served when different technologies are allowed to battle it out in the marketplace. The FCC usually does not adopt technical standards for consumer equipment that works with a service provider on a subscription basis, such as PCS.
Mandatory technical standards can inhibit innovation.
But sometimes minimal technical or performance standards or protocols are desirable to ensure that products will work. In these cases, the FCC looks to industry to develop a consensus standard or protocol and proposes its adoption.
Even then, the goal is to make such requirements the least restrictive possible -- and sunset them where feasible.
Unlike subscriber-based services, free over-the-air broadcasting requires a transmission standard if equipment is to be widely available at low prices. Consumers need to know that the television set they bought in San Francisco will work in Shreveport and Syracuse.
The standard also ensures that all Americans can have access to a full array of programming channels. For every additional channel received on the set, the value of the service to the consumer increases.
Almost no one would argue for standards for every service. But neither would most argue that standards never are beneficial. We should be guided by sound technical principles and informed by the record.
Myth #10: We can ignore international allocations.
Reality: Spectrum policy has an international dimension. Radio waves don't stop at national boundaries. Some spectrum decisions grow out of -- or are limited by -- worldwide and regional negotiations.
As in all negotiations, credibility is important. We can't maintain our credibility if we negotiate aggressively to permit use of a particular frequency for satellite service and then decide domestically that we're indifferent to whether it's used for terrestrial or satellite service.
Also, export opportunities for equipment manufacturers are enhanced if we use the same spectrum that other countries use for similar services. The 5 GHz frequencies we recently authorized for unlicensed NII devices intentionally overlap with those chosen by Europe for its HyperLAN. As a result, both manufacturers and consumers will benefit from reduced cost and greater global communication.
The Commission has made tremendous progress in its administration of the spectrum by freeing up new frequencies, allowing increased flexibility, reducing paperwork, and accelerating licensing. Together with the commitment of investors, entrepreneurs, service providers, and manufacturers, we have spurred the delivery of new and innovative services that bring untold benefits to the American public.
The question now is whether we will administer the radio spectrum solely on the basis of economic theory, or whether we will continue to take practical considerations into account for the benefit of the public.
As the FCC continues its efforts to stimulate investment, innovation, and competition in radio services, we must be not only flexible, but practical as well. We must recognize the relationship of our domestic policies to international spectrum activities, acknowledge the very real differences between one spectrum band and another, understand the consequences of our actions on real-world inventors and investors, and appreciate the differences between deregulation and disorder.
Economic theory has contributed to great improvements in our administration of the radio resource, but we cannot ignore market realities or common sense. A wise spectrum policy deserves more, and the American public deserves no less.