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Broad Casting for a Net

March 2, 2010

In the latest from the department of ridiculously-obvious-yet-still-misperceived-opportunity-costs, the New York Times recently ran an op-ed pointing out that auctioning off the least efficiently used parts of the public’s airwaves could yield huge value both for the Treasury and the public that has been hamstrung by the command economics underlying spectrum allocation.  Ever since the beginning of the 20th Century, the F.C.C. has controlled the use of broadcast spectrum–a quintessential public good–by allocating certain frequencies to certain broadcasters much in the same way as though someone licensed a route to travel across an ocean or a lake.  The F.C.C. justified this massive state control over the public airwaves under the pretense of needing to manage and prevent interference between stations that would otherwise ruin each other by trying to broadcast at the same frequency.

Why is the current use of this spectrum so inefficient? First, because of the need to prevent interference among stations, only 17 percent of it is actually allocated by the F.C.C. for full-power television stations. (The so-called white space among stations is used for some limited short-range applications like wireless microphones.)

Today, the competitors to broadcast (i.e., phone, cable, and satellite) all maneuver through different regulatory regimes with different modes of control and different requirements in how they compete that evolved from times when the different modes of communication actually performed different functions.  Now, any signal can send any kind of information because information is digital. You can get television, phone, and internet from any of the aforementioned delivery mechanisms.  However, the spectrum is unlike those other mechanisms that all require some actual investment in hardware, be it the cable, fiberoptics, or satellite receivers to get the intertubes pumping media into your house.  Such technical monopolies do require legitimately prohibitive investment, but the spectrum is both free and public. And yet, you can’t get much other than AM, FM, or network TV over these airwaves–and who even does that these days.

…Over-the-air broadcasts are becoming a nearly obsolete technology. Already, 91 percent of American households get their television via cable or satellite. So we are using all of this beachfront property to serve a small and shrinking segment of the population.

And, of course, they needed the authority to go after pirates who don’t listen to such commands!  But in all seriousness, in what other area of commerce do we allow such extensive government control and kingmaking?  Don’t answer that.  The point is that spectrum allocation is beyond mere regulation to avoid interference at this point.  Hell, the entirety of Wi-Fi fits on the part of the spectrum reserved for garage door openers.  No, the relationship between the private broadcast industry and the state is hand-in-glove, no longer resembles “licensing” so much as a pure entitlement that has long been given away.  The biggest problem with state control, of course, is that it stifles innovation by encouraging rent-seeking behavior by the broadcasters within the current allocation structure.  The broadcasters use spectrum inefficiently to justify their broad “need” for the entitlement, and in the way that makes their services seem necessarily and permanently entrenched.  Putting the spectrum firmly in either public or private hands would be far superior than the status quo of intertwining the state regulatory regime: the inefficiencies, corruption, and susceptibility to lobbying are a volatile combination in an area as technically complex and subject to rapid change as spectrum use.

Professor Hazlett estimates that selling off this spectrum could raise at least $100 billion for the government and, more important, create roughly $1 trillion worth of value to users of the resulting services. Those services would include ultrahigh-speed wireless Internet access (including access for schools, of course) much improved cellphone coverage and fewer ugly cell towers. And they would include other new things we can’t imagine any more than we could have imagined an iPhone just 10 years ago.

Maybe that’s the way people will realize what’s at stake: six bars!

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