Archives For Internet of Things

What should a government do when it owns geese that lay golden eggs? Should it sell the geese to fund government programs? Or should it let them run wild so everyone can have a chance at a golden egg? 

That’s the question facing Congress as it considers re-authorizing the Federal Communications Commission’s (FCC’s) authority to auction and license spectrum. Should the FCC auction spectrum to maximize government revenue? Or, should it allow large portions to remain unlicensed to foster innovation and development?

The complication in this regard is that auction revenues play an outsized role in federal lawmakers’ deliberations about spectrum policy. Indeed, spectrum auctions have been wildly successful in generating revenue for the federal government. But the size of direct federal revenues are not necessarily a perfect gauge of the overall social welfare generated by particular policy choices.

As it considers future spe​​ctrum reauthorization, Congress needs to take a balanced approach that includes concern for federal revenues, but also considers the much larger social welfare that is created when diverse users in various situations can access services enabled by both licensed and unlicensed spectrum.

Licenced, Unlicensed, & Shared Spectrum

Most spectrum is licensed by the FCC to certain users. Licensees pay fees to the FCC for the exclusive right to transmit on an assigned frequency within a given geographical area. A license holder has the right to exclude others from accessing the assigned frequency and to be free from harmful interference from other service providers. In the private sector, radio and television broadcasters, as well as mobile-phone services, operate with licensed spectrum. Their right to exclude others and to be free from interference provides improved service and greater reliability in distributing their broadcasts or providing communication services.

SOURCE: U.S. Commerce Department

Licensing gets spectrum into the hands of those who are well-positioned—both technologically and financially—to deploy spectrum for commercial uses. Because a licensee has the right to exclude other operators from the licensed band, licensing offers the operator flexibility to deploy their network in ways that effectively mitigate potential interference. In addition, the auctioning of licenses provides revenues for the government, reducing pressures to increase taxes or cut spending. Spectrum auctions have reportedly raised more than $230 billion for the U.S. Treasury since their inception.

Unlicensed spectrum can be seen as an open-access resource available to all users without charge. Users are free to use as much of this spectrum as they wish, so long as it’s with FCC-certified equipment operating at authorized power levels. The most well-known example of unlicensed operations is Wi-Fi, a service that operates in the 2.4 GHz, and 5.8 GHz bands and is employed by millions of U.S. users across millions of devices in millions of locations each day. Wi-Fi isn’t the only use for unlicensed spectrum; it covers a range of devices such as those relying on Bluetooth, as well as personal medical devices, appliances, and a wide range of Internet-of-Things devices. 

As with any common resource, each user’s service-quality experience depends on how much spectrum is used by all. In particular, if the demand for spectrum at a particular place and point in time exceeds the available supply, then all users will experience diminished service quality. If you’ve been in a crowded coffee shop and complained that “the Internet sucks here,” it’s more than likely that demand for the shop’s Wi-Fi service is greater than the capacity of the Wi-Fi router.

SOURCE: Wall Street Journal

While there can be issues of interference among wireless devices, it’s not the Wild West. Equipment and software manufacturers have invested in developing technologies that work in noisy environments and in proximity to other products. The existence of sufficient unlicensed and shared spectrum allows for innovation with new technologies and services. Firms don’t have to make large upfront investments in licenses to research, develop, and experiment with their innovations. These innovations benefit consumers, businesses, and manufacturers. According to the Wi-Fi Alliance, the success of Wi-Fi has been enormous:

The United States remains one of the countries with the widest Wi-Fi adoption and use. Cisco estimates 33.5 million paid Wi-Fi access points, with estimates for free public Wi-Fi sites at around 18.6 million. Eighty-five percent of United States broadband subscribers have Wi-Fi capability at home, and mobile users connect to the internet through Wi-Fi over cellular networks more than 55 percent of the time. The United States also has a robust manufacturing ecosystem and increasing enterprise use, which have aided the rise in the value of Wi-Fi. The total economic value of Wi-Fi in 2021 is $995 billion.

The Need for Balanced Spectrum Policy

To be sure, both licensed and unlicensed spectrum play crucial roles and serve different purposes, sometimes as substitutes for one another and sometimes as complements. It can’t therefore be said that one approach is “better” than the other, as there is undeniable economic value to both.

That’s why it’s been said that the optimal amount of unlicensed spectrum is somewhere between 0% and 100%. While that’s true, it’s unhelpful as a guide for policymakers, even if it highlights the challenges they face. Not only must they balance the competing interests of consumers, wireless providers, and electronics manufacturers, but they also have to keep their own self-interest in check, insofar as they are forever tempted to use spectrum auctions to raise revenue.

To this last point, it is likely that the “optimum” amount of unlicensed spectrum for society differs significantly from the amount that maximizes government auction revenues.

For simplicity, let’s assume “consumer welfare” is a shorthand for social welfare less government-auction revenues. In the (purely hypothetical) figure below, consumer welfare is maximized when about 56% of the available spectrum is licensed. Government auction revenues, however, are maximized when all available spectrum is licensed.

SOURCE: Authors

In this example, politicians have a keen interest in licensing more spectrum than is socially optimal. Doing so provides more revenues to the government without raising taxes. The additional costs passed on to individual consumers (or voters) would be so disperse as to be virtually undetectable. It’s a textbook case of concentrated benefits and diffused costs.

Of course, we can debate about the size, shape, and position of each of the curves, as well as where on the curve the United States currently sits. Nevertheless, available evidence indicates that the consumer welfare generated through use of unlicensed broadband will often exceed the revenue generated by spectrum auctions. For example, if the Wi-Fi Alliance’s estimate of $995 billion in economic value for Wi-Fi is accurate (or even in the ballpark), then the value of Wi-Fi alone is more than three times greater than the auction revenues received by the U.S. Treasury.

Of course, licensed-spectrum technology also provides tremendous benefit to society, but the basic basic point cannot be ignored: a congressional calculation that seeks simply to maximize revenue to the U.S. Treasury will almost certainly rob society of a great deal of benefit.

Conclusion

Licensed spectrum is obviously critical, and not just because it allows politicians to raise revenue for the federal government. Cellular technology and other licensed applications are becoming even more important as a wide variety of users opt for cellular-only Internet connections, or where fixed wireless over licensed spectrum is needed to reach remote users.

At the same time, shared and unlicensed spectrum has been a major success story, and promises to keep delivering innovation and greater connectivity in a wide variety of use cases.  As we note above, the federal revenue generated from auctions should not be the only benefit counted. Unlicensed spectrum is responsible for tens of billions of dollars in direct value, and close to $1 trillion when accounting for its indirect benefits.

Ultimately, allocating spectrum needs to be a question of what most enhances consumer welfare. Raising federal revenue is great, but it is only one benefit that must be counted among a number of benefits (and costs). Any simplistic formula that pushes for maximizing a single dimension of welfare is likely to be less than ideal. As Congress considers further spectrum reauthorization, it needs to take seriously the need to encourage both private ownership of licensed spectrum, as well as innovative uses of unlicensed and shared spectrum.

[TOTM: The following is part of a digital symposium by TOTM guests and authors on the legal and regulatory issues that arose during Ajit Pai’s tenure as chairman of the Federal Communications Commission. The entire series of posts is available here.

Seth L. Cooper is director of policy studies and a senior fellow at the Free State Foundation.]

During Chairman Ajit Pai’s tenure, the Federal Communications Commission adopted key reforms that improved the agency’s processes. No less important than process reform is process integrity. The commission’s L-Band Order and the process that produced it will be the focus here. In that proceeding, Chairman Pai led a careful and deliberative process that resulted in a clearly reasoned and substantively supportable decision to put unused valuable L-Band spectrum into commercial use for wireless services.

Thanks to one of Chairman Pai’s most successful process reforms, the FCC now publicly posts draft items to be voted on three weeks in advance of the commission’s public meetings. During his chairmanship, the commission adopted reforms to help expedite the regulatory-adjudication process by specifying deadlines and facilitating written administrative law judge (ALJ) decisions rather than in-person hearings. The “Team Telecom” process also was reformed to promote faster agency determinations on matters involving foreign ownership.

Along with his process-reform achievements, Chairman Pai deserves credit for ensuring that the FCC’s proceedings were conducted in a lawful and sound manner. For example, the commission’s courtroom track record was notably better during Chairman Pai’s tenure than during the tenures of his immediate predecessors. Moreover, Chairman Pai deserves high marks for the agency process that preceded the L-Band Order – a process that was perhaps subject to more scrutiny than the process of any other proceeding during his chairmanship. The public record supports the integrity of that process, as well as the order’s merits.

In April 2020, the FCC unanimously approved an order authorizing Ligado Networks to deploy a next-generation mixed mobile-satellite network using licensed spectrum in the L-Band. This action is critical to alleviating the shortage of commercial spectrum in the United States and to ensuring our nation’s economic competitiveness. Ligado’s proposed network will provide industrial Internet-of-Things (IoT) services, and its L-Band spectrum has been identified as capable of pairing with C-Band and other mid-band spectrum for delivering future 5G services. According to the L-Band Order, Ligado plans to invest up to $800 million in network capabilities, which could create over 8,000 jobs. Economist Coleman Bazelon estimated that Ligado’s network could help create up to 3 million jobs and contribute up to $500 billion to the U.S. economy.

Opponents of the L-Band Order have claimed that Ligado’s proposed network would create signal interference with GPS services in adjacent spectrum. Moreover, in attempts to delay or undo implementation of the L-Band Order, several opponents lodged harsh but baseless attacks against the FCC’s process. Some of those process criticisms were made at a May 2020 Senate Armed Services Committee hearing that failed to include any Ligado representatives or any FCC commissioners for their viewpoints. And in a May 2020 floor speech, Sen. James Inhofe (R-Okla.) repeatedly criticized the commission’s process as sudden, hurried, and taking place “in the darkness of a weekend.”

But those process criticisms fail in the face of easily verifiable facts. Under Chairman Pai’s leadership, the FCC acted within its conceded authority, consistent with its lawful procedures, and with careful—even lengthy—deliberation.

The FCC’s proceeding concerning Ligado’s license applications dates back to 2011. It included public notice and comment periods in 2016 and 2018. An August 2019 National Telecommunications and Information Administration (NTIA) report noted the commission’s forthcoming decision. In the fall of 2019, the commission shared a draft of its order with NTIA. Publicly stated opposition to Ligado’s proposed network by GPS operators and Defense Secretary Mark Esper, as well as publicly stated support for the network by Attorney General William Barr and Secretary of State Mike Pompeo, ensured that the proceeding received ongoing attention. Claims of “surprise” when the commission finalized its order in April 2020 are impossible to credit.

Importantly, the result of the deliberative agency process helmed by Chairman Pai was a substantively supportable decision. The FCC applied its experience in adjudicating competing technical claims to make commercial spectrum policy decisions. It was persuaded in part by signal testing conducted by the National Advanced Spectrum and Communications Test Network, as well as testing by technology consultants Roberson and Associates. By contrast, the commission found unpersuasive reports of alleged signal interference involving military devices operating outside of their assigned spectrum band.

The FCC also applied its expertise in addressing potential harmful signal interference to incumbent operations in adjacent spectrum bands by imposing several conditions on Ligado’s operations. For example, the L-Band Order requires Ligado to adhere to its agreements with major GPS equipment manufacturers for resolving signal interference concerns. Ligado must dedicate 23 megahertz of its own licensed spectrum as a guard-band from neighboring spectrum and also reduce its base station power levels 99% compared to what Ligado proposed in 2015. The commission requires Ligado to expeditiously replace or repair any U.S. government GPS devices that experience harmful interference from its network. And Ligado must maintain “stop buzzer” capability to halt its network within 15 minutes of any request by the commission.

From a process standpoint, the L-Band Order is a commendable example of Chairman Pai’s perseverance in leading the FCC to a much-needed decision on an economically momentous matter in the face of conflicting government agency and market provider viewpoints. Following a careful and deliberative process, the commission persevered to make a decision that is amply supported by the record and poised to benefit America’s economic welfare.

Today the D.C. Circuit struck down most of the FCC’s 2010 Open Internet Order, rejecting rules that required broadband providers to carry all traffic for edge providers (“anti-blocking”) and prevented providers from negotiating deals for prioritized carriage. However, the appeals court did conclude that the FCC has statutory authority to issue “Net Neutrality” rules under Section 706(a) and let stand the FCC’s requirement that broadband providers clearly disclose their network management practices.

The following statement may be attributed to Geoffrey Manne and Berin Szoka:

The FCC may have lost today’s battle, but it just won the war over regulating the Internet. By recognizing Section 706 as an independent grant of statutory authority, the court has given the FCC near limitless power to regulate not just broadband, but the Internet itself, as Judge Silberman recognized in his dissent.

The court left the door open for the FCC to write new Net Neutrality rules, provided the Commission doesn’t treat broadband providers as common carriers. This means that, even without reclassifying broadband as a Title II service, the FCC could require that any deals between broadband and content providers be reasonable and non-discriminatory, just as it has required wireless carriers to provide data roaming services to their competitors’ customers on that basis. In principle, this might be a sound approach, if the rule resembles antitrust standards. But even that limitation could easily be evaded if the FCC regulates through case-by-case enforcement actions, as it tried to do before issuing the Open Internet Order. Either way, the FCC need only make a colorable argument under Section 706 that its actions are designed to “encourage the deployment… of advanced telecommunications services.” If the FCC’s tenuous “triple cushion shot” argument could satisfy that test, there is little limit to the deference the FCC will receive.

But that’s just for Net Neutrality. Section 706 covers “advanced telecommunications,” which seems to include any information service, from broadband to the interconnectivity of smart appliances like washing machines and home thermostats. If the court’s ruling on Section 706 is really as broad as it sounds, and as the dissent fears, the FCC just acquired wide authority over these, as well — in short, the entire Internet, including the “Internet of Things.” While the court’s “no common carrier rules” limitation is a real one, the FCC clearly just gained enormous power that it didn’t have before today’s ruling.

Today’s decision essentially rewrites the Communications Act in a way that will, ironically, do the opposite of what the FCC claims: hurt, not help, deployment of new Internet services. Whatever the FCC’s role ought to be, such decisions should be up to our elected representatives, not three unelected FCC Commissioners. So if there’s a silver lining in any of this, it may be that the true implications of today’s decision are so radical that Congress finally writes a new Communications Act — a long-overdue process Congressmen Fred Upton and Greg Walden have recently begun.

Szoka and Manne are available for comment at media@techfreedom.org. Find/share this release on Facebook or Twitter.