Lowenstein: Should spectrum be free?

[1]It has become a sacred cow that a company has to pay billions of dollars for the privilege of using licensed radio spectrum to build a wireless network. Why?

The federal government has raised north of $50 billion in revenues from spectrum auctions, dating back to the original PCS auctions in 1995. Where has that money gone? Not back into the wireless industry. Except for some small amounts being set aside to pay for the cost of running the auction and relocating government users, the majority of the funds have been handed over to the Department of the Treasury, and used as part of the agency's general operating budget. There is no distinction between proceeds from individual or corporate tax revenues and proceeds from wireless auctions. On top of this, wireless operators have paid another several billion dollars, over the years, to relocate users to other frequencies--a wireless version of eminent domain.

What's wrong with this picture? Well, we're at this moment where we are seeing enormous demands on network capacity while at the same time, the government is pushing network neutrality, which would mandate free and unfettered access to wireline and wireless networks, irrespective of economics. As part of his negotiating ploy, FCC Chairman Julius Genachowski has publicly acknowledged the need for more additional wireless spectrum. More spectrum might be freed up soon, but it won't be free. In addition to the usual auction scenario--already, folks are predicting how much money the government will raise--the most readily available spectrum will force another expensive relocation, paid by, you guessed it, the auction winners.

Wide area wireless networks are the weakest link in the chain of exciting new portable computing devices, from iPhones and Droids to netbooks and tablets. People love their iPhones on WiFi, but love them a lot less on AT&T's unevenly available, already overburdened 3G network.

Now, let's look at the fixed broadband side of the world. The average household has a choice of two broadband networks, one cable and one telco (DSL or fiber). About 5 percent of households have no access to broadband and another 5 percent are "underserved" (defined by me as getting less than 1 Mbps downlink). We are actually behind several countries in broadband, both in terms of availability (percentage of homes covered) and capability (speed and other performance metrics).

Against this backdrop is what is happening in price. Wireless voice and data pricing has been continually dropping, and many, including me, foresee a data price war in 2010, particularly for today's $60 monthly "mobile broadband" service (for laptops and other "PC" devices). At the same time, broadband pricing hasn't changed much from the average of $45-50 per month if bought a la carte. ...Continued [2]

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