Exactitude in Defining Radio Frequency Rights
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EXACTITUDE IN DEFINING RIGHTS: RADIO SPECTRUM AND THE "HARMFUL INTERFERENCE" CONUNDRUM Thomas W. Hazlett and Sarah Oh, George Mason University School of Law George Mason University Law and Economics Research Paper Series 12-55 Exactitude in Defining Rights: Radio Spectrum and the "Harmful Interference" Conundrum Thomas W. Hazlett1 and Sarah Oh2 August 14, 2012 In the century since the Radio Act of 1912 initiated U.S. spectrum allocation rules, a precise definition of “harmful interference” – the control of which forms the rationale for regulation – has eluded policymakers. In one sense, that result is unsurprising; rights are always defined incompletely. In another sense, however, the regulatory system is dysfunctional, severely limiting the productive use of spectrum while locked down in years-long border disputes. These disagreements have, in turn, triggered calls to develop brighter lines and fuller engineering specifications of “harmful interference.” Yet, spectrum use rights featuring technically fuzzy borders, awarded in economically efficient bundles, generate robust market development. The key ingredients are (a) exclusive, flexible use rights; (b) frequency borders set via standardized edge emission limits; (c) large bundles of complementary rights, limiting fragmentation; and (d) fluid secondary trading, allowing mergers to end border disputes by eliminating borders. Regulators should focus less on delineating precise interference contours, and instead expeditiously distribute standard bandwidth rights to economically responsible agents, taking care to avoid undue fragmentation (and tragedy of the anti-commons). These lessons are illustrated in many episodes, including those involving reallocation of the broadcast TV band, the emergence of HD radio, the Nextel/public safety “spectrum swap,” and the ongoing WCS/SDARS dispute. Each instance reveals that economic incentives, not engineering complexity, drives productive coordination of radio spectrum use – or blocks it. 1 Professor of Law and Economics, George Mason University School of Law, FCC Chief Economist, 1991-92. This article follows from a presentation on “Creating Efficient Spectrum Property, Towards an Economic Definition of ‘Harmful Interference’ in Radio Transmissions” at the Kellogg School of Management, Northwestern University, Conference on Spectrum Markets: Challenges Ahead, June 2-3, 2011. The author thanks Brent Skorup for excellent research assistance. 2 Research Fellow, Information Economy Project. Ph.D. Student in Economics, George Mason University; J.D. George Mason University; B.S. Stanford University, Management Science & Engineering. Hazlett & Oh, Exactitude in Radio Spectrum Rights * August 14, 2012 page 2 of 79 TABLE OF CONTENTS I. INTRODUCTION 3 A. The Crisis in U.S. Spectrum Policy 3 II. EXACTITUDE 10 III. THE TROUBLE WITH EXACTITUDE: EXAMPLES 14 i. TV Band 14 ii. HD Radio 16 iii. Licensed PCS v. Unlicensed PCS 19 iv. WCS/Satellite Radio 20 v. Nextel/Public Safety 21 vi. “Interference Temperature” 30 IV. BEYOND EXACTITUDE: ENABLING OPTIMAL COMBINATIONS 36 A. Basic Strategy 36 B. Licensed and Unlicensed Deployments in An Efficient Mixed Use Regime 39 C. Rules to Enable Markets 43 D. Observed Efficiencies in Emerging Spectrum Markets 46 E. Mobile Operators As Spectrum Owners and Neighbors 52 F. The Costly and Unproductive Search for Additional Specificity 55 G. The AM Radio Critique 61 H. Liability Rules v. Property Rules 66 I. Optimal Spectrum Rights Defined 68 J. Auctions as Interference Control Mechanisms 69 K. Overlays 71 V. SUMMARY 77 LIST OF FIGURES FIG. 1. FCC 800 MHZ SMR/PUBLIC SAFETY BAND: 2001 FIG. 2. NEXTEL’S SPECTRUM REORGANIZATION PROPOSAL: 2001 FIG. 3. NEXTEL/PUBLIC SAFETY CONFLICT RESOLUTION FIG. 4. FCC PROPOSAL FOR AN “INTERFERENCE TEMPERATURE” FIG. 5. DEFINING ELECTROSPACE PARCELS AS PER MATHESON-MORRIS (2011) FIG. 6. EASY SPECTRUM CONTOURS FOR BROADCASTERS FIG. 7. NOT SO EASY SPECTRUM CONTOURS FOR BROADCASTERS FIG. 8. OPTIONS WHEN INTERFERING STATIONS ARE UNDER INTEGRATED OWNERSHIP Hazlett & Oh, Exactitude in Radio Spectrum Rights * August 14, 2012 page 3 of 79 I. INTRODUCTION Clear and Exhaustive Definition of Spectrum Rights and Responsibilities… Regardless of how or to whom particular rights are assigned, ensuring that all rights are clearly delineated is important to avoiding disputes, and provides a clear common framework from which spectrum users can negotiate alternative arrangements. – Federal Communications Commission (2002)3 Commenters… almost uniformly cited the FCC’s interference rules as the prime example of rules that are not clearly defined. A common refrain was that the FCC rules speak of the right to be protected from “harmful interference,” but this term is not defined in technical terms… – Federal Communications Commission (2002)4 A. The Crisis in U.S. Spectrum Policy There is – officially – a crisis in U.S. spectrum policy. Congressionally chartered studies,5 top U.S. policymakers,6 and Presidential Administration,7 citing the need for additional wireless bandwidth for economic growth, have pushed for dramatic improvements in the process whereby the Federal Communications Commission allocates radio spectrum. Driven by a “mobile data tsunami” resulting from the emergence of wireless 3G and 4G data networks – and a slew of popular handsets and applications after the iPhone was introduced in mid-2007 – policy makers are attempting to respond to the demands of the market. But institutional stasis hampers this effort at virtually every step. In March 2010, the National Broadband Plan set a goal of making another 300 MHz of spectrum (a bit more than one-half of that currently available to mobile carriers) by 2015. Yet today, scarcely two years later, every one of the proceedings composing that plan is behind schedule – or has been 3 Federal Communications Commission, Spectrum Policy Task Force Report (rel. Nov. 15, 2002), ET Docket No. 02-135, at 17-18 (Nov. 2002), http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-228542A1.pdf (emphasis in original) [hereinafter “SPTFR 2002”]. 4 SPTFR 2002, at 19-20. 5 The National Broadband Plan, issued by the FCC, was mandate in the American Recovery and Reconstruction Act of 2009 (also known as “the stimulus bill”). Its report was issued in March 2010; Chapter 5, “Spectrum,” deals with the issues discussed in this paper. Connecting America: The National Broadband Plan (Mar. 16, 2010), http://www.broadband.gov/plan/5-spectrum/ [hereinafter “NBP 2010”]. 6 Technological Opportunities, Job Creation, and Economic Growth, Remarks of Lawrence H. Summers, June 28, 2010, http://www.whitehouse.gov/administration/eop/nec/speeches/technological-opportunities-job-creation- economic-growth; Prepared Remarks of Chairman Julius Genachowski, 2011 International Consumer Electronics Show, Jan. 7, 2011, http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-303984A1.pdf. 7 White House, Office of the Press Secretary, Presidential Memorandum: Unleashing the Wireless Broadband Revolution, June 28, 2010, http://www.whitehouse.gov/the-press-office/presidential-memorandum-unleashing- wireless-broadband-revolution. Hazlett & Oh, Exactitude in Radio Spectrum Rights * August 14, 2012 page 4 of 79 abandoned.8 Scholars are unshaken in their assessment that: “The FCC’s traditional system for managing the radio spectrum is a paradigm of economic inefficiency.”9 Prominent communications experts advance this diagnosis of the underlying problem. Regulators have failed, after a century of radio regulation – since the Radio Act of 191210 – to precisely define radio “interference.”11 Such conflicts have been of central importance to regulators, charged with creating rules for wireless operations that avoid “tragedy of the commons.” Arguably, the delineation of border conditions, demarcation of where one set of wireless users’ rights ends and another begins, has become increasingly important. Not only have wireless services become far more widespread, and spectrum deployments much more economically important, but key wireless licenses – specifically, those authorizing mobile voice and data networks – have been dramatically liberalized in recent decades. The combination of dramatically increasing spectrum use and delegation of spectrum use choices to decentralized private actors yields many to insist that regulators must get far more serious about specifying the precise boundaries delimiting the rights of rival users. As shown in the Federal Communications Commission (FCC) comments above, policymakers claim the following paradox: (a) “harmful interference,” defining the contours of spectrum use rights, must be clearly and fully detailed for wireless markets to work efficiently; (b) this feat has never been achieved; (c) mobile markets are nevertheless robust: “U.S. consumers continue to reap significant benefits – including low prices, new technologies, improved service quality, and choice among providers – from competition in the [mobile] marketplace…”12 This botched syllogism reveals critical truths. The latter two points are factually correct – (b) border contours in spectrum allocations are inexact; (c) large-scale networks, created by private capital, host intense economic activity generating extremely high social value. This latter contribution to economic welfare, moreover, is intrinsically related to the manner in which the underlying frequency space (“mobile spectrum”) is defined, with flexible use authorized for an 8 This assessment is per FCC Commissioner Ajit Pai. John Eggerton, Pai Concerned