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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)

Monday, September 25, 2006

Pioneer's Preference No Longer Exists
But Part of the Original Problem Remains

The FCC's pioneer's preference (PP) program was established in 1991 to provide a means of extending preferential treatment in the FCC's licensing processes to parties that demonstrated their responsibility for developing new spectrum-using communications services and technologies. PP had its origins in a 1986 petition for rulemaking from public interest lawyer Henry Geller, former FCC General Counsel and former NTIA Administrator who was searching for a way to eliminate/moderate the disincentives for technical innovation in radio technology that resulted from regulation. (By comparision, new developments in computer technology ans most other field of electronics need no nonroutine government approvals before reaching the market.) I can disclose now that Henry discussed this issue with me in 1986, while I was on leave without pay from FCC to teach at MIT, and I urged him to continue with it and made some suggestions.

Henry's basic concept was to reward the risk of the technical developer and "pioneer" who succeeds in developing a new technology by giving him a first shot at a license to use it, rather than suffering through the comparative hearings that were common at the time.

The FCC Office of Engineering and Technology (OET) staff dismissed the original petition swiftly. Why? At the time, spectrum policy at FCC was strongly influenced by a few large firms that used their "gatekeeper" role to forestall what are now called "disruptive technologies". For the same basic reason that "no one ever got fired for buying IBM", FCC staffers knew that if they only acted on new radio technology from a few established firms they would never get in trouble. (This is why my own efforts in 1979-85 to clear the way for spread spectrum/CDMA technology did not get a great reception at the time.)

When Al Sikes became FCC Chairman in 1989, I called Henry and suggested that he refile the petition as it seemed to be consistent with the new chairman's philosphy. He did and it was again promptly dismissed by OET. I urged Henry to appeal to the Commission. It appears that OET drafted an order dismissing his request for a 3rd time, but Chairman Sikes, also a former NTIA Administrator, sided with Henry and directed staff to go ahead and implement PP.

So having rejected the PP petition 3 times, was OET happy and supportive to go ahead with it? Unfortunately, there is part of the FCC staff culture that is different from that of British civil servants who readily follow new ministers in whatever direction they want to go. The senior OET leadership, who are no longer there, implemented PP but repeated harped over how they had rejected it 3 times. At the very least, their hearts were not in it. Would they mind if it failed? In my opinion, they created a set of rules that were opaque at best and contradictory at worst.

I was involved in evaluating the PP request for PCS in an attempt to have non-OET staffers make the recommendation to the Commission. In reviewing the requests it became clear that the "jury instructions" on who to judge them were key and the ones that OET had prepared were puzzling as they were based on the rules and Commission decisions that were contradictory. Ultimately PCS preferences were decided by a set of federal employees from outside FCC but the key to their decision was in the "jury instructions" that were never made public. In any case PCS PP was a disaster. One company got a PCS license worth 100s of millions for what some of us called "inventing the coax cable". Qualcomm, the pioneer of CDMA, was given nothing by FCC but later the courts ordered FCC to give Qualcomm a license of comparable value. Congress was incensed at the irrational giveaway and ordered the program to cease in 1997. One rationalization was that auctions and technical deregulation eliminated the rationale for PP since anyone could buy spectrum and use it for new technology. In most cases this was true.

But recent history reveals two examples in which pioneers spent large amount of money and came away with nothing. Consider Dockets 98-153 (ultrawideband/UWB) and 98-206 ("Northpoint").

Civil UWB was pioneered mainly by 2 companies, Time Domain and XtremeSpectrum who both developed technology and financed the expensive legal battle needed to get FCC to approve this technology. There are rumors that Time Domain incurred legal bills greater than $10,000,000, possibly even $20,000,000 in its successful battle to get UWB approved. XtremeSpectrum did not spend nearly as much as they did most FCC presentations themselves but clearly their "campaign" at FCC took a huge amount of effort. Both firms filed for bankruptcy not long after FCC approved UWB.

The Northpoint issue dealt with a technology developed by Northpoint Technology for sharing 12 GHz direct broadcast satellite downlink bands with terrestrial signals coming from antennas on the northern side of a community. The Northpoint signals would thus both compete with satellite providers such as DirecTV and be a possible interference threat. Since Hughes was trying to sell its DirecTV division at this time, it had every incentive to draw out the proceeding as much as possible and did so brilliantly even convincing Congress to require unprecedented independent analysis. Northpoint Technology developed a clever request for getting de facto PP based on the timing of their original request but that was turned down by FCC. They also got the Patent Office to issue a patent that seemed to block anyone else from doing 12 GHz sharing and urged the FCC to give them a monopoly on that basis. (My personal opinion was that the patent was a symptom of the poor state of the US patent system and should never have been issued with such broad claims.) So ultimately, the Northpoint request was approved, the new shared bands were auctioned and Northpoint got nothing except its sunk costs and legal expenses.

So Time Domain, XtremeSpectrum, and Northpoint Technology all developed new uses for spectrum and pressed the FCC successfully at great cost to get their innovations into the FCC Rules so they could be used. What did they get from this? Nothing in all 3 cases and bankruptcy in 2 cases.

What message does this send to future investors in new radio technology? Don't invest in radio technology subject to nonroutine approval or you could have a Pyrrhic victory where you spend on you money to regulatory cost and regulatory delay and then can't afford to exploit the new rules against others who have no sunk costs.

Should we bring back PP? No. It is water over the dam now. It requires Congressional action that is unlikely. But we should think of alternatives to balance, at least partially, the extra regulatory risk that radio technology developers face. Maybe we should look at Section 638 of the Energy Policy Act of 2005 for inspiration. In this section Congress decided to compensate nuclear power plant builders for excessive regulatory costs resulting rom Nuclear Regulatory Commission delays. I am not saying that this is the answer for the spectrum case, but the two dockets discussed above show that the problem is still here for certain types of technology.

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