Interview with Fred Campbell of CLIP

On June 7, 2012, in General, by Neil Stevens

Previously in the Tech at Night series we saw CLIP, the Communications Liberty and Innovation Project of the Competitive Enterprise Institute. A group talking tech with a slogan like “Liberty drives Innovation” is one that interests me.

So now we have a brief email interview with Fred Campbell, Director of CLIP.

Tech at Night: What are your biggest policy concerns today?

Fred Campbell: The two biggest concerns are calls for international regulation of the Internet and the ongoing spectrum crisis.

China and Russia are trying to seize control of the Internet from the United States through the United Nations. The International Telecommunication Union, a specialized agency of the UN that governs international telephone services, is meeting this December to consider expanding its authority to include the Internet. Some nations have already proposed limiting Internet privacy rights, imposing international network standards, and taxing international Internet usage. Ceding control of these issues to authoritarian governments would destroy the free market foundations that made the Internet a success and weaken liberty throughout the world. If these nations have their way, it would limit future innovation, slow economic growth, and chill political expression.

The other big issue concerns the mobile Internet. CTIA reports that, as of December 2011, there were over 331 million wireless connections in the US, and, according to the FCC, more smartphones were sold in 2011 than PCs. The result is a massive increase in the use of mobile data services by businesses and consumers, which is turning the Internet into the mobile Internet. Mobile Internet growth is driving innovation across all communications sectors from app developers and mobile content providers to mobile service providers. The same growth that is helping drive our economy is also creating a need for more mobile spectrum. Mobile devices use this spectrum, also known as radio waves, to connect to the Internet. When consumers use their mobile devices more, the increased usage also uses more spectrum, and we are starting to run out. According to Cisco, mobile data traffic grew 133 percent in 2011, and is expected to grow another 18-fold by 2016. We need more spectrum to meet the increase in demand, but the government controls our nation’s spectrum resources, and it’s moving too slowly on this issue. The lack of spectrum is already beginning to have an adverse impact on consumers, and it’s going to get much worse if we don’t act now. We have to start moving a lot faster on spectrum issues.

Tech at Night: What can the government do to promote innovation?

Fred Campbell: Most of the time, the best the thing the government can do is stay out of the way. The liberty inherent in free markets is what drives innovation, not government bureaucracy. That doesn’t mean the government has no role to play. When it comes to international efforts to seize control of the Internet at the United Nations, only the government can negotiate on behalf of US citizens. That’s why we need this administration to make a strong statement that it opposes UN regulation of the Internet. Although the administration is aware of the issue and has expressed some concern publicly, it doesn’t appear as though it has fully engaged on this issue, and that has to change.

In the US, it’s also critical that the administration and the FCC support making more spectrum available for mobile use through spectrum auctions, and facilitate market-driven partnerships that ensure spectrum already available for mobile use is used efficiently.

Tech at Night: It’s widely accepted that the FCC’s use of auctions to allocate spectrum is a policy success story. One new idea is to create incentives for current spectrum holders to give up what they have for new auctions, creating opportunities for spectrum to be transferred from legacy uses to growing technologies. Will price signals ensure spectrum remains efficiently used, or is this a case of government meddling threatening to harm the public?

Fred Campbell: Incentive auctions could help transition spectrum to new uses, but it’s not a short-term solution to the spectrum crisis. Even under the most optimistic scenarios, we aren’t likely to see the spectrum come to market for four to six years. And when it does, it’s unlikely the auction will yield as much spectrum as the FCC’s central planners had hoped. An incentive auction is essentially a set of otherwise ordinary business deals that happen all at once. The FCC wanted to have a simultaneous sale to limit the transaction costs associated with lots of individual deals. But a voluntary incentive auction introduces another problem. In a fully market-based deal, the spectrum sellers would receive all of the value generated by the sale. That’s not what the incentive auction legislation proposes. It expects that a portion of the proceeds realized at auction will be diverted from the sellers to pay for other government priorities. The inability to realize the full value of their licenses reduces the incentive for licensees to participate in the auction, and we won’t now how many are willing to play for years.

Given the uncertainty regarding the timing and amount of spectrum that will be made available through an incentive auction, we need to get serious about shorter-term options for addressing the spectrum crisis. The first thing the government should do is stop intervening in private spectrum deals on the secondary markets. Companies that hold unused spectrum licenses are willing to sell them to companies that would use them, which would start mitigating the spectrum crunch immediately. But these deals will happen only if the FCC indicates it might approve those types of transactions. And this FCC has been very hostile to spectrum transactions over the last copule of years.

Tech at Night: Likewise, criticism has mounted on a number of high-profile attempts to transfer spectrum licenses from one firm to another, or in the case of LightSquared, from one purpose to another. Has the system worked as it should, or perhaps are we slowing down progress by blocking what should become an active secondary market for scarce spectrum?

Fred Campbell: Market-driven spectrum deals have great potential to face over burdensome scrutiny from federal regulators within the political landscape of Washington D.C. these days. The US lacks any established principles for managing spectrum generally, let alone a transparent process for analyzing spectrum transactions. In the absence of specific legislation, spectrum management at the FCC is a completely ad hoc process, which makes it impossible to tell in advance whether a particular spectrum deal will be approved or a particular spectrum band will be transitioned to a new use. The resulting uncertainty has slowed progress and investment in the wireless industry, and it’s getting worse. In summer 2011, nearly all of the Wall Street analysts I spoke to expected that LightSquared’s network would be approved. They couldn’t imagine that the FCC would approve the project without vetting it first. When the testing showed LightSquared’s plan wasn’t going to work, Wall Street learned a valuable lesson: the FCC’s erratic spectrum management makes investing in new wireless projects incredibly risky. The government’s denial of the AT&T/T-Mobile transaction and the resistance to Verizon’s attempt to purchase unused spectrum in the AWS-1 band have just added more uncertainty to a spectrum game that’s already cost investors many billions of dollars. If the FCC doesn’t adopt a more transparent approach to spectrum deals and spectrum policy more generally, I expect investors will be very skeptical of wireless infrastructure projects for a long time to come.

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