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

A General Theory of Property Rights to Radio Spectrum

Thomas W. HazlettProf. of Law & EconomicsGeorge Mason [email protected]

Telecommunications Workshop: Convergence or Competition?Universidad Francisco Marroquin

June 9-10, 2005

mailto:[email protected]

T.W. Hazlett

UFM Spectrum Conference 2

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

T.W. Hazlett


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)

T.W. Hazlett


REGIME CHOICES

OPENACCESS

COMMON PROPERTY

PRIVATE PROPERTY

STATE PROPERTY

T.W. Hazlett


Efficient Open Access

Initial State

Abundance Scarcity

Open AccessGAIN FROM EXCLUSION NOT WORTH COST OF ENFORCEMENT

GAIN FROM EXCLUSION NOT WORTH COST OF

ENFORCEMENT

T.W. Hazlett


Vertical Rights Creation

Scarcity

State Property

Common Property

Private Property

Governance Exclusion (Privatization) Governance Exclusion

(Privatization) GovernanceExclusion(Secondary

Markets)

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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

T.W. Hazlett


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

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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

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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

Property Rights Enabling the Central Park Commons

Private Property

(real estate)

State Property(NYC owns CP)

State Property

Common Property

Zero priced access

Exclusive Rights

(Concessions)

Behavioral rules

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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).

T.W. Hazlett


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.

Advanced Wireless Technologies Cited as Rationales for Spectrum Regime Shift Away from Exclusive Rights

Technology Citations Provided via Exclusive Spectrum Rights?

Comment

Spread spectrum Gilder (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 antennae Gilder (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 Networks Benkler (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).

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Appropriating Spectrum in USA (post 1927)

Scarcity

State Property

Common Property

Private Property

Governance Exclusion (Privatization)

Liberal Licenses(EAFUS)

Traditional licenses

Unlicensed (device regulation)

Guatemala’s 1996 Statute

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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

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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

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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

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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)

T.W. Hazlett


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

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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

T.W. Hazlett

UFM Spectrum ConferenceCounterfactual Regulation for n Wireless Applications

Exp

ecte

d So

cial

Val

ue (

$)

Rights Creation Under State Property Regime

Governance

Governance/Exclusion

Exclusion

1

1

2

2

3

4

4

3

n

n

n

Selecting Highest Valued Vector

T.W. Hazlett


Annual Consumer Gains from Increased Availability of CMRS Spectrum (USA)

Increase in Spectrum Available for CMRS

80 MHz 140 MHz 200 MHz

Variable InitialValue

FinalValue

Change FinalValue

Change FinalValue

Change

AveragePrice/min.

0.112 0.084 -24.59% 0.069 -38.42% 0.056 -49.97%

Min. ofuse/month(millions)

78,340 115,098 46.92% 135,763 73.30% 153,038 95.35%

Change inConsumer 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).

T.W. Hazlett


Unlicensed and Flexible-use Licensed Bands(estimated monetary values for 2003)

Band MHz Type Services1 Est.Service Rev.

Est.Equip. Rev.

EstimatedNetwork Capex

1.9 GHz 20 UNL Voice, data, UPCS(Unlicensed PCS) handsets

0 $0.04 billion

$0.02billion

900 MHz, 2.4 GHz

2683.5

UNL Remotes, 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 GHz 300 MHz UNL WiFi, 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 MHz LIC Mobile phones, data $88 billion

$13 billion

$21 billion

Global Wireless Broadband Equipment Sales by Band

T.W. Hazlett


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

T.W. Hazlett


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)

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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)

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“[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)

T.W. Hazlett


Liberalization

Scarcity

State Property

Common Property

Private Property

Governance Exclusion (Privatization)

Liberal Licenses(EAFUS)

Traditional licenses

Unlicensed (device regulation)

Network Carriers “Commons”

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

Documents

commons property rights

unlicensed spectrum

polite spectrum

activity property rights

terms property

radio spectrum thomas

chain of rights

rights structure