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Back to the Future Station

Saturday, July 31st, 2010
Back to the Future Station

L - R: Carter, Neumann, Kii, Sato

On my recent business trip to Tokyo, I had the opportunity to have lunch with my good friend Hajime Kii and his family.  I know Kii-san from when he was a senior executive at NTT America and I was working at CITI at Columbia University.  Kii-san was kind enough to arrange a visit to NTT DOCOMO’s Future Station for me and WIK’s CEO Karl-Heinz Neumann while we were in town.  At its Future Station, DOCOMO presents a short film showcasing its high-concept vision of its product and service offerings for the near-term future.

I had mentioned to Kii-san that I had seen it in 2001 as part of a delegation from Columbia University including Eli Noam and Robert Pepper (now at Cisco Systems).  The 2001 version included a short film showed DOCOMO’s vision for wireless communications in the year 2010.  Eli and Pepper kept giggling and looking at me because the kid in the 2001 film was named “Ken”.  Now that it is 2010, I was clearly interested to compare the 2001 film to the 2010 version and to the products currently offered.

Well, aside from the fact that the kid in the film is now called Hiro, many of the ideas in the 2001 film have made their way into current products and prototypes.  After the film we got to tour their showroom.  Granted, the floating touch screens are still science fiction; however, products like ITS (Intelligent Transportation Systems), augmented reality, multimedia handsets, mobile commerce, and location-aware services have made it into their cool new handsets.  My favorite handset comes with a detachable QWERTY keyboard and a projection monitor.  One can use any Bluetooth keyboard (unlike my complaint with the iPhone) and can use the detachable projector to make presentations (movie screen not included).  We also were able to play with a protype handset which does augmented reality, allowing you to see what it would be like to have a new car (you can change the style, color, etc.) in your driveway.  Dr. Neumann was able to use one of display handsets to buy a drink from a vending machine and buy a Big Mac from a McDonald’s mock-up.  Using your cell phone to pay for anything from train tickets to lunch to groceries is completely old hat in Japan.  DOCOMO also showed us two new handsets which have natural wood exteriors.

Hokusai's Great Wave off Kanagawa

Hokusai's Great Wave off Kanagawa

The other cool fact I learned from the 2010 film is that the yukio-e woodblock prints of the master Hokusai Katsushika captured the movement of water at 1/5000 of a second.  (By comparison, most digital SLR cameras are not faster than 1/1000 of a second.)

Insight: DOCOMO’s Future Station is very cool.  While visiting the Future Station, I was like a kid in a candy shop on Christmas morning.  Being there reminded me why I got into telecommunications in the first place – because tomorrow will always a brighter day with bigger (smaller), better, faster and Cooler Stuff.  I will have to go back in 2020.  I will give you an update then.

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Report from ITS

Friday, July 9th, 2010

ITSEvery once in a while, one comes across something so trivial yet so flattering.  I was fortunate enough to attend the International Telecommunications Society 18th Biennial Conference in Tokyo last week.  I attended the panel on radio spectrum on the last day of the conference.  Two of the four papers presented on the spectrum panel were derived in some way from research I published in 2009.

The first paper was the History and Conceptual Development of Spectrum Commons in the USA by Nattawut Ard-Paru of the Chalmers University of Technology.  The historical treatment of her paper was taken from taken from Coase (1959), Hazlett (1998) and my Unlicensed to Kill: A brief history of the FCC’s Part 15 Rules.  Npot bad company to be in!

The fourth paper on the panel was Exclusive Spectrum Rights vs. Spectrum Commons by Dr. Kiyotaka Yuguchi of Sagami Women’s University.  Dr. Yuguchi reviews some of the recent literature in an attempt to synthesize commons and exclusive rights approaches.  He then develops certain extensions to my 2009 spectrum pricing model in my paper Next Generation Spectrum Regulation for Europe: Price-Guided Radio Policy.  Dr. Yuguchi looks at the marginal rate of substitution for technology for spectrum.  This is admittedly only implicit in my interference function.  He makes it explicit. However, this is what I had hoped people would do with the basic model – add complications and refinements which I did not have the resources to do in the original paper.

Insight:  I have been working in radio communications for nearly a decade.  It was so encouraging for me to see that my recent work is having such an important impact on the direction of current research.  If you work hard enough and long enough, you every once in a while you earn bragging rights.

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Twenty-Five Years of Unlicensed Spread Spectrum

Monday, May 10th, 2010
Telesystems' ARLAN

The first commercial spread spectrum product, Telesystems' ARLAN, a radio LAN introduced in 1988. Source: FCC.

Today, the Wi-Fi Alliance and the Wireless Gigabit Alliance announced an enhancement to the current suite of 802.11 standards (Wi-Fi) which promises multi-gigabit wireless networking, in the 60 GHz frequency band.  The two associations expect that devices which have the new enhancement will be tri-band, also able to operate in the 2.4 and 5.8 GHz bands where Wi-Fi currently operates.

However, I am not sure if the Wi-Fi Alliance or the Wireless Gigabit Alliance realize the auspiciousness of the occasion of their announcement.  The announcement comes twenty-five years and one day after a much ignored FCC decision.  On May 9, 1985, FCC adopted rules which permitted the operation of spread spectrum systems in the ISM bands (902-928 MHz, 2.4-2.48 GHz and 5.725-5.85 GHz).  This rule change enabled the commercial rise of Wi-Fi, as well as so many other products and technologies take for granted today, such as Bluetooth, cordless phones, and baby monitors.

The FCC took this decision on its own initiative, rather than relying on requests for rule changes from the industries it regulates.  (In fact, many of the companies which initially opposed the rule change now earn millions of dollars of revenue from selling products that operate in these bands.)  One important person diving the FCC proceeding was national treasure Mike Marcus.  Marcus published a terrific account of the FCC proceeding in the journal info last year.  (I published in the same issue, and beat him out for best paper).  For his vision and insight in pushing the rule change through, Marcus was rewarded with nine years of exile to the outer Bureaus of the FCC.

Insight:  It never ceases to amaze me that a well-made decision can have exponential implications down the line.  Relying on the industry to tell the regulator can be helpful; however, this approach does not always serve the public interest.  In all instances, the regulator should exercise independent judgment.

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The New Dutch Auction

Friday, May 7th, 2010

A Dutch auction is typically one where prices go down.  The auctioneer starts with a high price and then asks for lower prices.  The first person to call out gets the item at that price.  However, this is not how it worked in Holland last week.

A week ago, the Dutch telecommunications regulator Agentschap Telecom completed a spectrum auction for licenses in the 2.6 GHz band.  Five bidders spent just over €2.6 million to acquire 130 MHz of the 190 MHz in the band, but they did so in an unusual way.  Agentschap’s auction had two parts.  In the first part, bidders vied for a certain amount of spectrum.  In the second round, the bidders competed for specific 5 MHz blocks, with the option of single 5 MHz blocks of unpaired (TDD) spectrum or 2 x 5 MHz blocks of paired (FDD) spectrum.  This determined the pairing the band.  No FDD spectrum was acquired.

In this way, the auction determined whether the spectrum would be used for cellular type uses (FDD) or for WiMax-type uses (TDD).  To my knowledge, Agentschap’s auction was only the second time an auction was used to determine not just assignment but allocation as well.  In 2008, ComReg in Ireland used a very similar auction in the 26 GHz band.

Insight:  In a previous Cool Stuff, I wrote about my work to design an auction which could not determine not only who gets the spectrum rights, but what the contours of those rights are.  I called this approach: Price-Guided Radio Policy.  Now, we have two data points to suggest that this approach can work and can efficiently determine not only spectrum assignments but allocations as well.

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The Spoon

Wednesday, May 5th, 2010
Don't try to bend the spoon.

Don't try to bend the spoon.

In the classic 1999 film The Matrix, the protagonist, Neo, played Keanu Reeves, goes to see an oracle.  In the waiting room, he happens upon one of the oracle’s child disciples who is sitting zazen and melting a metal spoon with mind.

Spoon boy: Do not try and bend the spoon. That’s impossible. Instead… only try to realize the truth.

Neo: What truth?

Spoon boy: There is no spoon.

Neo: There is no spoon?

Spoon boy: Then you’ll see, that it is not the spoon that bends, it is only yourself.  (Source IMDB)

By the same token, I have long wondered if there is no radio spectrum.  This fact is among the reasons that the unlicensed regime works so well.  It is spectrum policy, just without the spectrum

The jurisprudence underlying the Part 15 rules is that unlicensed spectrum is not spectrum at all…. It is merely an idea – a concept – a way of describing and organizing the physical world in our minds and in our actions. Spectrum is a legal and engineering construct to control for an immutable fundamental physical property… (Source: Unlicensed to Kill)

The Part 15 rules simply consider what is the maximum amount of irradiated power which can be emitted by a device without an unacceptable probability of causing harmful interference.

However, most of spectrum policy other than the Part 15 rules deals with regulating the “airwaves”.  Yet treating radio operations as spectrum or airwaves or property is a false paradigm.  This point was driven home to me a few years ago when I was an FCC staffer.  I was once filling out my timesheet at the FCC.  One of the lines on the sheet was “spectrum” and it dawned on me that I was spending more than 66.7% of my time dealing with something which had momentum, but no mass.  Somewhat paradoxically, electromagnetic energy behaves simultaneously like a wave and like a particle, carried by photons.  This is an important and powerful observation.  In fact, it was for this observation (the so-called photo-electric effect), and not General or Special Relativity, that Albert Einstein was awarded the Nobel Prize.

So, while we are regulating the airwaves, who is regulating the photons?!

Insight:  I raise this issue now because just last week the FCC announced the (re)establishment of its Spectrum Task Force.  Honestly, I am not exactly sure what implications for radio policy of considering the dually of electromagnetic radiation as both a wave and a particle might be; however, going forward perhaps the STF should undertake critical rethinking of this crucial policy area from the basics up.

Since we cannot bend the spoon, perhaps it is time we bend ourselves.

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The Uncommon Unlicensed – A Licensed Commons

Wednesday, March 24th, 2010
My Marriage License

I received a license, and my property rights all turned to commons.

I recently read Kevin Werbach’s excellent article on the TV white spaces, The Wasteland (not to be confused with T.S. Eliot’s The Waste Land).   I shared some of my ideas on his article with Kevin, and after an email exchange I came to the conclusion that there is a significant challenge to the successful opening up of the TV white spaces.

Under the White Spaces order, any unlicensed device which will operate in the band has to query a database and obtain permission before it can start transmitting.  Kevin argues that the white spaces database is independent of spectrum policy.  While that might be true, the imposition of the database will certainly hold implications for spectrum policy.  When a white spaces device has to query a database and obtain permission before it can operate, it is, by definition, no longer an unlicensed device.  Rather, the regime is a licensed commons.  This grant of permission is in fact a form of a license, albeit a light one.

Let me digress for a second.  A license is a grant of permission to do something.  It affords the right to “verb a noun”.  With a license one may: drive a car, own a dog, (try to) catch a fish, marry the woman of his (or her, depending on the state) dreams, or emit radio energy into the ether.  A spectrum license is usually coupled with some expectation of interference protection, but not always. The FCC already has utilized a myriad of different license types, including license-by-rule, operator, class, station, and geographic.  (I detail several different license types in my 2004 TPRC paper, at pp. 9-16.)

In my 2006 law review on Personal Communications Services (PCS), I examine both the licensed and unlicensed version of PCS.   The licensed commons is one of the factors which killed the unlicensed version PCS.  For unlicensed PCS, the FCC created a regime under which unlicensed users had to get permission from a non-profit firm called UTAM before they could start using their unlicensed PCS devices.  In doing so, the FCC inadvertently delegated to UTAM the power to grant licenses.

Think of the poster child for the unlicensed regime – Wi-Fi.  I can turn on my Wi-Fi anytime, anywhere, and leave it on until Ron Coase’s cows come home from grazing on the commons.  No grant of permission is required to access the spectrum (emit RF energy).  Now, consider a white spaces device.  When it turns on, it has to access a database somewhere and get the Okay to start emitting RF energy.  This is a grant of permission and is a form of a license, although the FCC has made Google or whoever is running the database is now the de facto licensor.

A licensed commons can be a very good thing.  Ham radio and the interstate highway system are both licensed commons and have both been very successful.  So, this type of arrangement can work in practice; however, when the alternative is less restrictive, the licensed system will not be desirable.  The FCC’s Part 15 rules are the international gold standard for unlicensed (and licensed-exempt) operation.  They are the one area where U.S. communications policy still clearly stands head and shoulders above the rest of the world.  The reason the Part 15 rules work so well is that it is spectrum policy without the spectrum (mathematically, spectrum policy – spectrum = Part 15).  The rules simply consider what is the maximum amount of irradiated power which can be emitted by a device without an unacceptable probability of causing harmful interference.  It is a classic efficiency approach and should be the basis of all radio operations.

In order for the White Spaces Order to be successful must offer device manufacturer and device users more benefit than they could achieve by using the existing Part 15 rules.  Device manufacturers can make devices to operate under the less restrictive parts of the Part 15 rules (the U-NII and spread spectrum rules).  So, they never made any successful products for U-PCS.   The same will be true for the White Space rules.  In order for the White Space database system to work, it will have to offer greater flexibility, more power, wider tuning ranges, more suitable frequency bands, etc. than the current Part 15 rules allow.

Insight:  Should the band not deliver on its promise punditocracy on the ‘property rights’ side of the spectrum policy debate will say: “I told you so – unlicensed never works.”  The sad irony is that if the White Spaces rules fail to deliver, it will not be because it is an unlicensed regime, but because it is truly a licensed regime.  I told you so, first.

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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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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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