Steps that Congress can take to modernizing spectrum policy

Happy Monday to all.  This morning I shared the following comments via a letter with the House Committee on Energy and Commerce.  I thought I’d share them with you as well.

An updated Act should not only provide broadband access to providers with clear guidance as to the rules of the road, but it should ensure that the road is not littered with debris from a 20th century regulatory framework.  Through legislation and rulemaking, Congress and the FCC have worked to increase the amount of spectrum available to commercial providers.

Now is the time for Congress to go another step further by ensuring that an update of the Act sends a clear message to the FCC to the take steps necessary for increasing the amount of commercially available spectrum to providers that are ready to put this finite and valuable resource to its best use.

Increasing the amount of spectrum available for commercial use should be viewed as an investment in the value the wireless industry brings to the American economy.  According to CTIA-The Wireless Association, in terms of contribution to gross domestic product, the wireless industry is now larger than the publishing, agriculture, hotels and lodging, air transportation, motion picture and recording, and motor vehicle manufacturing industry segments and rivals the computer system design services as well as the oil and gas extraction industries.

Job seekers have benefited from the growth and size of the wireless industry.  CTIA reports that the wireless industry gained 1.6 million new jobs between 2007 and 2011.  Meanwhile the rest of the economy saw private sector jobs fall by 5.3 million during what was arguably the worst economic downturn since the 1930s.

And while prices for wireless services have fallen 93% between 2008 and 2013, the United States, contrary to critics right here at home, leads the rest of the world in mobile broadband speeds.  Again, according to CTIA the average mobile broadband speed in the U.S. in 2012 was 2.6 Mbps, the fastest in the world, and double the speeds seen in Europe.

American enterprise is exceptional because of America’s exceptional emphasis on innovation.  The wireless industry helps to set standards of innovative excellence.  An example of this excellence is the wireless industry’s rollout of 4G Long Term Evolution (LTE) technology and the devices that use it.  According to data from CTIA, the number of 4G LTE-connected devices was 33.1 million devices in 2012.  That number represented a 273% increase in devices that year.   By the end of 2013, that number increased to 62.5 million.

This small sample of industry data supports the argument that there is a thirst for services provided by wireless carriers; that consumers place a value on the services they receive from all carriers, whether they be large national carriers such as AT&T, Verizon, T-Mobile, or Sprint, or smaller carriers such as Boost Mobile, Virgin Mobile, or C-Beyond. 

There is competition in the wireless eco-system, and consumer demand for innovative, flexible services, pricing, and data plans motivate a demand for spectrum that is just as value driven.  Any mechanism for providing wireless carriers with access to additional spectrum must recognize the value the market delivers to consumers and the initiatives carriers take to bring value to the market. 

One mechanism that will provide quality spectrum to wireless carriers is the pending incentive auction.  While the FCC has certainly conducted spectrum auctions before, it has never done one like this complex, two-sided auction. During the first part, or the reverse auction, television broadcasters will give up their licenses if they are confident that they’ll be adequately compensated for doing so.  Then during the forward auction, wireless carriers will bid on the spectrum.  Part of the proceeds from the revenue of the forward auction will compensate the broadcasters; hence their interest in a bidding process that maximizes revenue. However, carriers like T-Mobile and Sprint and their advocates have been advocating for restrictions on the amount of spectrum that AT&T and Verizon may bid on.  What would be the consequences of implementing a policy that restricts AT&T and Verizon’s participation in the auction?

One consequence would be less revenue, which translates into less money to compensate the broadcasters, less money for deficit reduction, and potentially not enough funding a long-awaited national broadband first responder network.  How big would the risk of leaving dollars on the table be?  If we use past auctions as examples, leaving AT&T and Verizon out would have resulted in revenues being 45% lower in the 700 MHz auction and 16% lower in the AWS-1 auction. 

Another consequence would be less spectrum available for commercial use.  Data referenced above points to the value of the wireless industry to the economy and to consumers.  Consumer demand for spectrum is rising and will continue to do so as mobile plays a bigger role in the education, healthcare, and energy sectors, not to mention our day-to-day personal and professional lives.  The industry needs more spectrum to serve its customers as their needs increase. 

Also, another mechanism that could provide quality spectrum to wireless carriers is a federal incentive auction as proposed in HR 3674, the Federal Spectrum Incentive Act.  The bill would create a spectrum fund, and proceeds from the fund could be used to offset sequester cuts, among other uses.  The bill has been with the House Sub-Committee on Intelligence, Emerging Threats, and Capabilities for three months, and it’s time to move it forward.

I believe the broadcast television incentive auction and the federal agency incentive auction as defined in HR 3674 are great opportunities to create pathways for wireless carriers to get access to spectrum.

I encourage you to let Congress know that broadband deployment in the mobile world will mean greater access to spectrum by all carriers.  Consumers shouldn’t be penalized by the implementation of spectrum caps simply because they chose service with a larger wireless carrier.

The FCC should try a different economic model of supply and demand

Federal Communications Commission chairman Tom Wheeler posted the following statement today in a blog post:

“Getting the Incentive Auction right will revolutionize how spectrum is allocated. By marrying the economics of demand (think wireless providers) with the economics of current spectrum holders (think television broadcasters), the Incentive Auction will allow market forces to determine the highest and best use of spectrum.”

According to Chairman Wheeler’s demand and supply model, when assessing competition and market demand, the market is between wireless providers and television broadcasters.  The auction is designed to make a market between participants within each group.

Chairman Wheeler also appears to lay the groundwork for the argument that since AT&T and Verizon hold a large amount of low-frequency spectrum ( the quality that best serves long distances and penetrates buildings), there may be some adverse impact on smaller carriers.  In his words:

“A legacy of earlier spectrum assignments, however, is that two national carriers control the vast majority of low-band spectrum. As a result, rural consumers are denied the competition and choice that would be available if more wireless competitors also had access to low-band spectrum.

Low-band physics also makes this slice of spectrum essential in urban areas, since it permeates into buildings better than does high-band spectrum. With more and more Americans opting for wireless-only connectivity, they should not run the risk of being unable to place a 911 call from the interior of a building just because their wireless company has the wrong spectrum.

While many factors go into determining the quality of wireless service, access to a sufficient amount of low-band spectrum is a threshold requirement for extending and improving service in both rural and urban areas.”

Yes, AT&T and Verizon are the “Monsters of the Cellular Midway.”  According to data from the FCC, AT&T has 32.54% of market share based on reported connections while Verizon has 29.12% of connections.  Sprint comes in at 17.44% while T-Mobile brings up the oligopoly rear at 10.26%.  But does the size of a wireless carrier or even the services it provides means that it is the one driving demand for spectrum?  I argue no.

The wireless carrier isn’t the one making the call.  The consumer is.  The carrier, as it’s function implies, is just an intermediary that offers a set of technologies that allows a consumer to abandon two tin cans and a wire and use digital and wireless technology to make a call way beyond his front yard.  The consumer is driving demand for spectrum.  The carrier is merely his agent, an agent that promises his client to get his call to where he wants it with the best technology around.  The carrier shouldn’t be penalized because it was successful in aggregating the largest number of consumers into its portfolio.

The carrier shouldn’t be punished because it out-marketed and out-hustled a bunch of other players.  That’s synonymous to punishing a business for leveraging its capital and providing investors the best returns by providing consumers with the best service.

With its spectrum policy what the FCC should be doing is allowing a wireless carrier, no matter its size, to plan new service offerings without the uncertainty of allocation rules that would hinder organic growth and innovation.  Recognizing that consumers drive spectrum demand would help the FCC stay focused on providing a regulatory framework that encourages innovation.  When it comes to spectrum, it’s about consumer demand and a regulatory bottleneck that needs to be, at a minimum, widened, and in the ideal, straight up broken.

 

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Broadband and the global brain

I don’t remember where I saw this quote and I may not have it written correctly, but to summarize, “In the future, work will be about learning.”  I believe the speaker was trying to get across that we are moving steadily out of an economy that focused on what we could do physically and into one where the measure of our value will be placed on what we can learn and how we communicate it.  We are going to be relied on more for our brains, less on our brawn, and more on our broadband.

Just think of ourselves as mini encyclopedias connected to everyone and everything else via a digital connection, uploading our knowledge into a processing system that uses our know-how to design, construct, test, re-construct, market, and sell product.  As we quickly move to an Internet of Things, we will see that the  new eco-system will be about machines and servers talking to each other and how integrated human beings will be in the production process the Internet of Things supports.

In a report released last month, GE discussed how the process behind the development, construction, and delivery of products will change where each step along the production change will be tied by digital networks and advanced design and construction devices such as 3-D printing.  Playing an important role in the new approach to production is a concept called the “global brain.”  The global brain is defined as the collective intelligence of human beings across the globe integrated by digital communications networks.  The hope is that as more people connect to the Internet that the global stock of knowledge will increase with each human beings connection.

The expectation is that as more physical, menial work is off loaded onto  machines, people will be freed up to exercise more of their creative and entrepreneurial sides.  The ideas that newly freed minds come up with can be uploaded into cloud-based data platforms for use in building product and providing services.  This is a lot more appealing than and should not be confused with the villages created by companies such as Facebook, Instagram that add nary anything to true public knowledge.

“We are witnessing the rise of the global brain, when a buzzing hive of knowledge, connectivity, technology and access unites the human and the machine, the physical and the digital, in previously unimaginable ways,” says Beth Comstock, GE’s chief marketing officer. “Scientific discovery, information sharing and sheer ingenuity are giving us the ability to hack our human brains to learn, do, be more. At the same time, we can model human intelligence into machines to help us gain insights, increase speed and know more.”

 

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On the lighter side of technology …

Posted March 25th, 2014 in Facebook, Google and tagged , , by Alton Drew

One sunny but cool spring day in the year 2044, a bunch of young people walk up to an old man sitting on a bench feeding pigeons. They recognize the man as Professor Alton Drew, a crusty old political economist and lawyer known for his pithy political remarks, dry wit, and an insatiable obsession with the female form.

“Professor Drew. Why don’t you ever wear the #Facebook virtual reality headsets and the new #Google glasses, and #Apple wearable phones? Shouldn’t you keep up with the times and the people?”

With a wry smile inherited from his father, the Original Alton Drew, the old professor says, “A good puppet master never runs with the masses ….”

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The Internet’s growth is reason for regulatory humility

Seeing Mark Zuckerberg in a suit and tie is still something I have to get used to, but it’s a small price a billionaire has to pay in order to bend the President’s ear on issues of privacy and surveillance by the National Security Agency.  Mr. Zuckerberg’s recent visit, along with other Internet company heads, with Mr. Obama is an example of the impact this still growing industry has on the structure of the nation’s economy and its public policy toward the information superhighway.

And the Internet is definitely growing, contributing to the nation’s economy at a greater rate than other traditional industries.  According to the U.S. Bureau of Economic Analysis, information-communications-technology producing industries saw an increase of 7.2% in their contribution to gross national product in 2012.  This rate of change reflected a significant increase from the 2011 increase of 4.7% in 2011.  Approximately 5.9% of GDP in 2012 is credited to the ICT industry.  Of the 2.8% increase in GDP in 2012, .41 percentage points was attributed to ICT.

Between 2006 and 2011, the broadband industry has invested $73 billion in broadband infrastructure deployment and AT&T in 2012 committed to $14 billion a year in broadband investment for three years, while Verizon has reported an average of $16 billion over the last three years.

According to a 2011 study by McKinsey & Company, the U.S. is the largest player in the Internet space accounting for 30% of global Internet revenues and 40% of net income.  Citing a study conducted by comScore, The Huffington Post reported that in 2011, Americans spent $256 billion on retail and travel related online purchases.

Last week, Federal Trade Commission chairman Maureen Ohlhausen made the argument for abandoning the silo approach to regulation, an approach that calls for regulators to guess how the future of technology will play out.  The Internet has been dodging the regulatory bullet but network neutrality advocates seem to have the entire Internet eco-system in their cross hairs for additional regulation.  Given the amount of investment that has been made in the Internet eco-system by broadband providers, can a case for more regulation using a regulatory scheme that may slow down innovation be made by the FCC?

Even pursuant to section 706 of the Telecommunications Act, where the Congress has called on the FCC to promote the deployment of advanced services an argument should not be made for heavy handed regulation.  If anything, where section 706 is concerned, deployment without codification of net neutrality principles has been delivering those advanced services because industry has been listening to the consumer.