Jul 18, 2022Liked by Brent Skorup

great stuff! where can i read the story about how RAND and the FCC were against spectrum sales?

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Apologies, missed your comment. Coase wrote about it in 1998 in The Journal of Law and Economics, the article cited at footnote 2 in this essay. An excerpt from Coase:

"In 1959, before my article was published, the FCC decided to hold hearings on the future of broadcasting and I was asked to testify. You can imagine what I proposed. When I concluded, the questioning was opened by Commissioner Philip S. Cross. His first question was: 'Are you spoofing us? Is this all a big joke?' I was completely taken aback but I managed to reply: 'Is it a joke to believe in the American economic system?' Later Commissioner Cross said that mine was 'the most unique program yet presented.'

The next example was more worrying to me. After the publication of my FCC article, I was invited by some of the economists at the Rand Corporation to come to Santa Monica and to help to prepare a report on Problems of Radio Frequency Allocation. This I did together with two economists at the Rand Corporation, Bill Meckling and Jora Minasian. A draft report was prepared [circa 1962] which advocated a market solution. This draft report was circulated within Rand. The comments on it were highly critical and as a result, the report was suppressed. Here is an example that illustrates the character of the comments that were made:

. . . 'I know of no country on the face of the globe—except for a few corrupt Latin American dictatorships—where the 'sale' of the spectrum could even be seriously proposed.'"

Coase went on:

"These were not the only examples of the opposition to my ideas that I could cite but I hope they will suffice to show that there was widespread opposition at that time to the proposal to use pricing to allocate use of the radio frequency spectrum."

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The essay is too quick to dismiss the idea of “universal” and “interoperable” air traffic management and auctions aren’t a panacea to all the problems it’s purported to be. Fundamentally, these assets (spectrum, air routes, etc) are as fungible as real estate and are subject to the same tragedy of commons problems.

It’s fortunate that spectrum auctions have work as well as they have, but it’s easy to imagine an alternate scenario where most of the good spectrum for running a telecom is controlled by a monopoly with little incentive innovate. And indeed this was the case until T-Mobile merged with Sprint to acquire the mid-band spectrum it needed to compete with duopoly of AT&T and Verizon.

But home Internet hasn’t been as successful with incumbent providers (like Comcast) actively preventing competition in their space by lobbying against municipal broadband. Meanwhile, millions of Americans are left without service or severely outdated and slow service (like DSL), and for ones who do their service is expensive, inconsistent, and are subjected to a variety of fees and data caps. In an alternate world, municipalities would provide the fiber and companies provide the service of turning the fiber into an Internet service. Sort of like “universal” and “interoperable” infrastructure. Instead one company usually controls the fiber in an area and thus exclusively controls the Internet business and (lack of) competition in that area.

For airspace in particular, it is similarly easy to imagine a scenario where one company owns a critical air route that all drones go through and subsequently sits on it with rent-seeking intentions and no real ambitions of innovating.

Ideally the solution here is both not either: the FAA sets a sensible but flexible standard that both ensures all traffic can flow freely (without resorting to splitting the airspace into toll-extracting fiefdoms) and allows airspace application innovations to continue.

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Apr 7, 2023·edited Apr 7, 2023Author

Apologies, haven't logged in in awhile.

We agree on this: "Fundamentally, these assets (spectrum, air routes, etc) are as fungible as real estate and are subject to the same tragedy of commons problems." Markets resolve the tragedy of the commons for real estate and spectrum, and markets show great promise for air routes. Air routes, however, were essentially nationalized by the US government in 1930 and handed over to 3 airlines. With drone airspace, regulators have a fairly clean slate to use market mechanisms rather than administrative allocation.

A demand shock to a lightly-used common-pool resource (like land, spectrum, or airspace) → tragedy of the commons → enclosure and markets. When demand and contests for a common pool resource increases, generally market mechanisms emerge and are the fairest way to get intensive and valuable use of the resource. That process was short-circuited for airspace by the 1930 nationalization, still in effect.

But spectrum shows that even after an asset is nationalized, regulators can successfully re-introduce markets and valuable new uses of the asset. It's not "fortune" that prevents monopoly of spectrum markets. It's largely due to fairly simple public policy mechanisms like caps on purchases in a given market, plus the prospect of antitrust enforcement. Similarly, a simple cap on drone airspace purchases in a market would go a long way to prevent monopoly.

I favor simple interoperability mandates, but the interoperability requirements for UTM are not simple and, to date, are very ill-defined. Complex interoperability mandates increase the need for oligopoly or monopoly, to make the technical complexities manageable. "Thin" interoperability requirements for drones (simple alerts of off-nominal and emergency flights, etc.) would work, and would allow a large number of UTM providers. But most UTM interoperability advocates in government and industry envision "thick" interoperability requirements to real-time sharing of airspace. Despite years of research, it's gone virtually nowhere and is unlikely to succeed, absent a concerted effort by regulators and large players to exclude all but a handful of drone operators and UTM service providers from the interoperable system.

Home (wireline) broadband, in fact, is a good example of complex interoperability failing, via TELRIC and associated interconnection mandates, and simple interoperability performing better. With TELRIC and interconnection, regulators focused on the wrong layer of telecom networks. They should have focused (and are increasingly focusing), on simple interoperability requirements on the rights-of-way (regulated, nondiscriminatory access to a foot of pole space, etc.).

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China is 5 years ahead of us in drone deployment, so we could save time and money by asking their advice.


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