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FSF'S FIFTH ANNUAL TELECOM POLICY CONFERENCE
MARCH 21, 2013
  

 

On March 21, 2013, the Free State Foundation held its Fifth Annual Telecom Policy Conference at the National Housing Center Auditorium at the National Association of Home Builders, Washington, DC. Entitled "Completing The Transition to a Digital World: How to Finish the Job and Why It Matters," the conference panelists explored issues including broadband competition and Internet policy, video and wireless regulation, spectrum policy and spectrum auctions, and FCC institutional reform.

 

In addition to a Keynote Address by Sen. Marco Rubio and a Conversation with FCC Commissioner Ajit Pai, there were three separate panels. The Free State Foundation is now releasing a transcript of the conference's third panel session, "The Right Regulatory Approaches for Successful Spectrum Policy and Auctions."

 

In introducing the panel, moderator Richard Wiley, a former FCC Chairman, said this:

 

"Senator Rubio put it well that spectrum is a finite asset, but it's also true that there are infinite demands upon that asset.  Today, we can and doubtless will debate as to whether or not we are facing a spectrum shortage or even a crisis.  But clearly there are more and more wireless and mobile devices and services being introduced into the marketplace every day, and therefore more and more demands for spectrum. Now, how these demands could be met, what users, either in government or in the private sector, will be impacted, and how they'll be impacted is something that we want to talk about today.  And it's at the top of the communications policy agenda."

 

Certainly, spectrum policy remains at the top of the Commission's agenda, with intense interest regarding the rules for the forthcoming spectrum incentive auction as well as issues surrounding the freeing up of spectrum held by the government for private sector use. So, the release of the panel transcript is very timely.

 

The panel discussion was moderated by RICHARD WILEY, Chairman, Wiley Rein LLP, and former FCC Chairman. The panel consisted of the following industry and academic experts:

  •          JEFFREY CAMPBELL, Cisco
  •          MICHELLE CONNOLLY, Duke University and FSF Board of Academic Advisors
  •          CHRIS GUTTMAN-McCABE, CTIA
  •          RICK KAPLAN, NAB
  •         TOM TAUKE, Verizon

The transcript should be read in its entirety for an appreciation of all of the views of each panelist. Nevertheless, in the meantime, immediately below are selected excerpts in the order of the panelists' presentations. These excerpts provide an indication of the various perspectives presented at the session. But, again, the transcript should be read in its entirety in order to obtain a full appreciation of each panelist's views. And if you would like to watch the YouTube video of the proceedings, it is here.

 

JEFFREY CAMPBELL

 

As we look at spectrum policy in all of these areas, we need to use what I like to think of as a reality-based approach, rather than a faith-based approach.  I don't think we should pick an ideology or a thought process and declare that that is the method that is going to produce the ultimate values.  Instead, we have to look at the facts, the science of the spectrum involved, the current uses, the potential new uses, and what the marketplace is demanding.  And what that's telling us is that we need a significant amount of additional spectrum for licensed usages because of the huge demand that's going on.  That calls for things like incentive auctions, and we need an incentive auction process where we maximize the availability of spectrum for licensed uses to give it the most intense use possible.

 

We look at government spectrum that is being underutilized and find what can be converted and auctioned off for licensed use.  But at the same time, we have recognized that we can never produce enough licensed spectrum to carry all of the traffic demands that are going forward.  We have to be able to offload more and more of this as consumers are using Wi-Fi technologies.  Those technologies, fortunately, operate best at spectrum bands different from those at which licensed services operate best.  In fact, we already have two bands in the 5 GHz range that are currently authorized for Wi-Fi.  We were looking at adding two significant bands to that as well, so that we could bring Wi-Fi speeds up to gigabyte potential to handle huge offloading capacity.  And if we keep our spectrum policy based upon the realities of where the market is and where the physics of the technology is, we'll be able to handle this huge flood of data that is coming onto the market in the future.

 

The bigger issue with spectrum is getting as much federal agency coordination as possible and as much consensus on what the goals are at the end of the day... [F]requently what really matters is if we have the highest levels of government declaring something to be a priority.  We manage to make things happen, and that's what we need to do with spectrum policy.  We need to have clear policy direction from the highest levels and then the implementation can move forward on that basis.

 

By its very nature unlicensed spectrum always ends up being the poor stepchild, but that's the point of it.  It's not necessarily a bad thing that it's the stepchild because it is about using spectrum as efficiently and intensively as we possibly can.  This is where you have to come back to fact-based and reality-based spectrum allocation of the spectrum policy, which is that the characteristics of the spectrum matter a lot.  So when you're looking at, say, 600 MHz spectrum, and you're talking about unlicensed usage, it's probably not as interesting as some other bands are.  You get great propagation in 600, and that may not allow for the best usage, at least as unlicensed is used today; whereas, other bands are better on that front.  We have to treat them as two children that we love, equally, but recognize that they may have different talents and that they belong in different places at times.  So this is where you can't just use an ideology to decide what's going on.  You can't just say the marketplace will solve everything, or that unlicensed is best or licensed is best.  We need a mix of the two, but at the right places and the right times.

 

MICHELLE CONNOLLY

 

In terms of spectrum there are two dimensions.  One is availability of spectrum for current use.  And once we've eventually maxed that out, the other is how we most efficiently use what we have as our limited resource.  In terms of things that are possible in the short run and moving on to the longer run, one of the key things is the move the FCC has made towards expediting the handling of secondary market transactions.  It would be good if they continued to work on that, because that makes things immediately available.  We don't have to wait for a new option.  Secondly, we need the FCC to continue working on the auction design; do it as quickly as possible, but as well as possible. ...Thirdly, we need to be freeing up federal government spectrum resources... [F]ederal agencies are using up to about 60% of beachfront property frequencies.  That's huge and it is not being used very efficiently.  We want their efficiency to be improved, for the NTIA to work on that, and for the spectrum they release to be auctioned off.

 

Two things in particular concern me in proposals in the incentive auction NPRM put out by the FCC.  One is related to the spectrum screen and the uncertainty that that's bringing forward, not only for this auction but for future events.  Another is the suggestion that we might want to have specific credits for certain groups of people to have privileged status in the auctions.  That has been shown to be a very bad thing. 

 

Looking forward, we're going to have to increase the efficiency of the use of any given amount of spectrum.  Usage-based pricing is a way of creating that efficiency.  Avoiding net neutrality impositions can help with the efficiency of the use of spectrum.  New technologies are coming online and ways of re-aggregating spectrum will hopefully help reduce congestion issues in the future.  Lastly, by reducing regulatory uncertainty we will have all the incentives to invest in the right types of infrastructure.

 

Spectrum sharing has a lot of limitations.  Certainly, it is possible to do that.  But it's going to limit the types of applications that will be feasible.  Rather than keeping a lot of it and trying to share a portion, it would be more efficient if NTIA would have government move its services into a certain spectrum group and then simply free what's been vacated to full flexible usage by the market.

 

CHRIS GUTTMAN-McCABE

 

[T]his discussion is driven a lot by the notion of a looming spectrum crisis.  That phrase wasn't a throwaway phrase, but it was a phrase that CTIA introduced in September of 2009...I don't think we could have thought at that time where we would be in three years, both in terms of government focus on this issue, and perhaps more importantly, the idea of consumers embracing mobile services. 

 

I want to give you an illustration of how we have no idea what the world is going to look like in five years...  [I]n September of 2009, there were zero LTE subscribers.  We now have 32 million.  If you wait one more year, it will probably be closer to 150 million.  It's rapidly taking off.  There were 123 million advanced 3G and 4G subscribers.  There are now 254 million.  There were 41 million smartphones.  There are now 150 million, and by now I mean the end of 2012.  In terms of tablets, there were zero.  The iPad was six months away from being launched...  In terms of apps, there were 150,000, although if you asked someone to try to find 150,000, most of them would have been music and ring tone-based apps.  There are now 3.6 million apps available to U.S. consumers.  We were at 89% penetration.  Most would say that's a pretty mature industry, 277 million subscribers...  We're now at 103% penetration and will probably go closer to 110% by the middle of this year.  That's 330 million subscribers.  In terms of data usage, over the last six months of 2009 we had 108 billion megabytes of use.  The last six months of 2012 we had 633 billion megabytes of use.

 

But the thing that shocks me the most and the thing that has probably had the most significant impact on my life is what we call the verticals.  These vertical industries - the intersection of different sectors of our economy and mobile broadband - just didn't exist.  There wasn't mHealth, because we didn't really have any robust 3G networks at the time.  All of a sudden, we have mHealth.  We have mobile education.  We have intelligent transportation and smart grids.  Every aspect of our life is now being impacted, personally. 

 

[A]t the core smart spectrum policy is recognizing how fundamentally our mobile communications world and broadband world has changed.  The notion that broadband is just a fixed service has been overtaken by events.  You just need to look around this room and how many people here have at least two mobile devices with them.  Smart policy begins and ends with the recognition that we really do need to work on this quickly.  We need to get it right.  And we need to move a great deal of spectrum to the market, both licensed and unlicensed.  But there needs to be an emphatic focus on getting licensed spectrum to market to fuel - not the future, but the present. To make sure we provide the foundation - not for what's going to happen, but for what actually is happening.

 

As Senator Rubio said, I don't think any of us can predict what the next five years are going to look like.  But I certainly know what today looks like, and I don't see a pipeline to ensuring today's experiences five years from now, let alone what the intelligent people in the United States will come up with in the next five years.

 

[T]he reality is that every country that you would think about comparing ourselves to from a technology perspective has hundreds and hundreds of megahertz, either in the pipeline or has already brought it to market, unlike ours... [W]e're doing really well.  But when you compare our population or our usage to the countries that have brought spectrum to market, it all of a sudden makes that equation look unbelievably disproportionate.   There is an absolutely direct connection between usage, demand, and the need for more.

 

And the mobile data traffic projections that Cisco does all the time just keep going through the roof.  It's almost like a hockey stick.  The fact that we're still debating whether there's a spectrum demand is almost insulting to the intelligence of policymakers.  There is an unbelievable crisis in terms of what is happening in the mobile marketplace and what is planned for from policymakers right now.  We have to make those two connect if we want to continue to lead the mobile marketplace.

 

[W]e need a financially successful auction for there to be any ability to have licensed or unlicensed spectrum.  We need enough money to clear the broadcasters.  I'm of the view that we should do whatever we need to do to get those broadcasters that want to participate and give them a desire to participate.  Financially, let's not constrain what they might take away.  Let's let the market determine that.  We also need sufficient money to repack the remaining broadcasters, so that is another financially significant constraints.  There's also a desire, as the Senator said, to reduce our deficit, pay down our debt, and to fund a public safety network.  So there's a lot of real intense discussions about the right mix of licensed and unlicensed in the incentive auction proceeding.

 

At every auction at this stage there are a number of extraordinarily difficult issues that still remain, and a lot of complicated things that have to be addressed.  The reality is that's where we are now, and it's too early to say is it too complicated.  Is it not complicated enough?  Is the auction mechanism the right mechanism?  Should it be different?  You have to give the Commission the ability to actually work its way through these issues... Let everyone look at where there are agreements, where there are disagreements.  Then, as the Commission always does, it should start to knock off those issues where they're as close to unanimity or consensus as they can be.  The ones that remain are the ones you're going to have to buckle down on.

 

RICK KAPLAN

 

When I think about spectrum policy, I don't think about rushing to give every last megahertz to the commercial wireless industry.  I think about efficient use, and that means government spectrum.  That means freeing up government spectrum.  It means looking across the board at the various uses, commercial, noncommercial, licensed, unlicensed.  That's what spectrum policy should be about, not whatever the flavor of the month is, not whether we can move one service to another.

 

When I think about all of the incredible innovations the wireless industry has given us, it's really been remarkable.  But that's all happened with the spectrum we have today.  And it wasn't on the promise of more spectrum in the future.  It's on spectrum we have today and more spectrum that's coming online.  According to the FCC, it's more than almost any other country in the world.  So we're in great shape.  That's very important.

 

For smart spectrum policy, it's not that we don't need to be as efficient as possible.  We certainly do.   But this market, with a number of very specific deals that have happened, even in just the last six months, has accounted for the very real spectrum needs that the wireless industry had... It's not to say that all the problems are gone, but it's to say that if you give the market a chance to work, it actually can work, whether it's through greater efficiencies or just through a rationalization of the industry.  As an industry structure matter, it wasn't addressed in the National Broadband Plan.  But it is a major feature of how you think about efficient use of spectrum.

 

If there is a spectrum crunch, it's not in Des Moines, Iowa.  If there is a spectrum crunch, it is in New York.  What's interesting is that same spectrum crunch applies to the broadcasters as well.  It's not like you can go get a new station in New York, where it may be very valuable, worth hundreds of millions of dollars.

 

We should be thinking about spectrum in 2025.  But I actually have no idea what's going to happen in 2025.  I don't know if these same companies will be around in 2025, or what it will look like.  And that's part of the point too.  The bottom line is there's spectrum out there now, so don't freak out after hearing critics.

 

First of all, the whole spectrum auction process is complicated, whether we like it or not.  Sometimes, when things are incredibly complicated, you have so many different policy issues and so many different technical issues.  The desire is, from an academic perspective, to find them very interesting and to tackle them and try to figure out the solutions.  But in the pragmatic world, what I have found to be a successful recipe is to try to pick the things that are the simplest to get you to your goal.  So figure out what your goal is.  Figure out how to get there.  It would be great to find terrific homes for both licensed and unlicensed right in the new auction spectrum.  But it's probably not really possible.  You probably have to maximize for licensed to bring in the greatest amount of money to pay for all the congressional priorities.

 

[Auction design] is a really neat problem.  And the economists are very important... But if you get too far ahead of the actual engineering, then you're in trouble, because the engineering of this entire process is very hard.  So we have to get that right and then build the auction around the shared understanding of what the engineering principles are.  But it's been done backwards here.  They've thrown everything into the auction design, which is very creative and innovative.  But then you end up with a band plan that doesn't work, or then you end up with a series of interference problems that you didn't anticipate.  They've created a great, perfect auction from an economist's perspective, but the engineering didn't work.

 

TOM TAUKE

 

The statute that governs the broadband, video, and spectrum areas is outmoded, outdated, and obsolete.  The FCC and the other agencies of government are trying hard to work within that statute.  But they are working at a real handicap because the fundamental policy of the nation is obsolete.  It's not relevant or up-to-date with what's going on in the modern world.

 

The bottom line is that we know there is going to be an amazing, continued explosion in the amount of data that is communicated over networks, that is stored, that is computed over the next 5, 10, 15, 20 years.  And in order to do that you need, at least three things:  you need amazing technological advancement, you need investment in infrastructure, but you also need spectrum.

 

Now the developments in secondary markets, such as what Verizon did with Comcast...are all very encouraging, and they are happening.  It's very encouraging to see even what the Chairman of the FCC has done with the recommendation to the FCC and the 755 and 2155 bands of spectrum, trying to get that auction going before the end of next year.  But it is fair to say that, even with all these advancements, we know that we are going to face something of a crunch over the next several years.  The problem is that you have to plan way ahead.  A track record for accessing available spectrum, from the time you think about it to the time it's actually available, is 10 to 15 years.  The earliest we have is about 7 or 8, but generally it's 10 to 15 years from the time you think you're going to start until the time you get it done.  So we have to be thinking now about 2025 and what the needs are going to be then.  The needs are going to be for licensed spectrum, but they're also going to be for unlicensed spectrum.  So as Al Capone said when it came to banks, when it comes to spectrum, you have to go where the spectrum is.  And the spectrum is with the government. 

 

[W]e haven't had any clear direction from the President or clear direction from Congress in this area for a very long time.  No one is saying to the agencies of government:  "You need to more efficiently use spectrum."  They have no incentive to use spectrum more efficiently.  If they do something to use spectrum more efficiently, they'd probably have to make expenditures out of their budgets, and they aren't getting any money for that.  So it's a negative for them, not a positive for them, in the world they sit in, to free up spectrum or to use it more efficiently.  We have to change that dynamic.  That's where the spectrum is.

 

My own view would be that it might be wise for Congress to have a rental fee for all spectrum used by federal agencies, that when they use the spectrum, as long as they keep using it, they have to pay money out of their budget every year to pay it, so they'd have an incentive to use it more efficiently.  But regardless of the idea, in my judgment, changing the economic fundamentals for those in government controlling spectrum is the issue that has to be tackled.

 

I think that the National Broadband Plan was solid in the area of spectrum.  It made good recommendations.  I'm optimistic that the 500 MHz will become available.  But if we think to 2025, that probably isn't going to be enough.  So we need to be thinking ahead and we need to find more, and that's why I think the focus has to be on the government's spectrum.  But we're seeing the things that are in the Broadband Plan come to fruition, and I'm reasonably optimistic that by the time 2020 rolls around or 2022 rolls around, that 500 MHz will be identified and freed.

 

[T]here is a fundamental policy choice about how you allocate spectrum.  You either rely primarily on the market to set a value and then the user who thinks that they have the best value can purchase that spectrum and use it for that purpose.  Or, you have a bureaucratic government entity that determines what is the best use of spectrum, and allocates spectrum that way.  And I don't say this in a disparaging way.  Those are fundamentally the two choices.  Because there are always going to be some government interests, you're going to have some government role in allocating spectrum.  But what we're trying to see is movement more to a marketplace so that that marketplace can be more responsive.  As there are changes in the technology, consumer usage, and demand, those will be reflected in the marketplace in the price that is paid.  And if you do have a robust, secondary market, that's going to mean you're going to have shifting uses of spectrum over time to adjust to the changing preferences, demands, and technologies of the marketplace.  Part of the problem now is we've been in a government-controlled mechanism for allocating virtually all the spectrum.  We're trying to move to a place where we have more of it allocated by the marketplace and less of it controlled by government.

 

If the FCC imposes restrictions on the incentive auction so that we are out of it, consumers would suffer and not as much money would be raised... We have no difficulty with the FCC having a spectrum screen with roughly 30%, a third of the available spectrum, being if you exceed that, then the FCC takes a close look.  We understand that policy.  We understand that it is an adjunct, if you will, of a good antitrust policy.  And we have no difficulty with that.  We think that screen should be one where if you pierce the screen, that's when the FCC takes a look.  We also think the screen should be adjusted to reflect all the spectrum that is in the marketplace, which it does not now reflect.

 

But when they have the auction, the auction should permit all players to come and participate.  First of all, a player should be given an option to buy spectrum and trade other spectrum or sell other spectrum if they want to.  But all players should be able to participate, because that's how you get the best read of what's going on in the marketplace.  That's how you get the most efficient allocation.

 

A PDF of the full transcript of Panel III, "The Right Regulatory Approaches for Successful Spectrum Policy and Auctions," is here.

 

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