Harvard Journal of Law & Technology Volume 26, Number 1 Fall 2012 OPEN WIRELESS VS. LICENSED SPECTRUM: EVIDENCE FROM MARKET ADOPTION Yochai Benkler* TABLE OF CONTENTS I. INTRODUCTION ................................................................................ 71 II. POLICY APPROACHES ..................................................................... 76 III. THE ACADEMIC DEBATE .............................................................. 81 A. Background ................................................................................ 81 B. The Arguments in Favor of Open Wireless Models ................... 84 1. The Core Scarcities are Computation and Electric Power, Not “Spectrum” .................................................... 84 2. Transaction Costs and the Dynamic Shape of Demand for Wireless Capacity Make It Unlikely that Markets Defined in Spectrum Allocations Could Achieve Optimality ........................................................... 87 C. Rebutting the Primary Arguments Against Open Wireless Systems ...................................................................... 90 1. Open Wireless is Not a Form of Deregulation, but Merely Another Form of Regulation ................................ 90 2. “Tragedy of the Commons” and Technology Will Always Drive Demand Faster than Supply ....................... 93 3. Market Adoption and Failures to Thrive ................................. 97 D. Conclusion ............................................................................... 100 IV. EVIDENCE FROM MARKETS ........................................................ 101 A. Open Wireless Strategies in Seven Core Markets .................... 101 1. Mobile Broadband ................................................................. 101 2. Smart Grids: How Inadequate Levels of Open Wireless Allocations Can Hobble Wireless Innovation ....................................................................... 108 3. Healthcare .............................................................................. 113 4. Machine-to-Machine/RFID/Internet of Things ..................... 117 * Jack N. and Lillian R. Berkman Professor for Entrepreneurial Legal Studies, Harvard Law School, and Faculty Co-Director of the Berkman Center for Internet and Society, Har- vard University. I owe thanks to Charlie Griffin, Nathan Lovejoy, and Britta Glennon for excellent and tireless research; to June Casey, the superb research librarian at Harvard Law School; and to Rob Faris, Eszter Hargittai, , Laura Miyakawa, and Steve Shay for conversa- tion, comments, and help on various aspects of earlier drafts, and to Dan Robinson and Ana Lise Feliciano Hansen for their analysis of the Incentive Auctions Notice of Proposed Rulemaking and its implications for the white spaces and guard bands. The Harvard Law School Library and Ford Foundation’s support for the Berkman Center for Internet and Society provided funding for market data acquisition. 70 Harvard Journal of Law & Technology [Vol. 26 A. Asset Management: Open Wireless RFID is Predominant in the Market, with Important Exceptions ................................................................ 118 B. Access Control: A Range of Open Wireless Technologies Covers the Market ............................. 120 C. Mobile Payments ............................................................... 120 D. Fleet Management and Automobile Telemetry Mostly Depend on Licensed-spectrum Approaches .............................................................. 122 E. Interim Note on Leveraging Lumpy Demand .................... 124 B. The Anemic Performance of Secondary Spectrum Markets .................................................................................. 126 C. Special-Purpose Open Wireless Models .................................. 132 1. U-PCS .................................................................................... 133 2. The Perils of Special-Purpose Sharing Allocations and License-by-Rule: 3.6–3.7 GHz ....................................... 135 3. Special-Purpose Dedicated Channels: Automotive ITS, Health WMTS, and MBAN ............................................ 137 A. Automotive Communications: ITS at 5.9 GHz; Radar at 77 GHz ...................................................... 137 B. Medical Applications: WMTS and MBAN ........................ 139 D. Observations on Markets, Architecture, and Policy ................ 141 V. IMPLICATIONS FOR POLICY .......................................................... 142 A. Proposals for Exhaustive Auctioning Should Be Rejected Outright .................................................................................. 142 B. The Basic Architecture and Market Switches Should Be Reflected in a Policy Switch .................................................. 145 1. TV Bands and White Spaces ................................................. 145 2. NTIA Fast Track and the PCAST Report ............................. 151 3. Shared Access Gateways ....................................................... 153 C. The Attraction of Auction Revenue Distorts Wireless Policy ..................................................................................... 156 D. The Political Economy Overvalues Licensed Approaches vis-à-vis Open Wireless ..................................... 161 E. Design Considerations for Open Wireless Allocations: General-Purpose, Minimal-Rules Open Allocations Versus Special-Purpose Open Allocations ............................ 161 VI. CONCLUSION .............................................................................. 162 No. 1] Open Wireless vs. Licensed Spectrum 71 I. INTRODUCTION The next generation of connectivity will be marked by ever more ubiquitous computing and communications.1 From health monitoring to inventory management, handheld computing to automobile com- puters and payment systems, pervasive computing is everywhere — and everywhere depends on wireless communications and therefore on wireless policy. We see this increasing importance in several con- texts. The National Broadband Plan calls for the identification of an additional 500 MHz of spectrum for new wireless applications.2 The new report by the President’s Council of Advisors on Science and Technology (“PCAST Report”) calls for extensive sharing of gov- ernment spectrum with civilian users;3 this report, in turn, informs an already existing broad effort to release federally-controlled frequen- cies for use by non-federal users, coordinated and managed by the National Telecommunications and Information Administration (“NTIA”).4 Moreover, a series of bills introduced in Congress5 and proposed by the White House6 in 2011 ultimately resolved into law that gave the Federal Communications Commission (“FCC”) a new 1. PRESIDENT’S COUNCIL OF ADVISORS ON SCIENCE AND TECHNOLOGY, REALIZING THE FULL POTENTIAL OF GOVERNMENT-HELD SPECTRUM TO SPUR ECONOMIC GROWTH 1–7 (2012) [hereinafter PCAST REPORT], available at http://www.whitehouse.gov/sites/default/ files/microsites/ostp/pcast_spectrum_report_final_july_20_2012.pdf; FCC, CONNECTING AMERICA: THE NATIONAL BROADBAND PLAN 9–10, 22 (2010) [hereinafter NATIONAL BROADBAND PLAN], available at http://download.broadband.gov/plan/national-broadband- plan.pdf (describing growing demand for wireless capacity as the “spectrum crunch” and prescribing 500 MHz in additional allocations); YOCHAI BENKLER ET AL., NEXT GENERATION CONNECTIVITY: A REVIEW OF BROADBAND INTERNET TRANSITIONS AND POLICY FROM AROUND THE WORLD 15, 219–228 (2010) [hereinafter BENKLER ET AL., NEXT GENERATION CONNECTIVITY], available at http://cyber.law.harvard.edu/sites/ cyber.law.harvard.edu/files/Berkman_Center_Broadband_Final_Report_15Feb2010.pdf (reporting on a survey of national broadband plans and underscoring the importance of ubiquitous communications in the next generation). 2. NATIONAL BROADBAND PLAN, supra note 1, at XII, 9–10. 3. PCAST REPORT, supra note 1, at 7–9. 4. NTIA, AN ASSESSMENT OF THE VIABILITY OF ACCOMMODATING WIRELESS BROADBAND IN THE 1755–1850 MHZ BAND iii–v (2012) [hereinafter NTIA REPORT], available at http://www.ntia.doc.gov/files/ntia/publications/ntia_1755_1850_mhz_report_ march2012.pdf. 5. Public Safety Spectrum and Wireless Innovation Act, S. 911, 112th Cong. § 2 (2011), available at http://www.gpo.gov/fdsys/pkg/BILLS-112s911is/pdf/BILLS-112s911is.pdf; Spectrum Innovation Act of 2011, H.R. __, 112th Cong. §§ 102–03 (Discussion Draft 2011), available at http://www.publicknowledge.org/files/docs/ DraftHouseRepublicanSpectrumBill.pdf; Middle Class Tax Relief and Job Creation Act of 2012, H.R. 3630, 112th Cong. §§ 6001–703 (2012), available at http://www.gpo.gov/fdsys/ pkg/BILLS-112hr3630enr/pdf/BILLS-112hr3630enr.pdf. 6. OFFICE OF THE PRESS SECRETARY, THE WHITE HOUSE, THE AMERICAN JOBS ACT 62–91 (2011), available at http://www.whitehouse.gov/sites/default/files/omb/legislative/ reports/american-jobs-act.pdf. 72 Harvard Journal of Law & Technology [Vol. 26 incentives auction authority to reallocate some of the TV bands to support new wireless data services.7 The primary contribution of this Article is to provide evidence in aid of these ongoing efforts to refine spectrum policy in both civilian and federal spectrum. The Article surveys the experience of several leading-edge wireless markets, examining the relative importance of the major policy alternatives available to support the provisioning of wireless communications capacity. I review evidence from seven wireless markets: mobile broadband, wireless healthcare, smart grid communications,