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25th Anniversary of FCC Decision Enabling Wi-Fi and Bluetooth

25th Anniversary of FCC Decision Enabling Wi-Fi and Bluetooth
A series of posts describing how this all came about. (Click on picture above)

Saturday, April 15, 2006

Macroeconomics of Spectrum

Why is spectrum and spectrum policy so important? First it is clear that spectrum is the basic building block of many industries that have a total net worth in the 100s of billions of dollars. These include radio and television broadcasting, mobile/cellular telephony, and satellites. Let’s call these the primary industries. But there are also secondary industries that use spectrum as an important, but secondary input into other valuable services: package delivery (e.g. FedEx), public utilities, manufacturers, service industries that do repairs at customer locations. Some of these are direct licensees of spectrum (e.g. Part 90 and Part 101 licensees) while others depend on commercial services operated by primary users. Finally, but certainly not least, are public safety and other governmental entities that are generally direct users of spectrum.

Telecom is a key infrastructure in today’s economy, like transportation and energy. Both the cost of services and the ability to create new services to meet new needs are important in global competitiveness. The availability of spectrum and its effective use are key to both the cost of services and the ability to create new services.

In today’s mobile society efficient spectrum-based systems are key to all the above users and facilitate high productivity and economic growth as well as public safety. In the present global economy there is worldwide competition for goods and services -- although sometimes my French neighbors try to deny it. Western countries can’t compete in this economy based on low worker costs, but must compete on overall productivity. Spectrum is a key factor to this productivity.

Efficient telecom is also an input for creating many new companies and stimulating economic growth. When I speak to foreign audiences I often ask why Qualcomm, Lands’ End, Gateway, and Amazon are American companies and not European or Japanese? Note that these are all recent “new economy companies” and Lands’ End and Gateway are headquartered and have significant number of employees in rural areas. i.e. Wisconsin and South Dakota.

Common factors for these four firms are availability of startup capital, which remains difficult to obtain in many countries for reasons outside this discussion, and the impact of US deregulation in the 1980s. It would have been impossible to start Qualcomm in Europe or Japan for they depended exclusively on consensus development of technical standards as a gatekeeper for market access of new radio technology. A review of literature from the 1980s will show that CDMA was so controversial it was doomed in a consensus process.

While Lands’ End and Gateway are not major users of spectrum but benefited greatly from deregulation of both telecommunications (allowing them to market effectively from rural areas via 800 service and then Internet) and transportation deregulation (allowing them to efficiently ship products overnight to customers). Finally Amazon is American because of the fact that book prices were not regulated in the US (although they are or have been until recently in an amazingly large list of countries – even Margaret Thatcher’s U.K.) and telecom deregulation and new services allowed efficient marketing.

Thus efficient telecom services not only create jobs in primary industries but also create whole new industry models, like Amazon and Travelocity, that use telecommunications but are not telecom companies. Such efficient services also improve productivity
throughout the whole economy and thus enhance international competitiveness.

Our military friends in the US are large users of spectrum and like to think they are isolated from the above issues. They are not! The US military is generously supported with tax revenues amounting to about 4% of GDP. At the moment this is somewhat higher than normal due to the Iraqi situation but this number has been reasonably constant over a long period. Increasing the fraction of GDP for military spending is very painful politically. The reason we can have both “guns and butter” is that we have generally had a growing economy and hence DoD’s 4% cut has also been growing. But DoD should realize that it is in its interest to help this GDP growth if it can find ways that are not fundamentally inconsistent with the DoD mission. To paraphrase Charles Wilson, former Secretary of Defense, “What’s good for the GDP is actually good for DoD!”

The FCC’s Spectrum Policy Task Force showed that, at a given location and time, most spectrum is unused, even in major urban areas where there is thought to be shortage of spectrum. There are a lot of reasons for this and some classes of spectrum users use their spectrum more intensively than others. But one key reason is that spectrum was traditionally allocated and assigned based on peak use and many types of users have very high peak-to-average ratios. This is not bad or inefficient, it is just the nature of their needs.

Maybe I have spent too much time at my spouse’s cocktail parties with electric utility industry people, but I have observed that this industry has a much better recognition of peak loads ( a commonly used term) the marginal cost of meeting peak loads, and using pricing mechanisms to help even out demand peaks.

I believe the spectrum community should recognize the importance of this underutilized spectrum and join in the search for responsible methods for increasing spectrum utilization while preserving peak access for public safety and avoiding negative impacts on current spectrum users. The well-attended November 2005 IEEE DySPAN Conference was a first step in creating a worldwide dialogue in this direction. It would be nice if there were other simpler alternatives for achieving a quantum jump in spectrum efficiency, but this doesn’t look very likely in general.

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