SPECTRUM ABUNDANCE AND THE CHOICE BETWEEN PRIVATE AND PUBLIC CONTROL STUART MINOR BENJAMIN* Prominent commentators recently have proposed that the government allocate sig- nificant portions of the radio spectrum for use as a wireless commons. The problem for commons proposals is that truly open access leads to interference, which renders a commons unattractive. Those advocating a commons assert, how- ever, that a network comprising devices that operate at low power and repeat each other's messages can eliminate the interference problem. They contend that this possibility renders a spectrum commons more efficient than privately owned spec- trum, and in fact that private owners would not create these "abundant networks" in the first place. In this Article, Professor Benjamin argues that these assertions are not well founded, and that efficiency considerationsfavor private ownership of spectrum. Those advocating a commons do not propose a network in which anyone can transmit as she pleases. The abundant networks they envision involve significant control over the devices that will be allowed to transmit. On the question whether private entities will create these abundantnetworks, commons advocates emphasize the transaction costs of aggregating spectrum, but those costs can be avoided via allotment of spectrum in large swaths. The comparative question of the efficiency of private versus public control, meanwhile, entails an evaluation of the implica- tions of the profit motive (enhanced ability and desire to devise the best networks, but also the desire to attain monopoly power) versus properties of government action (the avoidance of private monopoly, but also a cumbersome process that can be subject to rent-seeking). Professor Benjamin contends that, on balance, these considerations favor private control. An additional factor makes the decision clearer: Abundant networks might not develop as planned, and so the flexibility entailed by private ownership-as well as the shifting of the risk of failure from taxpayers to shareholders-makesprivate ownership the better option. The unattractivenessof a commons for abundant networks casts serious doubt on the desirability of spectrum commons more generally. If private ownership is a more efficient means of creating abundant networks, then the same is almost cer- tainly true for networks that run the risk of interference. Most uses of spectrum are subject to interference, so the failure of the commons advocates' arguments under- mines the appeal of a commons for most potential uses of spectrum. INTRODUCTION ................................................. 2008 I. ABUNDANT NETWORKS AND CONTROL ................. 2020 * Professor of Law, Duke University School of Law. B.A., Yale University, 1987; J.D., Yale Law School, 1991. I would like to thank Tom Bell, Jamie Boyle, Stuart Buck, Rodger Citron, Sam Dinkin, Gerry Faulhaber, Dale Hatfield, Tom Hazlett, Don Herzog, Evan Kwerel, Wayne Leighton, Doug Lichtman, Ronald Mann, Neil Netanel, Arti Rai, Ted Rappaport, Sanjay Shakkottai, Jim Speta, Doug Webbink, and Srilal Weera for helpful comments. 2007 Imaged with the Permission of N.Y.U. School of Law 2008 NEW YORK UNIVERSITY LAW REVIEW [Vol. 78:2007 A. The Importance of Interference ..................... 2021 B. The Design of Abundant Networks ................. 2024 II. THE COMMONS ADVOCATES' ARGUMENTS AGAINST PROPERTY RIGHTS IN SPECTRUM ....................... 2033 A. Costs of Allocating Spectrum in Small Allotments... 2033 B. Fears that, Even with Big Allotments, Property Rights Will Not Result in Abundant Networks ...... 2036 III. EVALUATING GOVERNMENT VERSUS PRIVATE CONTROL OF ABUNDANT NETWORKS ................... 2043 A. Protocols and Lobbying ............................ 2045 B. Benefits of Private Competition ..................... 2050 C. Benefits of Private Control of Abundant Networks.. 2055 1. Implementing and Updating Successful Protocols........................................ 2055 2. Adjusting Spectrum Usage and Pricing Schem es ......................................... 2060 D. Concentration of Private Power ..................... 2064 E. Benefits of Government Control: The Value of a Free Network ....................................... 2076 1. Should Spectrum for Abundant Networks Be Free of Charge?................................. 2078 2. Is Government Control More Likely To Produce Neutral Networks? .............................. 2082 IV. SHOULD THE GOVERNMENT ALLOT FREQUENCIES IN LARGE BANDS? ......................................... 2090 A. Parcel Size, Transaction Costs, and Combinatorial B idding ............................................. 2090 B. The Importance of Uncertainty ...................... 2094 V. NON-EXHAUSTIVE PROPERTY RIGHTS .................. 2097 CONCLUSION ................................................... 2101 INTRODUCTION There has been much ferment recently in the world of wireless communications. Technologists and legal scholars have argued that new wireless networks can be developed that would allow for a wire- less "commons" in which people could transmit freely on open radio spectrum.1 One major concern about these proposals is that wide- spread use of such a commons may result in more traffic than the I See, e.g., Yochai Benkler, Overcoming Agoraphobia: Building the Commons of the Digitally Networked Environment, 11 Harv. J.L. & Tech. 287, 325-26 (1998); George Gilder, Auctioning the Airwaves, Forbes ASAP, Apr. 11, 1994, at 98, 111-12; Eli M. Noam, Taking the Next Step Beyond Spectrum Auctions: Open Spectrum Access, IEEE Comm. Mag., Dec. 1995, at 66, 69-70. Imaged with the Permission of N.Y.U. School of Law December 20031 SPECTRUM ABUNDANCE 2009 network can handle-so many messages being sent that they interfere with one another. 2 Several leading commentators, though, argue that technology has solved the interference problem. They contend that we can now have wireless networks in which each new device also creates new capacity, such that a wireless network can add users without creating interference. They also take a further step: They assert that such networks will not be created if spectrum is privately owned, and that a commons-in which no one owned spectrum rights-would be a more efficient system for managing the spectrum than would a property rights regime.3 In this Article, I critically assess the argument that a government-created commons is a more efficient means of spectrum allocation than is private property, and in partic- ular that it is a more efficient means of producing these new networks. I conclude that private owners will create these capacious networks if such networks are as promising as their advocates suggest, and that- in light of the tradeoffs involved in the choice between public and private control-private control is preferable to public control. This debate marks a new stage in spectrum policy. For most of the twentieth century, the model of spectrum regulation was straight- forward: With respect to any given set of available frequencies, the federal government chose what service (usually only one service, such as broadcast television or FM radio) it would authorize. Then the The radio spectrum is the range of frequencies suitable for the propagation of radio waves. See Harry Newton, Newton's Telecom Dictionary 657, 744 (19th ed. 2003). It would be a bit ungainly to refer constantly to "the range of frequencies suitable for wire- less transmissions" or "the available range of radio frequencies," so in most places I simply refer to "the spectrum." This shorthand should not obscure the fact, however, that spec- trum has no independent existence, but instead is just the available range of frequencies. 2 See infra notes 28, 42-47 and accompanying text. Interference occurs when "the electromagnetic field of one device disrupts, impedes or degrades the electromagnetic field of another device by coming into proximity with it." Webopedia, Definition of EMI, at http://www.webopedia.com/TERM/E/EMI.html (last modified July 24, 2003). Interference is not a pure function of waves intersecting. In some situations, a crude receiver is not able to find the intended signal (and thus suffers from interference), but a more sophisticated receiver is able to find the intended signal (and thus avoids interference). See infra notes 60-67 and accompanying text (discussing ways of avoiding interference via more sophisti- cated receivers); see also Yochai Benkler, Some Economics of Wireless Communications, 16 Harv. J.L. & Tech. 25, 39 (2002) ("'Interference' describes the condition of a stupid lone receiver faced with multiple sources of radiation that it is trying to decode but, in its sim- plicity, cannot."). But the greater the degree to which signals overlap with each other, the more sophistication is required of receivers (which may make them prohibitively expen- sive), and at some point even the best receivers cannot find the desired signal. That is why, even in new networks, interference is such a major concern. See infra notes 45-53 and accompanying text. 3 See Benkler, supra note 2, at 48; see also Lawrence Lessig, The Future of Ideas: The Fate of the Commons in a Connected World 222, 226, 230, 241-43 (2001) [hereinafter Lessig, The Future of Ideas]; Lawrence Lessig, Commons and Code, 9 Fordham Intell. Prop. Media & Ent. L.J. 405, 415 (1999). Imaged with the Permission of N.Y.U. School of Law NEW YORK UNIVERSITY LAW REVIEW [Vol. 78:2007 government decided how those frequencies would be divided for licensing purposes-e.g., how big a