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A General Theory of Property Rights to Radio Spectrum Thomas W. Hazlett Prof. of Law & Economics George Mason University Telecommunications.

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Presentation on theme: "A General Theory of Property Rights to Radio Spectrum Thomas W. Hazlett Prof. of Law & Economics George Mason University Telecommunications."— Presentation transcript:

1 A General Theory of Property Rights to Radio Spectrum Thomas W. Hazlett Prof. of Law & Economics George Mason University Telecommunications Workshop: Convergence or Competition? Universidad Francisco Marroquin June 9-10, 2005

2 T.W. HazlettUFM Spectrum Conference2 Spectrum Policy Debate: BYOT Bring your own terms “Property v. Commons” –Property rights everywhere –Commons as group ownership –“exclusive use” intensely shared –“command and control” Fastidious alternative: Law & Economics

3 T.W. HazlettUFM Spectrum Conference3 Rights to Resources Property rights literature Coase, Demsetz, Barzel, Williamson –Libecap, McChesney, Lueck, Anderson & Hill Commons literature –Olsen, Hardin, Ostrom, Rose, Field, Eggertsson Property law literature –Merrill, Smith, Epstein, Levmore The Demsetz Hypothesis (AER 1967)

4 T.W. HazlettUFM Spectrum Conference4


6 T.W. HazlettUFM Spectrum Conference6 Vertical Rights Creation

7 T.W. HazlettUFM Spectrum Conference7 Layers of Rights Creation High level property rights trigger a chain of rights creating activity Property rights determine where initial resource appropriation decisions are made Policy choice: selecting regime triggering the most productive chain

8 T.W. HazlettUFM Spectrum Conference8 Policy Vertigo a resulting market structure – an “access regime” – is not a property regime To impose an access regime is to mandate particular organizational outcomes Coase Theorem: this form of central planning likely to be less efficient to the private property alternative

9 T.W. HazlettUFM Spectrum Conference9 Central Park “Spectrum Commons” Central Park is a commons It delivers considerable social value A “spectrum commons” delivers social value (e.g., “breathtaking” Wi-Fi boom) Let’s allocate more unlicensed spectrum

10 T.W. HazlettUFM Spectrum Conference10 Fly in the Ointment Central Park provided in a market governed by private property rights NYC real estate market rationally managed due to high level exclusion Exclusive rights delegate Access Regime choices to property owners Central Park (State Property) not precluded but enabled


12 T.W. HazlettUFM Spectrum Conference12 Access Regime ≠ Property Regime When a machine on an Ethernet network wants to talk with another machine…[it] requests from the network the right to transmit. It asks, in other words, to reserve a period of time on the network when it can transmit. It makes this reservation only if it hears that the network at that moment is quiet. It behaves like a (good) neighbor sharing a telephone party line: first the neighbor listens to make sure no one is on the line, and only then does she proceed to call (Lessig 2001, 78).

13 T.W. HazlettUFM Spectrum Conference13 Ethernet Spectrum Analogy –“Ethernet is not radio spectrum, although it is ‘spectrum in a tube.’” (Ibid.) – How are the property rights to the tubes defined? –Private property yields the rights structure that organizes markets to create…. Ethernet. And CDPD etiquette for polite spectrum sharing And countless others.

14 Advanced Wireless Technologies Cited as Rationales for Spectrum Regime Shift Away from Exclusive Rights TechnologyCitationsProvided via Exclusive Spectrum Rights? Comment Spread spectrumGilder (1994), Benkler (1998),Lessig (1999),Werbach (2004) Yes. CDMA (code division multiple access) cellular voice and data networks deployed by over 100 carriers globally. Over 256 million subscribers to CDMA spread spectrum cellular networks (2005Q1). Smart antennaeGilder (1994), Werbach (2004) Yes. Arraycomm’s adaptive array antennae sold to cellular operators globally. Arraycomm’s iBurst mobile broadband system deployed in Australia where exclusive spectrum property enacted by statute, but deterred by regulatory barriers in U.S. TDMA (time division multiple access) Benkler (1998)Yes. TDMA (time division multiple access) is the underlying technology in GSM (global system for mobile communications), the world’s leading digital cellphone technology. Over 1.25 billion mobile phone subscribers use GSM or other TDMA technologies. Northpoint’s directional re-use of satellite TV band Werbach (2004)No. Deployment blocked by lack of spectrum ownership. Developer of technology unable to obtain FCC license or to negotiate rights, which were not owned by private parties. Mesh NetworksBenkler (2002)Yes. Radiant Networks and Mesh Networks have both offered mesh systems in LMDS bands. Mesh networks, deployed in licensed and unlicensed bands, have yet garnered significant market share. Almost no use of ad hoc mesh networks.. Software Defined Radio Yes.First SDR technology approved by FCC was Vanu’s system, sold to CMRS carriers. Ultra wideband (UWB)Werbach (2004)No.Limited use of UWB is occurring in USA via unlicensed underlays (authorized 2002).

15 T.W. HazlettUFM Spectrum Conference15 Appropriating Spectrum in USA (post 1927) Guatemala’s 1996 Statute

16 T.W. HazlettUFM Spectrum Conference16 Implication 1: Multiple Pathways to Private Property High level regime switch (Guatemala) Regulators use more “exclusion” in regulating State Property Not each path is equally efficient

17 T.W. HazlettUFM Spectrum Conference17 Implication 2: Multiple Pathways to State Property “Spectrum Commons” = State Property Governance (power limits) regulate appropriation Cost of coordination is relatively high except in special circumstances Standard outcomes of administrative allocation of resources obtain

18 T.W. HazlettUFM Spectrum Conference18 Getting to State Property 1.“Public interest” allocation of underlying resource 2.Private property rights to resource, allowing allocation by price system, with state acquiring rights in the market. -- eliminates standard inefficiencies of command and control, replacing bureaucratic allocation with decentralized transactions based on price signals

19 T.W. HazlettUFM Spectrum Conference19 Wi Fi Revolution “The passion behind this counter-revolution is not romanticism about sharing, or any opposition in principle to ‘property.’ The push comes instead from the success of the most important spectrum commons so far—the ‘unlicensed’ spectrum bands that have given us Wi-Fi networks.” –Lawrence Lessig, Spectrum for All, CIO Insight (March 14, 2003)

20 T.W. HazlettUFM Spectrum Conference20 WiFi’s Market Test Used commonly in WLANs –Coordination of spectrum use relatively easy –Self provisioning in home, office –Power limits allow real property owners to exclude WLANs hand off to “spectrum in a tube” for WAN service –Privately owned spectrum –WWAN coordination relatively difficult Large numbers of users Large irreversible capital for network infrastructure

21 T.W. HazlettUFM Spectrum Conference21 Hotspot Access Hotspot access is not free –Users of capital infrastructure (both WLAN and WWAN it connects to) exclude non-payers Enterprises deny access to non employees Hotspots deny access to non-payers, or bundle charges into other sales (or taxes) Privatizing the commons? Scarcity in non-exclusive spectrum

22 Counterfactual Regulation for n Wireless Applications Expected Social Value ($) Rights Creation Under State Property Regime Governance Governance/ Exclusion 1 1 2 2 3 4 4 3 n n n Selecting Highest Valued Vector

23 T.W. HazlettUFM Spectrum Conference23 Annual Consumer Gains from Increased Availability of CMRS Spectrum (USA) Increase in Spectrum Available for CMRS 80 MHz140 MHz200 MHz VariableInitial Value Final Value ChangeFinal Value ChangeFinal Value Change Average Price/min. 0.1120.084-24.59%0.069-38.42%0.056-49.97% Min. of use/month (millions) 78,340115,09846.92%135,76373.30%153,03895.35% Change in Consumer Surplus (millions) $31,850$55,072$77,419 Source: Results are estimates based on empirical model calibrated in: Thomas W. Hazlett and Roberto Muñoz, Welfare Effects of Spectrum Policy (Aug. 2004).

24 T.W. HazlettUFM Spectrum Conference24 Unlicensed and Flexible-use Licensed Bands (estimated monetary values for 2003) BandMHzTypeServices 1 Est. Service Rev. Est. Equip. Rev. Estimated Network Capex 1.9 GHz20UNLVoice, data, UPCS (Unlicensed PCS) handsets 0$0.04 billion $0.02 billion 900 MHz, 2.4 GHz 26 83.5 UNLRemotes, listening devices, cordless phones, wireless LANs, WiFi, microwave ovens, ISM equipment, local positioning systems, experi- mental use by schools $0.088 billion $3.81 billion $0.264 billion 5 GHz300 MHzUNLWiFi, HiperLAN, HiSWAN, IEEE 802.16 devices, cordless phones, amateur radio, field disturbance sensors (such as door openers), aviation radar $0.014 billion $0.197 billion $0.017 billion 800 MHz, 1.9 GHz 170 MHzLICMobile phones, data$88 billion $13 billion $21 billion

25 Global Wireless Broadband Equipment Sales by Band

26 T.W. HazlettUFM Spectrum Conference26 Asymmetric Technology Shift Argument “Intelligence can be built not just into the software that processes signals at the transmitter or receiver, but into the antennas they use… Modern electronic antennas can be highly directional and adaptive. They can even be tuned dynamically to lock on and shape a narrow directional beam to a signal, preventing it from spreading widely where it might impinge on other signals.” –Kevin Werbach, Supercommons, Texas Law Review (Feb. 2004), p. 898  footnotes Marty Cooper, ArrayComm CEO

27 T.W. HazlettUFM Spectrum Conference27 Advanced Wireless Technology “An adaptive array can pinpoint the source of a radio signal and selectively amplify it.” -- Marty Cooper, Antennas Get Smart, Scientific American (July 2003)

28 T.W. HazlettUFM Spectrum Conference28 ArrayComm’s iBurst 1 mbps wireless broadband “personalized cellular” High-speed hand-off (60 MPH) $30 a month Personal Broadband by Vodaphone Sydney, Melbourne – Australia No US license (four years of lobbying discontinued in 2003)

29 T.W. HazlettUFM Spectrum Conference29 “[W]orld's leading market showcase for wireless data” Sydney "has become the world's leading market showcase for wireless data services,“ says Robin Simpson, an analyst with U.S. technology research firm Gartner in Australia… [A] reason wireless broadband is taking off here: The government sold off radio spectrum for such services relatively cheaply. Privately held Personal Broadband snapped up its license in 2001 for only about US$7.5 million. In Europe, by contrast, many phone companies paid billions to governments for third-generation cellphone licenses…. -- WSJ (2.18.05)

30 T.W. HazlettUFM Spectrum Conference30 Liberalization

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