TechKnowledge No. 4

Solving America’s Spectrum Crisis,

By Adam D. Thierer
April 18, 2001

Although few history books mention it, and most Americans are not aware of it, roughly 75 years ago, the federal government nationalized one of the most important natural resources in existence. If this resource had been oil, coal, lumber, or steel, the American people would have been outraged and would not have stood for it. Yet this resource — the electromagnetic wireless spectrum — was simply unknown to most Americans, so few knew or cared.

But times have changed, and America’s apparent indifference to spectrum socialism may soon end. Whereas the airwaves were primarily used for television and radio broadcasting in the past, today consumers have come to rely on a panoply of wireless services and devices such as cell phones, pagers, satellite television, and personal digital assistants. And so-called Third Generation (3G) wireless systems, which promise ubiquitous high-speed data and Internet connections, are now on the horizon. But as the public’s seemingly insatiable appetite for such wireless gadgets and services grows, many consumers are scratching their heads and wondering why more advanced wireless technologies are not getting to market as quickly as promised.

The answer should not be surprising. The history of America’s seven-decade experiment with government management of the airwaves reads like a never-ending series of Soviet-style five-year plans. The Federal Communications Commission has basically doled out spectrum on a licensed basis for specific uses and then dictated how license holders can use or sell that spectrum allocation. This has resulted in two very serious problems: inflexible use policies and artificial spectrum scarcity. The combined effect has been the creation of a serious spectrum crisis in America.

Let’s begin with inflexible use. Imagine that after you purchased a piece of property the government told you what kind of house you could build on it, restricted what you could plant in your back yard, and then didn’t let you sell it to someone else. That’s essentially what the FCC does with wireless spectrum. For example, a company holding a broadcast television license can only offer the public broadcast TV services. It is illegal for them to use their spectrum for any other purpose or to sell it to another company to use it for a different purpose, even though that is technically possible.

Needless to say, that is hardly a sensible way to manage an important resource. It means that federal bureaucrats, not companies and consumers, dictate what the most highly valued use of spectrum will be. Consequently, even though the vast majority of Americans watch TV through their cable or satellite systems, broadcasters still use massive chunks of spectrum to zap signals to rabbit-ear antennas that few of us use anymore. If broadcasters want to provide a different service with some of the spectrum they hold, the FCC says tough luck.

This illogical “zoning” of the spectrum has given rise to the second dire spectrum problem: chronic shortages. When governments attempt to micromanage an important resource, they often end up creating artificial scarcities. Just as government oil controls gave America lines at the gas station, government spectrum controls have led to ongoing spectrum shortages. Cellular phones would have been available to consumers a full decade earlier, for example, if not for deliberate attempts by the FCC to block the industry’s development. And after 10 years of promises, many Americans are still wondering if high-definition digital television (DTV) is ever going to materialize.

Third Generation wireless technologies may suffer a similar fate as federal regulators continue to mull over proposals to squeeze some extra spectrum out of the current system to accommodate these services. In fact, last October, the Clinton administration ordered a government wide review of spectrum management policies to achieve this goal. As a result of this directive, on March 30th of this year the FCC and the National Telecommunications and Information Association issued reports outlining what were essentially band-aid solutions to what has become a full-blown crisis.

This is not really surprising since it is unlikely that regulators are going to do anything that puts their jobs in serious risk. And many bureaucrats view serious spectrum liberalization as an open invitation to a pink slip. If Congress gets serious about solving America’s spectrum crisis, however, the following checklist can serve as a blueprint for reform:

  • Allow flexible use: Allow complete spectrum flexibility and discontinue any form of technological “zoning” or standard-setting by the FCC.
  • Move toward a property rights regime: Grant current spectrum licensees a full-fledged property right in their allocation and grant all future spectrum holders the same title deed for wireless properties.
  • End spectrum caps and ownership restrictions: Discontinue the caps the FCC currently places on the amount of spectrum some companies can use in a given marketplace and end the ownership restrictions other companies face.
  • Stop rigging auctions: Ongoing auctions for mutually exclusive spectrum uses should not mandate special treatment for small or minority-owned businesses. And Congress should not try to artificially boost spectrum auction values in an attempt to bring more money into the federal treasury. Juicing the spectrum for billions more than it is worth adversely impacts future industry investment.
  • Allow innovative new spectrum uses: Spectrum auctions are appropriate where there are competing claims for the same spectrum allocation. In other cases, homesteading principles and other forms of secondary spectrum rights (i.e., overlay, underlay, and re-use rights) may be appropriate in order to encourage innovation.
  • Disgorge more government-held spectrum: Offer to buy out federal agencies who are currently holding large chunks of spectrum and require the law enforcement community to pay for their future spectrum needs through their budget allocations.
  • Demand the full protection of the First Amendment: Spectrum socialism has also meant second-class First Amendment status for broadcasters. Wireless media deserves the same free speech protections that are granted to its print counterparts.

America does not find itself in the midst of a real estate crisis precisely because markets are allowed to freely calibrate the forces of supply and demand. Property rights, private contracts, and the common law govern disputes over tangible property in America. It’s time to apply this same time-tested logic to the electromagnetic spectrum.

Adam D. Thierer (athierer [at] cato [dot] org) is the Director of Telecommunications Studies at the Cato Institute in Washington, D.C.