Spectrum Policy Should Promote Competition

This is a guest blog post by Jon Peha. Peha is a professor at Carnegie Mellon University, an electrical engineer, the former Chief Technologist of the FCC, and the former Assistant Director of the White House Office of Science and Technology Policy.

We all benefit when commercial companies compete for our business.  Competing in the cellular market is unusual in that it depends on access to a limited resource:  spectrum.  No firm can enter the cellular market in Pittsburgh (except as a reseller) unless it can get Pittsburgh spectrum.  Carriers already offering service there also often want more spectrum when they expand capacity, as adding spectrum allows them to expand at a much lower cost.  I hope that someday there will be a vibrant market for spectrum where firms can buy what they need when they need it, but at this point, spectrum suitable for cellular service can be hard to get.  You can wait around for government to take spectrum that is currently used for something else, reallocate it for cellular use, and auction it, but those auctions are infrequent and unpredictable.  You can try to get spectrum from a firm that already has some, but there are typically few holders of cellular spectrum in a given region, and they are all probably rival cellular carriers who would be happier if you just went away without offering a competing service.

To make it difficult for one or two carriers to control so much spectrum that competition is undermined, the FCC has long imposed some form of limit on how much spectrum any firm can hold in a city. This has sometimes been a “spectrum cap,” which is a hard limit, and sometimes a “spectrum screen,” which is a soft limit; a transaction that pushes a firm’s spectrum holdings beyond the screen invites government scrutiny, and may or may not be allowed.  For example, this is something the FCC had to look into when the merger of AT&T and T-Mobile was proposed. 

The challenge for 2013 is that it’s now getting more difficult to define how much spectrum is too much.  In the past, we have defined spectrum caps and screens in MHz of spectrum. For example, a license that covers all signals with a frequency between 900 MHz and 905 MHz is a 5-MHz license.  U.S. laws and regulations pretend that 5 MHz of spectrum between 900 and 905 MHz is equivalent to 5 MHz of spectrum between 2900 and 2905 MHz, so we only have to count the total number of MHz.  However, the laws of physics tell us otherwise.  In reality, the physical properties of spectrum depend on frequency, and it is possible to build out a nationwide cellular network at much lower cost if you have spectrum around 900 MHz than if you have spectrum around 2900 MHz.  This did not matter when cellular began, because all spectrum used for cellular was close to the same frequency.  However, the FCC and NTIA are working hard to make more spectrum available, and as they do, there can be a much greater disparity between the spectrum that is most desirable for cellular and the spectrum that is least desirable for cellular.  As this happens, it will make less and less sense to treat all spectrum the same in a spectrum cap or spectrum screen.  If we don’t change approach, the government’s valiant attempts to make more spectrum available may backfire, as this could make it easier for one or two dominant firms to keep 100% of the more valuable spectrum away from competitors without exceeding the limit.

There are solutions.  To protect competition even as more diverse spectrum bands become available, we could adopt a screen that places different weights on each MHz of spectrum depending on the frequency.  When it applies property taxes, government does not treat a square mile filled with Mississippi swampland the same as it treats a square mile filled with Manhattan skyscrapers.  There is no reason it has to treat 10 MHz of spectrum at 900 MHz the same as 10 MHz of spectrum at 5 GHz in a spectrum cap or screen. 

We’ve filed comments at the FCC on how to fix its outdated spectrum policies. The FCC should act, as an important step towards a more competitive future.  The nation deserves a market where cellular providers compete based on their ability to provide customers with excellent service at a reasonable price, and not on their ability to keep spectrum away from the competition.

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