December 28, 2009

Scarcity Presents Challenges For Wireless Industry

The second digital revolution is well under way. 

With the increasing preponderance of smartphones and near pan-availability of Wi-Fi networks, the Internet "” in combination with a new generation of sophisticated mobile devices "” is once again changing the way we live and communicate.  Moreover, it is also once again challenging us to reconsider the role that the government should play in the private sector.

The problem is that the digital revolution has run into a barricade.

With the explosive popularity of gadgets like the iPhone, which are essentially hand-held PC's, the very finite spectrum of wireless frequencies available for use with these devices is quickly being stretched towards its maximum capacity. 

For the wireless industry, it may indeed be said that the sky "” or more accurately, the "Ëœair' "” is, in fact, the limit.

Particularly, as these devices evolve to send and transmit ever-larger packages of data"”like songs or high-resolution pictures and videos, a number of wireless companies are beginning to fret about the looming possibility of running out of airwave space.

A crammed airwave domain could have disastrous effects, claim many wireless companies, leading to heavily-congested networks that would in turn frustrate customers and put a damper on new innovations. 

Which is why a number of these companies are turning to the government in hopes of forcing other sectors with airwave rights "” like television and radio "” to give up their claims to the spectrum in order to enlarge their own slice of the invisible but highly lucrative pie in the sky.

"Spectrum is the equivalent of our highways," argues Christopher Guttman-McCabe, VP of regulatory affairs for the industry trade group CTIA - The Wireless Association.

"That's how we move our traffic. And the volume of that traffic is increasing so dramatically that we need more lanes. We need more highways."

And the only way to get those extra lanes, according to some, is to expropriate them from those who currently hold the legal rights to them.

Call it "Ëœeminent domain' of the airwaves.

Just as the federal government has reserved for itself the power to arbitrarily take over a citizen's private property for "public use," wireless companies have begun agitating for the application of the same principle in the realm of airwaves.

Democratic Representative Rick Boucher is already sponsoring a bill that would require the federal government to carry out an inventory of airwaves that are either unused or not being utilized to an extent that it deems satisfactory.  These airwaves could then be redistributed to the chosen recipients of politicians and Washington technocrats.

In a desperate appeal to the "Ëœneeds' of the industry that was startlingly reminiscent of some burlesque from an Ayn Rand novel, Boucher argued for his bill on the grounds of exigency, stating that, "It's not a question of whether we can find more spectrum. We have to find more spectrum."

The CTIA wireless group has already requested that the government open up an additional 800 megahertz of airwaves to add to its current 500 megahertz capacity.

Industry analysts say that two current trends have placed the existing demand for airwaves on a collision course with maximum capacity: the growing ubiquity of airwave-devouring wireless applications like mobile games and video sharing, and the widespread switch that millions of Americans have made from traditional landlines to cell phones.

Recent studies have shown that a rapidly increasing percentage of US households of all socioeconomic brackets are ditching their old-school landlines and going solely cellular.

The problem, according to Jamie Hedlund of the Consumer Electronics Association, is that many customers expect the "wireless experience" to be as quick and easy as the "wired experience""”an expectation that simply cannot be met by the current capacity and allocation of airwaves.

And an alteration of the existing allocation of airwaves is proving to be an alluring solution for many on Capitol Hill.

Lawrence Strickling, head of a sub-organization of the U.S. Commerce Department charged with managing the federal government's use of the airwaves, says his agency is scouring the airwaves in search of unused frequencies that could potentially be used by the wireless industry.  For example, unlicensed frequencies between TV channels known as "white spaces" could be salvaged for use by wireless carriers.

However, most acknowledge that such solutions will not provide enough capacity to resolve the crisis and would, at best, buy the industry a little breathing room until a more permanent fix can be found.

Another option being contemplated by the FCC would be to require television broadcasters to sell off airwaves that are used by a rapidly shrinking fraction of American households "” currently around 10 percent - with TVs that utilize over-the-air signals.

Originally awarded by the federal government in the heyday of airwave-based television programming, the 300 megahertz of capacity currently owned by various TV broadcasters is worth millions"”possibly even billions"”on today's market.

"Fewer people are getting over-the-air TV and at the same time, more and more people are using mobile broadband, so it only makes sense [...] to get that asset into the hands of whomever can realize its greatest value," explained  Blair Levin, who is spearheading the FCC's broadband plan.

Television broadcasters, however, have not proven entirely receptive to the idea of being pressured to pawn off these valuable assets.  Dennis Wharton, executive vice president of the National Association of Broadcasters, has argued that "the FCC proposal would kill many of our future business plans in the cradle."

Wireless carriers have also begun casting their sites on various other airwave industries that provide voice and data services through satellites.  Yet much like the television industry, these too have nearly unanimously rebuffed the wireless scavengers.


Interestingly, Pentagon officials say that they have been abandoning large swathes of unused frequencies as they have begun employing technology that is much more efficient in its use of airwaves"”thus unwittingly pointing to the one potential solution that has hitherto not received much consideration: free-markets and efficiency. 

For a number of observers, efficiency and innovation in the realm of wireless technology may hold the only truly viable long-term solution to managing the finite availability of airwaves.  After all, even if 100 percent of the airwaves were made available to the wireless industry, it would at some point run into the same problem of limited capacity, because airwaves"”like gold, land or oil"”are a scarce resource.

As the various private sectors continue to lobby federal officials and call for Congressional favors in the reallocation of airwaves, some observers have begun asking why the industries shouldn't just be left alone to sort it out themselves through the process of voluntary exchange.  Let the industry that thinks that it can best serve the wants of consumers"”and thus earn the highest returns"”bid competitively for the purchase of additional airwaves or simply innovate to use what it already has more efficiently.  Why enlist the coercive arm of the government to arbitrarily reallocate that which free exchange between private businesses can sort out on its own according to the wishes of consumers?

Airwaves are scarce; this is an unalterable fact.  How we will allow those who make use of these airwaves to deal with this fact is the decisive issue.  


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