Rescuing Mobile Broadband from Washington's Deadly Embrace

 (Adapted from Bloomberg BNA Daily Report for Executives, May 16th, 2012.)

Two years ago, the Federal Communications Commission’s National Broadband Plan raised alarms about the future of mobile broadband. Given unprecedented increases in consumer demand for new devices and new services, the agency said, network operators would need far more radio frequency assigned to them, and soon. Without additional spectrum, the report noted ominously, mobile networks could grind to a halt, hitting a wall as soon as 2015.

That’s one reason President Obama used last year’s State of the Union address to renew calls for the FCC and the National Telecommunications and Information Administration (NTIA) to take bold action, and to do so quickly. The White House, after all, had set an ambitious goal of making mobile broadband available to 98 percent of all Americans by 2016. To support that objective, the president told the agencies to identify quickly an additional 500 MHz of spectrum for mobile networks.

By auctioning that spectrum to network operators, the president noted, the deficit could be reduced by nearly $10 billion. That way, the Internet economy could not only be accelerated, but taxpayers would actually save money in the process.

A good plan. So how is it working out?

Unfortunately, the short answer is:  Not well.  Speaking this week at the annual meeting of the mobile trade group CTIA, FCC Chairman Julius Genachowski had to acknowledge the sad truth:  “the overall amount of spectrum available has not changed, except for steps we’re taking to
add new spectrum on the market.”

The tortured grammar (how can “steps we’re taking to add new spectrum” constitute an exception to the statement that the amount of available spectrum “has not change”) belies the reality here—all the FCC Chairman can do is promise more spectrum sometime in the vague future.  For now, the FCC and the NTIA have put almost no new spectrum into actual use.  Instead,  the two agencies have piled up a depressing list of delays, scandals, and wasted opportunities. Consider just a few:

– NTIA’s long-overdue report on freeing up government spectrum identified nearly 100 MHz of frequencies that could be reallocated for mobile broadband. But the 20 agencies involved in the study demanded 10 years and nearly $18 billion to vacate the spectrum—and insist on moving to frequencies that are already assigned to other public or private license holders. An available 20 MHz of unassigned frequency, left over from the 2009 conversion to digital TV, was actually added to the government’s supply when it was set aside  this year for a dedicated public safety network

– After years of wrangling with Congress, the FCC finally won limited authority to hold “voluntary incentive auctions” for spectrum currently licensed to over-the-air television broadcasters. But those auctions will take years to complete, and a decided lack of enthusiasm by broadcasters doesn’t portend well for the outcome.  As for reducing the deficit, the agency has reserved its right to disqualify bidders it believes already hold more spectrum than the agency thinks best to stimulate competition, even without any measurable signs of market failure. (Voice, data, and text prices continue to decline, according to the FCC’s own data.

– LightSquared’s efforts to reallocate satellite spectrum for use in a competitive new mobile broadband network were crippled—perhaps fatally–by concerns raised by the Department of Defense and others over potential interference with some global positioning system (GPS) devices.  Initial permission to proceed was swiftly revoked–after the company had invested billions.  The FCC’s procedural blunders in the LightSquared case ignited a political scandal that continues to distract the agency. A similar effort by Dish Networks is now being put through the full set of administrative hurdles, delayed at least until after the election..

– Transactions in the secondary spectrum markets—long the only real source of supply for mobile network operators–have received an increasingly frosty reception. Last year, AT&T’s planned merger with T-Mobile USA was scuttled on the basis of dubious antitrust concerns the FCC backed up with data that was clumsily rigged by agency staff.  Now, the agency has expanded its review of Verizon’s efforts to buy spectrum from a consortium of cable companies—spectrum that currently isn’t being used for anything.

– After the FCC mandated data roaming agreements even for carriers who hold spectrum in the same markets, Sprint announced it would stop serving customers with its own network in two metropolitan areas, piggybacking instead on AT&T’s band-new LTE facilities. Sprint’s move underscores concerns that mandatory roaming will reduce incentives for carriers to invest in infrastructure. According to the FCC, mobile industry investments have reached nearly 15 percent of total revenue in recent years. Of the leading providers, only Sprint decreased its investments during the recession.

Not an impressive showing, to say the least.  Meanwhile, in the real world, demand for mobile broadband continues to mushroom. Network usage has increased as much as 8,000%  since 2007, when Apple’s iPhone first hit the market. It was followed by an explosion of new devices, operating systems, and software apps from a cottage industry of developers large and small. This remarkable ecosystem is driving lightning-fast adoption of mobile services, especially bandwidth-intense video apps.

The mobile broadband ecosystem is one of the few bright spots in the sour economy, creating jobs and generating tax revenues. Makers of tablet computers, for example, expect to sell over 100 million units this year alone. Tablet users, by the way, already rely on the wildly popular devices for 15 percent of their TV viewing, raising the demand for high-bandwidth video services on existing mobile broadband networks.

Spectrum is the principal fuel of these fast-growing mobile applications. So FCC Chairman Julius Genachowski is right to repeatedly emphasize the catastrophic consequences of an imminent “spectrum crunch.”  The FCC is leading the chorus of doomsayers who believe that without more spectrum—and soon—our  mobile revolution will never reach its full economic, educational, and social potential.

But the government has done nothing to head off that disaster. Instead, the FCC, the NTIA, and the Obama administration continue to make policy choices that do little to get more spectrum into the system. If anything, we’re moving backwards.

Many of these decisions appear to be driven by short-term political imperatives, overriding the worthy  goal of making mobile broadband available to all Americans as quickly as possible. The AT&T/T-Mobile deal, for example, was killed simply because the FCC didn’t like the idea of taking even a failing carrier out of the competitive equation. Yet had the deal been approved, AT&T committed to deploy mobile broadband to 95 percent of all Americans—nearly meeting the president’s goal in a single stroke.

This is nothing new. The FCC has a very long and very messy history of using its spectrum management powers to shape emerging markets, and to pick winners and losers among new technologies,  applications, and providers.  Their guiding principle for nearly 100 years has been the so-called “public interest” standard—an undefined and highly-malleable policy tool the FCC employs like a bludgeon.

The era of micromanaging the airwaves by federal fiat must now end once and for all. For first time in a century of federal stewardship, there is almost no inventory of usable spectrum. It has all been allocated to some 50,000 public and private license holders, each the one-time favorite of the FCC. Our spectrum frontier has closed.  And it wouldn’t have closed so soon if the FCC hadn’t remained so determined to manage a 21st century resource as if it were still the 19th century.

Technology may come to our rescue, at least in part. Hardware and software for sharing spectrum, switching frequencies, and maximizing the technical properties of different bandwidths continue to be part of the innovation agenda of the mobile industry. But it is unlikely these developments will be enough to keep spectrum supply even slightly ahead of unbridled consumer demand. Many of these technologies, in any case, still require FCC approval to be deployed. That means even more delays.

Saving the mobile ecosystem–and making way for the next generation of mobile innovation–demands a bold new strategy. For starters, it is time to stage an intervention for  federal agencies hoarding spectrum. Private licensees who no longer need the spectrum they have must be able to sell their rights quickly in a working market, and be prodded when needed to do so. Buyers need the freedom to repurpose spectrum to new uses.

Also, we need to increase incentives for network operators to continue investing in better and more efficient infrastructure, not throw cold water on them in the name of a vague and largely undefined public interest.   The number of competitors isn’t what matters.  It’s the ability of consumers to get what they want at prices that, at least up until now, continue to decline.

In short, we need to take the FCC out of the middle of every transaction and each innovation, slowing Silicon Valley-paced markets down to Washington speed.

With the appetite of mobile consumers growing more voracious, it is long past time for Congress to take a cold, sober look at our obsolete system for spectrum management and the antiquated agency that can’t stop fussing over it. We need a new system, if not a new FCC. That’s the only way to keep the mobile frontier booming, let alone meet the admirable goal of providing a homestead there for every American.