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Tilting at Windmills

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June 12, 2007
By: Kevin Drum

700 MHz....Last year I gave my take on the telecom industry:

As near as I can tell, most telecom CEOs would sell their mothers into white slavery if they thought it would help them keep one of their competitors at bay for a year or five longer, and their record of bending, breaking, and twisting the rules in order to maintain their monopoly position...would fill a phone book.

Tough! But not tough enough. Here's Matt Stoller today:

They are monopolists, run by seriously bad people, and viciously anti-democratic. The telecom giants are large, lumbering, stupid beasts; cable companies are quick and weasely, but even more unethical if possible. Both sets of companies offer awful service, dishonest pricing plans, and generally are in bed with politicians at a local level and on a Federal level that it's literally stunning.

You won't read that on the op-ed page of the Washington Post. But maybe you should. In a more fundamental way than, say, the soda industry or even the automobile industry, the behavior of the telecom industry really matters to all of us, and the basic problem is not a lack of competition. It's the fact that there's virtually no room for new competitors to enter the market.

What brings this up? The issue immediately at hand is the 700 MHz spectrum, an extremely valuable portion of the wireless spectrum that the FCC is getting ready to auction off. If the telecom industry has its way, the entire spectrum will be auctioned off under the current rules to the current players and new competitors will be shut out. If you're happy with the lousy service and spectacular lack of innovation demonstrated by today's telecom giants, this is the plan for you.

For the rest of us, a better policy would be to auction off a piece of the spectrum under the usual rules, but to reserve another chunk to be auctioned off under "open access" rules that require the spectrum to be open to anyone who wants to lease it and to any device that's capable of running on it. This would allow small innovators to enter the market and would open up the spectrum to interesting new devices in the same way that the Supreme Court's 1969 Carterphone decision revolutionized the phone industry by opening up the old telephone network to answering machines and cordless phones not made by AT&T. But none of this will happen if the entire spectrum gets auctioned off to the usual suspects.

And in case you're wondering, the 700 MHz spectrum is part of the spectrum currently used by UHF television stations, which have been ordered to vacate it in 2009 when broadcasting goes digital. It's extremely valuable real estate because UHF signals have a very long range and pass through walls and buildings easily. A single UHF tower can cover far more ground far more efficiently than WiFi, which makes it a perfect candidate for municipal wireless networks.

It's also the last high-quality spectrum likely to be available for a very long time. If it gets swallowed up by the big guys, that's it for at least another decade or two. So call your congress critter.

Kevin Drum 1:07 PM Permalink | Trackbacks | Comments (34)

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Comments

Hmmm...the rich control the process, buy off lawmakers, stifle competition and innovation...

The genius of The Market!

Sing on, Al!

Posted by: Gore/Edwards 08 on June 12, 2007 at 1:24 PM | PERMALINK

Ah, Kevin.

This is not a market problem. This is government and industry colluding behind consumers backs. The very thing Adam Smith warned against.

Posted by: egbert on June 12, 2007 at 1:36 PM | PERMALINK

Egbert, dear, the selling of a valuable commodity to the highest bidder is, in fact, a market transaction, which makes this, in fact, a market problem requiring an alternative solution, as Kevin correctly notes.

Do come back when you've got something relevant to add, won't you?

Posted by: PaulB on June 12, 2007 at 1:43 PM | PERMALINK

dishonest pricing plans

Ain't that the truth. I recently helped with the estate of an elderly woman who was still paying rent on her phone to Ma Bell, err, Verizon.

Posted by: dbomp on June 12, 2007 at 1:46 PM | PERMALINK

Except that some of the most innovative telecom comes from Europe and Asia whose players have a complete or near monopoly. It's the lack of monopoly -- the competing technologies and systems -- that seem to be hurting us now. And the lack of government investment in infrastructure. Take for instance how Japan has gone from a country where almost everyone used a dial-up connection just 3 years ago (and it was crazy expensive, no monthly unlimited plans) to having some of the fastest and most fully deployed broadband in the world. That's how government and business can work together. We have stopped caring about our people and doing what's good at every level of our society. The left and the right and business have descended into me-first cynicism. It's depressing. And I'm only 33. It's enough to put a gun to the head.

Posted by: DC1974 on June 12, 2007 at 1:49 PM | PERMALINK

While I expect the auction of these frequencies will be as corrupt and cravenly stupid as everything else has been in the era of Bushco, I think the secondary issue Kevin touches on is likely to be a bigger deal in short run. Specifically, every antenna-connected analog TV in the country will go dark in Feb 2009.

I've been following this a bit recently, and it looks to me as if it's headed for a really massive trainwreck. Quite a large portion of the population still depends on over-the-air broadcast TV, and most of them are going to be SOL come the changeover. There are plans to help people buy converter boxes, but at this moment none of those cheap boxes even exist. (High-end expensive ones are available, but cost hundreds of dollars; the ones that'll be needed will have to cost in the $40 or $50 range.)

In a bit over a year and a half, tens of millions of these boxes will need to be designed, built, put into the retail pipeline, and sold. Consumers will have to be made aware of their need for the converters, then they'll need to select, buy and install them. If this has not happened by Feb. 2009 then many millions of people will suddenly discover they can't watch TV anymore.

Even today plenty of the TV's being sold new don't have digital circuitry. I was down at the local big box store, and most of the smaller TV's had those stickers on them warning they won't be able to receive a broadcast after the changeover.

If you think that because you get cable, this won't affect you, don't be so sure. There are both technical and legal issues with the cable providers reconverting digital broadcast signals to analog. When I called my local cable operator and asked about this, they told me flat out I'd need digital TV's to receive their signal after 2009.

Maybe I'm all wrong; maybe the transition will go smoothly. But at this moment I just don't see it. It looks to me like it'll be a huge fiasco. A last going-away present from the departing Bush administration.

Posted by: jimBOB on June 12, 2007 at 1:54 PM | PERMALINK

One word: Vonage. Here's a revolutionary service, cheaper than any other telephone service, with ridiculously low international rates and many innovative features (simultaneous ringing of several numbers, voice mail in your e-mail, etc.)' on the negative side, audio quality is not stellar, albeit acceptable, and help is patchy, albeit improving, and not as bad as telecom service in any case. Most importantly, it has a base of a couple of million fanatical members (me included). Yet Vonage will almost certainly seize to exist, as will other similar viop companies, because Verizon owns some idiotically general patents and they'll kill any innovation that threatens their monopoly. Welcome to modern American business!

Posted by: Anonymous on June 12, 2007 at 1:54 PM | PERMALINK

from jimbob: "If this has not happened by Feb. 2009 then many millions of people will suddenly discover they can't watch TV anymore."

I can't think of a better thing to happen.. I only wish it was a permanent end to TV?

Posted by: evermore on June 12, 2007 at 2:03 PM | PERMALINK

Hate to nitpick here, but isn't the use of the word "monopolists" incorrect?

By definition, a monopoly is where someone has complete control over the supply of a given item or service. If there is more than one "monopolist" providing an item or service in the marketplace, then there is no monopoly and no "monopolists" are present.

Posted by: Chicounsel on June 12, 2007 at 2:04 PM | PERMALINK

I can't think of a better thing to happen.. I only wish it was a permanent end to TV?

It's all fun to look down you nose at the hoi polloi and tell them they'd be better off without TV. You might even be right. But I guarantee you THEY aren't going to be happy about it.

Bear in mind a good number of these are elderly on fixed incomes, with little ability to buy and install new gadgets. For someone like that to lose their connection to the outside world is no joke.

Posted by: jimBOB on June 12, 2007 at 2:10 PM | PERMALINK

I agree with egbert.

Disband the FCC, and open up the ENTIRE broadcast spectrum for anybody who can build a transmitter to use.

True innovation will happen when the Invisible Hand invents a way for everyone to use all frequencies at once. And this communistic partitioning of the EM spectrum will end once and for all!

Posted by: osama_been_forgotten on June 12, 2007 at 2:11 PM | PERMALINK

the hoi polloi could be reading books instead.. and we all us blog readers too...

Posted by: evermore on June 12, 2007 at 2:20 PM | PERMALINK

Chico;
The monopolist, in this case, is the FCC.
But to better clarify what Kevin is saying; yes, the more correct term would be "oligarchy" - or "colluding cartel".

Posted by: osama_been_forgotten on June 12, 2007 at 2:20 PM | PERMALINK

UHF is essentially a "line of sight" medium. Unlike UHF broadcast television and like cell phones, you usually don't want to cover a wide area from a high tower but to cover smaller areas without interference and serve more customers. UHF signals behave themselves and can be handy to cover a limited area without using too much power.

Posted by: Brenda Helverson on June 12, 2007 at 2:28 PM | PERMALINK

I'm shocked, shocked, that when an industry is so pervasively regulated as the telecom industry that the industry giants collude with the regulators to screw the consumer. Shocked, I tell ya.

And yet the left continues to believe that the answer is more and more regulation of every sector of society. Great idea!

Posted by: Al on June 12, 2007 at 2:47 PM | PERMALINK

Kevin,

Why do you think it's wise to reserve even part of the spectrum for the "usual suspects"? Why not auction off, say, 3 or 5 or 10 years' rights to each useful fragment of the spectrum to anyone who wants to buy it?

PaulB, you're mistaken. It's a closed auction as currently structured. If it were open to all buyers, then it would be an open-market transaction in line with classical economics.

Posted by: Shelby on June 12, 2007 at 2:50 PM | PERMALINK

"It's a closed auction as currently structured. If it were open to all buyers, then it would be an open-market transaction in line with classical economics."

Ah, my mistake. I don't think it changes anything, though. An open auction would still go to the "colluding cartel."

Posted by: PaulB on June 12, 2007 at 2:58 PM | PERMALINK

They're all for free market's until they ain't.

This will be a classic money grab. I know. I work for a tel-co. And we are pig's. I'm out in 3 to 4 years when I pay off my debt. Please don't be offended, but I'd rather give hummer's at Greyhound Station't than do what I do. And, I'm NOT EVEN GAY!!!

The greed in this country shout's-down common sense and decency every waking moment of our lives.

How much is too much? We may find out. But it probably won't be until we have too little!

And then, we'll all wonder where it all went...

Posted by: Victor on June 12, 2007 at 3:08 PM | PERMALINK

Not a monopoly, but an oligopoly and a very tight one indeed. (www.oligopolywatch.com) Modern corporations aren't allowed to be monopolies, but of they have a few friendly competitors, they are left alone by the antitrust regulators, no matter how abusive and anti-competitive.

Posted by: Steve on June 12, 2007 at 3:14 PM | PERMALINK

I'm not particularly happy with Verizon right now. A few weeks ago, I went to one of the company's stores to once again look at new phones. I've been on my mom's contract ever since I first got a cell phone when I was a college sophomore, and now that I've graduated, she rightly told me it was time to get my own. Before I did anything else, the salesman told me, I had to separate my number from her contract. Fair enough, I thought, so that's what I did. A week or so later, I received something in the mail saying that I signed a new two-year contract with them. I was livid. I don't remember signing anything, although I guess now I know why the man in the customer service department took forever at the computer terminal.

So yes, these people are assholes. My question is, if one of these smaller companies, like Virgin Mobile, wants to break out, why doesn't it try to do some of the things that the bigger companies, like Verizon, At&T, and Sprint, don't want to do, like not hold people to absurd contract requirements? It'd probably take a lot of money, but assuming they could keep up the pace of new sign ups and have decent coverage, wouldn't they get, well, everyone? Imagine if Virgin Mobile didn't hold people to two-year contracts, letting them leave on a month-to-month basis, eventually forcing the rest of the industry to do the same.

It's definitely easier said than done, but what are the biggest hurdles in accomplishing something like this?

Posted by: Brian on June 12, 2007 at 3:26 PM | PERMALINK

Bits and pieces of the spectrum are often obtained in order to not use it, on an "If I can't have it, no one will" basis.

Posted by: Davis X. Machina on June 12, 2007 at 3:30 PM | PERMALINK

"That's how government and business can work together."

This doesn't seem to be a case of business and government working together. On the contrary; it seems that the telecom industry wants to destroy any potential threats to its dominance, which is understandable but perhaps unfortunate. And once again, if private Internet providers are so superior to municipal ones, why are the private providers so afraid of the competition? Wouldn't the results speak for themselves.

Posted by: Brian on June 12, 2007 at 3:31 PM | PERMALINK

Brian,

It is sad to say but your nightmare is just beginning. So far you have been dealing with real people. Now that they have your money the best you will get is a voice on the phone and pretty much no hope of straightening the mess out.

There is a good reason why cell phone customer service is rated the lowest year after year. I know I sould like an old curmudgeon but I really can't believe the crappy quality and service that cell phone users are willing to put up with. Why in my day . . .

Posted by: Tripp on June 12, 2007 at 3:42 PM | PERMALINK

Bits and pieces of the spectrum are often obtained in order to not use it, on an "If I can't have it, no one will" basis.
Posted by: Davis X. Machina on June 12, 2007 at 3:30 PM | PERMALINK

NONSENSE!

INCONCEIVABLE!

The Invisible Hand will FORCE them to use it!

Just like the Invisible Hand forced Venezuelan Land Owners to farm their land so the people could buy food from them.

Just like the Invisible Hand forced Enron to keep the power flowing in 2000!

Posted by: osama_been_forgotten on June 12, 2007 at 3:42 PM | PERMALINK

"A single UHF tower can cover far more ground far more efficiently than WiFi, which makes it a perfect candidate for municipal wireless networks."

Kevin, I sympathize with your sentiments, but this statement has flatout stupid.
The 700 MHz band is about 100 MHz wide (698–806 MHz). Let's assume, for simplicity, that every metro gets that entire spectrum (I don't know if there will be weird rules that cut it up, but let's ignore that). So what you now have is 100MHz of bandwidth for the metro.
Existing cell phone schemes get from 1/7th to 1/5th of a bit per Hz --- but they are pretty crappy. WiMax promises of order 4 bits/Hz which seems extraordinarily optimistic for a wireless environment, but lets assume that with really smart signal processing, diversity antennas and so on, we can get 5bits/Hz. That gives us 500Mb/s which sounds great. BUT BUT BUT ... that's with your model of a single UHF tower covering the entire metro. 500Mb/s shared across 100 000 simulaneous users is 5kb/s which is rather less exciting. (Not to mention technical problems like WiMax has TDMA buried somewhere in the multiplexing, which means it is limited [by speed of light issues, not power] in how large an area it can serve. For GSM this is 35km, I don't know the equivalent number for WiMax.

The point is that the only way you can get a large AGGREGATE bandwidth in a metro area is through lots of cells, each with low power, so that fall-off with distance is what keeps each user from interfering with the others.
From this point of view, there's nothing special about UHF. It's nice that it's a (fairly) large chunk of spectrum, but it's not dramatically larger than say the ISM chunk at 2.4 or 5 GHz (WiFi) or the existing cellular bands. It propagates through buildings a little better than the higher frequencies, but it's not clear that that's actually an advantage --- for cells it may be a disadvantage.

If we want better usage of spectrum, while selling off more bands is fine, even better would be more aggressive usage of the bands we have right now. The spectral efficiency of the older cellphone schemes is downright pitiful --- personally I'd much rather see someone cracking the screws on getting the telcos to transition to 21st century electrical engineering and packet switching ideas rather than remaining stuck in the 1970s.

Posted by: Maynard Handley on June 12, 2007 at 4:44 PM | PERMALINK

Bureaucrats are the answer to all problems, this one too. You can never have to many of them. In the dictionary bureaucrats are defined as: font of all that is good, the purest expression of efficiency, and "one who cares for you more than your own mother(for a coerced, union salary, of course)"

We just need a few more laws, a few more taxes, hire a few more bureaucrats to write some wonderful legislation and BOOM, goodness and happy time. I love government, the more the merrier! How would any of us know what to do if we did not have our "betters" "fixing" things for us?

Posted by: Marshall on June 12, 2007 at 6:31 PM | PERMALINK

How would any of us know what to do if we did not have our "betters" "fixing" things for us?

The rugged individualist Marshall doesn't seem to be following the discussion.

A common trait among our trolls.

Posted by: squall on June 12, 2007 at 9:03 PM | PERMALINK

The 700 Mhz spectrum issue produces more strange commentary on left oriented blogs (Brodsky at TPM, Scola at MyDD among others).

First, what interests do cable companies have in the spectrum? None. Cable companies haven't had to invest much in their original infrastructure. They also are beasts of local markets.

Second, what about the claims that DOD and D of Homer Simpson and all kinds of other emergency providers want to make on the spectrum? How much is left when they get done with it?

Third, exactly what genius came up with idea that the majors are going buy the spectrum and sit on it so no one else can use it? Newsflash, the Communications industry, especially the Telcos have had a rough decade. No telco is going to pay a bundle to squat on spectrum.

Fourth, about setting aside spectrum for small creative operators. Fine. I have to assume that you are describing something probably highly localized in scope. Wireless spectrum only goes so far. I have yet to hear anyone name something concrete. What about bluetooth, wifi, 2.4Mhz (anyone remember Riccohet?), Sprint ION? Anyone remember the outfit with a name something like Rainbow, that sat on spectrum just so Nextel couldn't have it? What creative services have evolved from these?

Fifth: Vonage. The amount of network provided by Vonage can be measured in meters not miles. As Qwest would say, the "ride the light" except they don't own or provide any of it. VOIP is a service with about zero barriers to entry, making a company such as Vonage an ephemeral entity. (Remember what happened to the long distance industry?)

Bottom line is that it takes a ton of money to bring the networks to life and maintain them. In this country, that investment has largely come from a handful of large companies. Take a look at whose routers comprise what you know as the Internet sometime.

So, perhaps the decision is whether to auction and relatively quickly deploy the spectrum, or hold it back and hope it gets put to good use. In the end 10-20 years from now is it a brave new world, or just a remake of the ATT breakup?

Telecom (excluding cable) has been a history of shifting subsidies. Long Distance used to subsidize local service. Then LD got cheap, and Local expensive, and now local is being eroded by mobile and VOIP. But at the end of the day, the money still has to flow back to the investors in the big backbone networks. It always has.

Posted by: RickG on June 12, 2007 at 9:18 PM | PERMALINK

Well, my "representative" is Al "Checks Are Always Accepted" Wynn. When Big Al isn't teabagging the financial industry, he's fellating execs at Verizon and Comcast. So..... Donna Edwards, MD-04 in '08!

Posted by: sglover on June 12, 2007 at 11:52 PM | PERMALINK

I've seen the future, and it has a cellular architecture.

I have to agree with Maynard that this is essentially land-mobile spectrum for use with a cellular architecture. It's also possible to do single-frequency network broadcasting (e.g. MediaFLO) in this spectrum. What makes no sense: to use it for fixed point-to-point or point-to-multipoint broadband, since there just isn't enough spectrum to compete with fiber-based or fiber-fed landline broadband networks. (In any band, not just 700Mhz) So far, only the cellular carriers (broadly construed to include The Specialized Mobile Radio Company Formerly Known as Nextel and the PCS carriers) have demonstrated a viable business model in the microwave and UHF spectrum. On that basis, I'd expect most new entrants to struggle and, eventually, to sell their licenses to the cellular carriers. It might make more sense for the FCC to just reserve substantial 700Mhz blocks for Sprint and T-Mobile right now, to create a level playing field for these carriers and allow for four competitive national cell carriers.

The public safety allocations in 700 Mhz are highly unfortunate. I've seen no evidence that the various agencies are actually up to the challenge of designing and running even their own comparatively backwards networks. Witness:

o State police networks that are for the use of only the state police, and not shared with federal or local agencies.
o An incredible hodgepodge of frequency bands: 50Mhz, 150 Mhz, 450 Mhz, 500 Mhz, 7-900Mhz, 4.9 Ghz and probably others I'm unaware of. Radio equipment made for one band won't work in another.
o Interoperability problems traceable to the lack of a common system, architecture or frequency band - i.e. the predictable, first order results of resource allocation by uncoordinated, rival fiefdoms.
o Different federal agencies all operating their own wireless networks, with a considerable duplication of technology and lack of spectral efficiency.
o As a proposed solution to this problem, an Integrated Wireless Network (IWN) initiative for Federal first responders in three agencies. Once again, this will be an agency-only network, unavailable for use by state or local agencies. The IWN is itself fraught with problems and thought to on the verge of failure. If it's completed, it's going to cost you and me at least $3 billion, and the bill could be an order of magnitude more.
o Just for communication between military personnel at various installations, the entirely separate DOD Land Mobile Network is also being built. This is in the same frequency band (380-400 Mhz) as the O2 Airwave TETRA network, which has coverage and capacity for all British first responders, across all levels of administration throughout England, Scotland and Wales. (To add insult to injury, Airwave uses only half of the 20Mhz in this band.)
o Military aviation is hogging everything from 225-380 MHz), which is also prime land-mobile spectrum. Keep in mind that civilian aviation gets by with much less in the FAA band.

There's no shortage of spectrum (and, in fact, far better spectrum than 700 Mhz offers) available for assignment for public safety use. It's just that a bit of federal coordination is required to unlock it and put it to productive use in some sort of unified network.

A mere increase in public safety _allocations_ does not substitute for a coordination in frequency _use_, which is critical and apparently lacking here. The cellular telephone system coordinates frequency use and re-use - the allocation issue only comes on rare allocations when the total cell call capacity is reached. There is no way that the same number of even local telephone calls (within a few miles, the range between hand-held radios communicating without infrastructure) could be completed by individuals responsible for assigning and relinquishing their own talk frequencies.

Another pet peeve of mine: There's been a tendency on the part of the press to assume that every successive spectrum auction represents to the last piece of "prime" spectrum to become available, with everything else spoken for and locked up for good. In the case of 700Mhz, this is certainly not the case. After that, there's the rest of the UHF TV (500-600 Mhz bands) spectrum to go after. My impression of OTA TV, and the UHF variety in particular, is that it's simply never worked properly and will still be just a difficult, if not more, to receive now that it's going digital. I expect the number of OTA "subscribers"
to continue to drop, despite the usurious rates charged by cable and satellite companies, until the service completely expires from pressure from non-NAB interest groups in 20-40 years. At that point, OTA _bigscreen_ TV will be dead and all the UHF spectrum can be released.

Posted by: Hugh on June 13, 2007 at 12:11 AM | PERMALINK

This article starts out with the premise that phone and cable companies are inherently bad because they will do anything to crush their competitors. There is no substantiation for this premise; it is just the opinion of the author. The rest of the article therefore rests on nothing more than ubstantiated opinion.

My experience with the business world, generally, is that it is very competitive, and that the winners generally are the fiercest competitors. So what's the point? Do we really think that some newcomer in the business that is worth its salt will not be similarly competitive? Perhaps setting aside some sort of "commons" in the airwaves would be useful, but it also might just waste the resource. Public access channels already exist on cable systems, and they are largely wasted bandwidth, used by a very narrow special interest that I would argue produces nothing of value to society as a whole.

Like it or not, the drive to make a profit is what fosters innovation and produces things of value to society.

Posted by: anonymous on June 20, 2007 at 6:42 PM | PERMALINK

Strange story: On Friday July 20th my friend and I were smoking out and discussing the future of what the 700mhz spectrum would be used for. I joking said I hope Google buys it. I am an obedient servant to Google's quest of world domination. I woke up, checked the wires, and lo and behold Google had bid for it! 4.6 billion. If Google is successful watch for a REVOLUTION in the industry.

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