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That’s not the Internet

Friday, August 27th, 2010

In my last Cool Stuff, I mused about the Google Verizon proposal on Network Neutrality and its implications pricing incentives and a two-tiered Internet.  The post received quite a bit of attention in blogsfera italiano (here, here, and here).  Since posting, I have continued to think about a tiered Internet.  I conclude that managed services already exist in the market place, but it is not the Internet.

Hovey Slide

Rich Hovey's Genius Slide

I keep coming back to a slide I stole have been using with permission from Rich Hovey for about four years .  While a triple play network may appear to be a single network, it is really three sharing the same wire or fiber.  Indeed, there might be three completely separate sets of network equipment attached at either end of the line – Internet modem, cable box, and phone terminal.  The video programming component is not neutral and certain shelf-space on the network have been reserved, and prioritized for certain applications.  But, that’s not the Internet.

I also am old enough to remember dial-up to online services such Prodigy, CompuServe, and AOL. Each service provider would offer its own content, plus some backdoor way, such as gopher or email, way into the public Internet. However, those online service providers were not the “Internet”.

The Internet is an interconnected, end-to-end, packet switched network.

Insight: There is nothing inherently anticompetitive about broadband service providers marketing managed services.  There is also nothing new about it.  However, it would be false advertising to claim it is the Internet.

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Taking the Roof off of the Internet

Wednesday, August 18th, 2010

The recent legislative proposal on Network Neutrality proposed by Google and Verizon would “allow broadband providers to offer additional, differentiated online services, in addition to the Internet access and video services (such as Verizon’s FIOS TV) offered today.”  Some critics have argued that that the deal would create a two-tiered Internet, one upper tier for differentiated services and one lower tier for commodity packets.  The first could swallow the second, as ISPs try to up-sell their customers to higher margin products.  So, in short, the basic Internet will get crappier and the managed Internet will get more expensive and less open to competing sources of content and applications.

There is some strong precedent for this criticism since it is not a new economic phenomenon.  Emile Dupuit observed of the French rail system in 1849:

It is not because of the few thousand francs which would have to be spent to put a roof over the third-class carriage or to upholster the third-class seats that some company or other has open carriages with wooden benches … What the company is trying to do is prevent the passengers who can pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich … And it is again for the same reason that the companies, having proved almost cruel to the third-class passengers and mean to the second-class ones, become lavish in dealing with first-class customers. Having refused the poor what is necessary, they give the rich what is superfluous.

As I wrote in a previous Cool Stuff, I am not inherently opposed to two tiered pricing.

Stevenson's Rocket

Sometimes even an economist will spend £5 to ride in an open carriage, if it makes his kid happy.

Even in common carriage networks there has been tiering and prioritization, such as business and economy classes in rail and air transport, for example.  In traditional a telephone networks, there was tiering. Although every one got VGS (voice grade service), under the Bell System there was still business and residential classes of service.  The network was capable of certain forms of call prioritization in emergencies, calls to 911, calling out prioritization over calling in, and GETS (Government Emergency Telecommunications Service).  There was also prioritization based on first-in-time.  The telephone network was designed to handle only fraction of capacity, and on occasion, you might get an “all circuits are busy” message when your call blocked.

More troubling than a two-tiered Internet is the in the way which the deal could misalign economic incentives.  The Google-Verizon deal could change to the way networks compensate one another for carrying traffic to their respective customers, if the content or application provider is paying for better service on the enduser’s network.  There are basically three ways networks can compensate one another: calling-party-pays; receiving-party-pays; and bill-and-keep.  Money changes hands as their names suggest.  Bill-and-keep is the way most Internet traffic is exchanged (peering).  It works well when the networks are roughly equivalent in size, traffic flows, and cost-causation.  Receiving party pays is how most cell phone networks exchange traffic in the US.  It provides pretty good economic incentives.  The problem with the Google-Verizon deal is that it could be, in effect, a calling-party-pays arrangement.  Without regulation, these arrangements provide the opportunity for carriers to shift costs to rival networks and engage in other system-gaming.  When dealing with a “termination monopoly” such as an Internet connection, traffic should be exchanged under receiving party-pays or bill-and-keep arrangements.  The termination monopoly exists anytime there is only one network which can terminate traffic to a network end point.  It is surprisingly durable.  Even there is a healthy number of competitors in access networks (fixed or wireless), once a subscriber chooses a particular network, he forecloses all other ways for other network participants to send him traffic.  It is in the termination network’s interest to keep prices low for its subscribers and charge high costs to other networks’ subscribers. In the current case, this fact is Okay for Google because it has lots of cash.  However, its competitors and start-ups might not be able to pay for such termination.  In this way, the Google-Verizon deal could in the long run serve to limit others from the market place.

In the end, either competition or regulation has to constrain this behavior.

Insight: Google Verizon proposal is not so much a threat to network neutrality (lower case) as it is to network economics.  Part of this is the public face of a private bargaining game. Players in the value chain are using the political and regulatory process as they struggle to gain a larger share of that chain.  It is not evil, merely self-interested.  That is fine.  At some level, Google and Verizon should be lauded for working towards a compromise and to move things forward.  But, they should not get to make public policy.  That is the exclusive domain of Congress and the FCC.  The FCC should take those views into account then offer its own independent decision to impose regulation or not.  Professors Susan Crawford and Lawrence Lessig (both of whom I admire very much) get this exactly right in their Op-Ed last week.  If Google and Verizon want to offer an internet without a roof, the FCC should make sure that another company is able to offer a competing one with a roof.

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Every Ash Cloud Has a Silver Lining (for some)

Sunday, April 18th, 2010

Love to fly.

We have enjoyed a perfectly sunny weekend in Northern Germany – not a cloud in the sky, not even a contrail.  Obviously, all commercial air traffic in the region has been grounded due to the eruption of Iceland’s Eyjafjallajokull volcano.  The only air traffic near us includes some low-flying, single-engine planes flying VFR in the Rhine river corridor, a few gliders kettling over Oberkassel, and a hot air balloon soaring over Mehlem.  Deutsche Bahn is running the ICE (the 300 kmh train) down the regional lines to add rail capacity to move people around during the crisis.

As I am sitting in my yard and looking toward the jet-plane-free sky, I am wondering what the long-term implications might be if Eyjafjallajokull continues to spew volcanic ash into the sky for the next few weeks or, worse, if it continues to erupt sporadically over the coming months and years.  It could make air travel intermittent and unpredictable in Europe.

This could be potentially damning for the airlines lines, but a boon to telecommunications infrastructure providers, video conferencing firms, and high speed rail which could see demand for their products and services take off (pun not intended).

Don’t get me wrong, I love planes and I love flying (see the picture), but I am also a big fan of both high-speed rail and telecommunications.  So, I am not rejoicing in this.  If people cannot get to where they need to go to conduct their business by air, they will have to find other means or even substitutes.  Most of Western Europe is crisscrossed with high speed rail links.  Many of these trains are capable of speeds which are nearly half that a jet aircraft.  On trips of less than 500-600 km, it is actually faster and easier to take the train because one does not have to arrive two hours before departure and deal with getting through security.  If one cannot get where he needs to go, video conferencing is the only option.  Companies like Cisco and Skype have already made ventures into high-definition, mass market video conferencing solutions.  An essential ingredient for these solutions to work is ultra-broadband access networks.

Insight:  The eruption of Eyjafjallajokull could provide the impetus for further investment in communications infrastructure and high-speed rail in Europe.  The downside of this fact for the US is that it will significantly harder to stay competitive in these crucial infrastructure areas.

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Keeping up with the Jitsuzumis

Saturday, April 10th, 2010

The first goal of the FCC’s recent National Broadband Plan is to ensure at least 100 million US homes have access to Internet connections with download speeds of at least 100 Mbps by the end of the decade (the year 2020).  This goal strikes me as not being a terribly ambitious.  I only have a single data point to support that conclusion, which is typically referred as an anecdote.

Prof. Jitsuzumi's Class

One of these is not like the others.

During a business trip to Japan last year, I traveled to Fukuoka to visit my good friend Prof. Toshiya Jitsuzumi.  (According to Wikipedia Fukuoka is Japan’s eighth most populous city and its second youngest).  Prof. Jitsuzumi invited me to give two talks: one to Kyushu University’s Faculty of Economics and one to his undergraduate students in communications economics.  To the undergraduates, I gave a lecture about the policy and economics of Next Generation Access Networks in the European Union.  I found Prof. Jitsuzumi’s students to be bright and engaging.  In the middle of the lecture, the students had some trouble understanding one of my stats on the number of homes passed by fibre optic access networks in the EU.  At first, I thought the confusion was due to my weak Japanese language skills.  After a bit of back and forth, I discovered the source of the confusion.  Prof Jitsuzumi’s students all have fibre optic connections to their homes.  I was the only one in the room who did not have a fibre optic Internet connection to his home (NB: I live in a suburb of Bonn, Germany).  The source of the confusion was that they were questioning why one would want to count homes passed.  This is not obvious if you and all your classmates  already has a fibre optic connection.

Insight: Granted Prof. Jitsuzumi’s class is not a representative sample set, but I can’t help feeling that the FCC is trying to catch the US up in ten years to where Japan is now.  From what I have been reading on the listservs, given current pace of deployment of FiOS and DOCSIS 3.0, the market will accomplish this goal on its own.  This fact begs the question what is need for governmental intervention.  Instead, the FCC should propose a more ambitious goal (one that might have a higher risk of failure) and devise a road map necessary for achieving that goal.  Perhaps this will come out in follow on work to National Broadband Plan.

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Broadband is an Adjective

Saturday, March 27th, 2010

Over the past two weeks, I have heard people talk and read people’s blogs about the FCC’s National Broadband Plan.  One of the things which troubles me is the use of the term “broadband.”  An illustrative comments might be, “we have to ensure rapid deployment of broadband.”

Broadband is an adjective, not a noun.  It refers to the available frequencies in a given communications channel to transmit information.  Further, networks are not “fast”.  Signals in an electronic communications network travel at the speed of light for the given medium, no faster or slower.  The only thing that changes is the width of the band of frequencies used which has a direct impact on data transfer rate – the time it takes to transfer a file of a certain size between two points on the network.

So, to be precise, we want to ensure rapid and widespread deployment of broadband networks.

Insight:  I do not drone on about this just to be a smartass.  Communications networks and policy are extremely complicated matters.  In this arena, it is really hard to get things “right”.  It is therefore very important that we use language with precision.  There is, of course, this creative use of the broadband as a noun from former-FCC Chairman Kevin Martin.*

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Wi-Fi? Wi-Not?

Thursday, February 18th, 2010

In the past several weeks, there have been several news articles and blog posts about the possibility of Wi-Fi being a solution to congested mobile networks.  There was a piece in Total Telecom, one by Maggie Reardon, and one by Stephen Rayment for the FT.

The argument is that the widespread adoption of smart phones and mobile Internet has congested mobile wireless networks to the breaking point.  In order to alleviate congestion on their 3G or 4G network, carriers could offload traffic onto Wi-Fi networks (including those of other operators).  This would free up the carriers’ limited spectrum resources which they obtained at auction through the licensing process.  And, it could be done more cheaply than upgrading existing cell sites. (Dana Blankenhorn at ZDNet correctly points out the inconsistency of giving more spectrum to wireless carriers if unlicensed operation is the solution. It was not so long ago that wireless carriers were crying foul that all Wi-Fi networks such as the now defunct Cometa presented unfair competition because they had not spent billions to acquire their licenses at auction.)

Insight:  Integrating mobile networks with Wi-Fi is a good idea.  It is, however, not a new one.  At a conference nearly eight years ago at Columbia University and in the ensuing paper, I suggested that wireless carriers consider incorporating Wi-Fi into their networks.  My reasoning was not so much about load balancing as it was about market segmentation.  Complementing existing 3G networks with Wi-Fi would enable carriers to offer tiered services – a best efforts service and a better than best efforts service – charging different prices for both and increasing profitability.  I also suggested it would be possible to use spectrum not licensed to the carrier such as the spectrum which has been allocated to CB Radio,  GMRS, or FRS.  A 2003 FCC rule change would allow handsets cable of operating both on mobile networks and in these bands. In this way, carriers could offer services like push-to-talk or walkie-talkies without encumbering their already burdened spectrum and networks. Users would be able to speak directly to others in their area, even users on other carriers’ networks.  Alas, there was not much economic incentive for carriers to sell such handsets because it would reduce the mobile termination revenues which carriers charge one another (and eventually their subscribers) for completing calls over their networks.  However, with the balance of market power tipping away from networks and in favor of handset providers recently, it might be possible that we would see such enabled handsets in the next few years.

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Network Neutrality and the Samurai

Sunday, January 10th, 2010

The ITU Association of Japan just published my September keynote on Network Neutrality in the Highlights section of its January 2010 ITU AJ Journal.  The article is password protected, but if you are a member of the Association, you can get it from the website. (The article is in Japanese).

One of the points I made in the keynote (which is not in the brief article), was an analogy of Network Neutrality issues to Edō Period Japan.  The sankin kōtai laws of the Tokugawa Shogunate imposed a rule of prioritization on the Tokaido and Nakaseido roads between Edō (now, Tokyo) and Kyoto, as well as on other “kaido” emanating from the capital.  Access to Japanese roads was prioritized by social status, with only the Samurai class having access to the center of the road as their procession called a daimyo gyoretsu passed.  Lower classes were required to clear the road kneel down and bow as the Samurai passed.  Punishment for failing to clear the road was possible decapitation.

The concept of prioritization is not new, but it is universal.  It expresses fundamental and competing notions of fairness versus economic efficiency.  We think it is unfair to give preferential treatment to certain customers (those who are willing to pay more or have higher social status).  At the same time, we also think it is economically inefficient to mandate a single (or limited set of) Internet access options for everyone, including those who are willing to pay more for premium services.  When the network (or Tokkaido Road) is congested, prioritization can make users better off.  Prioritization can be accomplished based on economic characteristics, arrival order, processing load, urgency, or even social status.

Insight: Since all messages on an IP-based network travel at the same speed (the speed of light), in discussions of Network Neutrality, it is never who gets to go faster, rather which packet, or which samurai, gets to go first.  Such prioritization must be done in a way which is socially permissible and economically desirable.  Given that the penalty for breaching a classes of service restrains in Edo Japan was capital, I think I would rather get a reset packet.

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Next Generation Spectrum Regulation

Wednesday, December 9th, 2009
Spectrum band plan created by price-guided mechanisms

Spectrum band plan created by price-guided mechanisms

Winston Churchill famously said, “democracy is the worst form of government except all the others that have been tried.”  Perhaps the same can be said of spectrum auctions.  Auction mechanisms have been used starting in New Zealand in 1994 to award spectrum licenses to those who have the highest monetary value. Spectrum auctions have generally been highly effective, with the occasional failure.

Despite their success, auctions have some notable drawbacks such as the so-called winners curse and the fact the up-front license fees require spectrum users to raise capital beyond the princely sums necessary to build a wireless network – a barrier to entry.  However, auctions are far better than the administrative processes which have been used for nearly a century to determine spectrum assignments.  Administrative decisions tend not to be economically efficient because the regulator has limited access to information which market participants would be more able to amass and utilize. There are also problems of political independence and of regulatory capture.

While auctions have been used to determine who gets spectrum rights, they have not really been used to determine the contours of those rights.  These contours are still determined through administrative decisions.

I have just completed a major study on next generation spectrum regulation which can serve as the basis for removing certain barriers to spectrum access, allowing more effective sharing and efficient allocations.

I can think of no reason why a properly designed auction could not determine not only who gets the spectrum rights, but what those rights are.  (Think of it this way: an auction on eBay for a car could determine not just who gets the car, but the color of the car and whether it comes with, say, leather seats or alloy wheels.)  I built a mathematical model of a next-generation spectrum auction using the Shannon-Hartley Theorem as a means modeling behavior by valuing the spectrum when considering the actions of other would-be users.  In my model bidders could express their demands for not just bandwidth, but power, modulation, underlay/interference, and other characteristics.  When I ran an MS Excel-based version of the model, the result was a mix of high and low power uses in the winning bids.  The low power bidders (similar to UWB spectral densities) could in a second round be aggregated into some form of licensed commons with the coordination protocol determined in that part of the auction.  The outcome would resemble a shared use or common arrangement where no one party controlled the spectrum.  However, the most interesting thing was that because bidders could obtain spectrum allocations that more closely fit their needs, more than 40% of the spectrum bandwidth available in the auction was left unsold.  This spectrum was valued by the market to be best allocated to either public sector use or even low- to mid-power unlicensed use.

Insight:  You cannot see, touch, taste, smell, or hear radio spectrum.  Spectrum is not a thing; it is an idea – a legal and engineering construct that explains a physical phenomenon and helps us arrange our behavior accordingly.  That fundamental physical phenomenon is the fact that when electromagnetic waves are: (1) harmonic in frequency; (2) incident in time; and (3) alight on the same reception device, the ability of those waves to be used as information carriers is degraded.  This deleterious effect is known to us as interference.  Without some form of intervention, it is impossible to exclude or limit the use of a common resource such as spectrum. Without exclusion, users consume the spectrum without regard to fact that their usage causes the deleterious effect of interference for other would-be users.  Policies which help to mitigate inference with the least amount of effort will be the most socially beneficial.

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Japan Communications’ New Business Model

Wednesday, October 28th, 2009

On my October business trip to Tokyo, I took time to meet with Japan Communications‘ CEO Frank Sanda.  I know Frank from my work on the Eamon Ryan’s Advisory Forum on Broadband.  I wanted to see Frank and his team because they just launched a new product for Hewlett-Packard.  HP will now sell netbooks in Japan which come with 100 minutes of mobile wireless connectivity. Consumers can buy connectivity on a pay-as-you-go basis from Japan Communications, but branded as an HP service.

Japan Communications built a really cool billing system to handle payment and authentication.  But, Japan Communications does not have a wireless network.  That it gets from the leading carrier NTT DoCoMo. Japan Communications leases capacity on DoCoMo’s network nationwide, and has the ability to purchase more capacity as this business grows. HP gets to determine which devices are sold and can sell the connectivity as its own.  Furthermore, Japan Communications could set up such a system to sell anyone else’s networked devices.  Say, how about a Carterfone?

While Japan Communications negotiated with DoCoMo to get on its network, it was able to do so because the Japanese Ministry for Communications and Information created which rules opened the networks of three largest wireless operators DoCoMo, KDDI, and SoftBank to wholesale. There was apparently a three-year battle at the Ministry in which Japan Communications was at the center. Japan’s policy to require wholesale access to wireless networks goes further than the US FCC’s rules for its 700 MHz auction which mandated these open these networks to foreign devices and handsets.

Insight: This seems like a really cool business model with implications for carriers, devices manufacturers, and application service providers around the world. I have said in a previous Cool Stuff, it is not a question of whether wireless networks should be open or closed. Rather, there is some optimal level of openness which will maximize the carrier’s return.  A privately determined level of openness will no doubt diverge from a level of openness which represents a public optimal. However, this begs the question whether opening networks to wholesale in this way is good policy and whether the Europe and the US should follow suit.  The answer is far more complex than can be addressed in a humble blog entry.  Nonetheless, I am curious see how this market will develop.

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International Perspective – Allocating Blue and Amber Light Spectrum

Wednesday, June 17th, 2009

Westminster eForum Keynote Seminar: Emergency Services & Public Safety Spectrum
11 June 2009
Remarks as edited.

Introduction

Good morning. I would like to begin by thanking David Happy and the Tetra Association for inviting me here to speak to you.  I would also like to thank Thomas Raynsford for doing everything in his power to get me here today.  I would like to not thank the London Underground for doing everything in its power to not get me here today.

My name is Kenneth Carter.  I am an American who works for WIK-Consult in Bonn, Germany.  Our firm advises both public- and private-sector clients on issues related to network economics, strategy and policy. Previously, I was Senior Counsel in the Office of Strategic Planning at the US Federal Communications Commission and the Deputy Director of the Columbia Institute for Tele-Information at Columbia University.  I hold both juris doctorate and a master’s of business administration degrees.

It is a great pleasure for me to be here in London today to talk about amber light and blue light spectrum.  To be absolutely honest this is my second choice.  I wanted to go to Amsterdam to talk about “red light” spectrum.  I can assure you they would be talking about a different type of “siren call” at the other event.

I am here to talk to you about the US experience in trying to create a dedicated band for public safety networks and its attempt to auction that spectrum to the highest bidder.

Background

In 2007, the US Federal Communications Commission commenced proceedings to create an auction for the spectrum in the 700 MHz band for use in a nation-wide network public safety.  This part of the auction was called the D Block.  The spectrum was being released as part of the US transition to digital terrestrial television.  The FCC paired a single 10 MHz wide license with an adjacent 12 MHz wide public safety block in the band.  The auction rules specified a $1.3 billion reserve price for the auction based on 110% of the estimated cost of relocating incumbent federal users of the spectrum in order to clear the band.  The commercial winner of the license at auction would be required to negotiate with a Public Safety Spectrum Trust organization to build such a network in a private-public partnership. The commercial licensee would be permitted to use the 12 MHz of public safety spectrum on a preemptable basis.  The license came with a build out requirement to provide coverage of 75%, 95%, and 99.3% of the population in four, seven and ten years respectively.

Two prime potential candidates for this license emerged.  One was named Cyren Call, the other Frontline Wireless.  Shortly before the auction, Frontline lost the backing of its investors and was forced to withdraw. The auction proceeded and a single bid of $472 million was placed by Qualcomm.  This bid was only 35% of the $1.3 billion reserve price set by the FCC.  The auction concluded without a license being assigned.

The auction was immediately decried as a failure by the industry and the blogisphere.

Analysis

Well, what went wrong?  We don’t know for sure, since we cannot really ask Frontline’s investors.  However, at least four reasons have been put forth.

1.  Writing on the blog Wetmachine, Harold Feld lays out the case that the head of Cyren Call Morgan O’Brien may have tried to scuttle the plans with Frontline’s investors.  Cyren Call had become an advisor to the Public Safety Spectrum Trust.  This presented a certain conflict of interest.  Mr. O’Brien is alleged to have informed Frontline’s investors that the Public Safety Spectrum Trust would charge the commercial licensee $500 million in spectrum usage fees for the preemptable spectrum, over the course of the license.  These fees would be over and above what Frontline would have to pay in terms of spectrum license fees and the costs of constructing and maintaining the network.

2.  Under the FCC’s rules, there was a certain amount of ambiguity regarding the rights and responsibilities of commercial licensee vis-à-vis the Public Safety Spectrum Trust.  In the event of a disagreement in negotiations between the commercial licensee and the Public Safety Spectrum Trust, the FCC had the power to intervene and determine the outcome of that disagreement.  In the wake of the September 11th Terrorist Attacks, no public official, either elected or appointed, can be painted to look weak on public safety. So, if the Public Safety Spectrum Trust were to request something which is perhaps unnecessary and unprofitable, but not irrational, it is likely that Commission officials would side with the Trust and against the commercial licensee.

3.  This problem may have been compounded by issues of personality.  FCC Chairman Kevin Martin’s pick to lead the newly formed Public Safety Homeland Security Bureau was Derek Poarch.  Chief Poarch was previously head of the police department of the University of North Carolina, Chairman Martin’s undergraduate alma mater.  Given, that Chief Poarch had no track record in Washington spectrum policy matters, Frontline’s investors had no means to anticipate whether he would handle matters equitably in regard to the negotiations with the Public Safety Spectrum Trust.

4.  Finally, the commercial licensee could potentially be exposed to unlimited liability for tort claims arising from the operation of its network.  During the September 11th Terrorist Attacks, the New York City firefighters inside the Twin Towers perished because they did not receive the evacuation order due to the fact that their radio equipment did not function properly inside the high-rise buildings.  Many police officers heard the call over their radio system and evacuated safely.  The prospect of that type of law suit and the associated liability is something that most investors would reasonably shy away from. This is especially true when coupled with the fact that there is some chance that the preemptable spectrum would not “fail safe”, allowing commercial uses to interfere with public safety uses.

In the D-Block auction, it is not necessarily the market which failed.  Rather the outcome was determined by the decisions of a few handfuls of investors in a single firm. Or maybe even the actions of a single individual.  In sum, there was probably too much uncertainty and too many restrictions for Frontline to conclude it could earn a positive return on its investment in order to bid for this spectrum.

The result is that today, June 11th,  is the last full day of analog terrestrial broadcasting in the United States and tomorrow, when the US switches to DTV and the analog frequencies become available, Americans will still be waiting for their national public safety network.

Conclusion

So, what are the lessons for the United Kingdom?  If a nation is to pursue market-based or price-informed spectrum policy for public safety, it must do so extremely judiciously.  It must be aware of how all incentives and uncertainty might affect or distort the outcome.

Generally, I am a proponent of price-guided spectrum policy.  Market forces are generally highly effective at allocating rights to their highest monetary value recipients. They can rationalize administrative determinations of who, what, and how much.  However, they do not work particularly well for public safety concerns.

In fact, markets run the risk of creating perverse incentives for public safety.  This is because, unlike other economic goods, there are no good substitutes for the inputs or outputs.  An actuarial can calculate a value of a lost life.  But, if it is your life, the value is infinite, perhaps a little more for your children.  Similarly, public safety can have no substitute for its radio communications.  You can really long telephone cord on the back of each fire truck, ambulance, and police car?!

Since we cannot leave it to the market to decide how much of the good ” public safety” to produce, we must address as a policy matter the trade-off between the possibility of administratively allocating a block of spectrum which is in some way too much or too little.  The cost of getting a determination which is “suboptimal” may pale in the face of the possibility of a failed allocation.  Thus, it may instead be more efficient to make an administrative determination about the spectrum assignment award it to a government entity which will take responsibility for construction and operation of the network.  Now, some part of that might be outsourced, but still the Government maintains the responsibility.

In the UK, you will soon have to make an allocation for the next generation public safety networks – the “son of Tetra”.  Ofcom will have to comment the production of a business case for that allocation.  Perhaps it is preferable not to let the perfect be the enemy of the good and may an acceptable, albeit suboptimal allocation.

A year ago, I coauthored a White Paper for Motorola and EADS urging the allocation of two additional 15 MHz wide blocks from the Digital Dividend to a pan-European, dedicated band for mission critical broadband networks for public safety.  This is inline with the US allocation from its Digital Dividend; however, the US already has 97.2 MHz nation-wide for public safety.  Europe, by comparison, has only 10 MHz.

It would seem to me that commonsense alone tells you that additional spectrum is needed since the principal duty of the State is the protection of its citizens, and for the UK to be at the very forefront of developments.

I thank you for your time and attention, and look forward to your questions.

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