Wednesday, January 14, 2009

Privatizing the Radio Spectrum

I am opposed to the privatization of the radio spectrum. Basically, I believe that natural resources, (yes, I considered the radio spectrum to be a natural resource) should be managed by the government (as a national trust) for the benefit of the American people. I am not going into the all the nuances of this issue at this time.

My point with this post is to have a "thought" exercise which to demonstrate why privatization would be bad. Essentially, this post is a reaction to posts on The Technology Liberation Front that advocate privatization of the radio spectrum. The most recent post being: "AWS-3 Spectrum Plan Version 2.0: Unfiltered, but Still a Train Wreck". You can see my responses to that post there.

Lets begin. The radio spectrum is three dimensional and permeates everything. Additionally radio waves, though they diminish over distance, can effectively travel forever and can be used to transmit information until their energy level becomes undetectable. On its face, the radio spectrum cannot be neatly characterized as a piece of private property, since there are no clearly defined "property lines".

To simplify my position, consider the Atlantic Ocean as being equivalent, more or less, to the radio spectrum. There are numerous ports on the American side, such as New York. There are also numerous ports on the European side, such as Amsterdam. These ports figuratively constitute radio transmitters or the radio receivers, it doesn't matter which. The ships carrying merchandise between these ports would be equivalent to the information (messages) being passed through radio transmitters/receivers (cell phone towers and cell phones).

It is my understanding that privatization of the radio spectrum would be conceptually the same as carving-up the Atlantic Ocean into private property blocks. The consequence, is that the owners of these blocks would be able to create toll-booths to exact revenue from the ships passing through each of these blocks. The normal argument by free market advocates is that the monetization of resources by placing them into private enterprise fosters economic growth. This is bunk.
  • If you have access to a free resource that means that you can create, move, and sell your products without having to include the cost of the "toll" in your product.
  • There is the free market question of what value charging someone to pass through your property adds the economy. I would advocate that paying to allow goods to pass through a piece of private property would be a drag on the overall economy. Or one could say that it would be equivalent to a tax that transfers wealth from one person to another.
  • Private properties can be bought and sold. If the radio spectrum is privatized, these properties will also be bought and sold. From an economic perspective, will these properties be used for non-productive investment purposes (hoarding) or would they be used for actual productive commercial purposes? The buying/selling of properties can result in speculative bubbles. The speculative bubble in housing just recently burst and our economy is in shambles.
  • Many government/private agencies, such as the military and hospitals, use radio spectrum that is currently free. With privatization would they be forced to rent spectrum from the private sector? That really gets us nowhere since the government would then have to raise taxes in order to pay the owner of the spectrum. As previously mentioned above this would simply be a transfer of wealth from the public to a private entity based on the mere possession of property. One could use the term "welfare".
  • Unlike normal property, the radio spectrum cannot be "improved". For example, it is possible that someone can construct a highway to connect two cities. In this situation it would be acceptable to charge a fee to allow trucks to use the road, as the property owner made a monetary investement through the construction of a road which adds value to the economy. With the spectrum, you only possess "air".
Keeping the the radio spectrum in the public trust and making it freely available for commercial purposes will avoid the market failures described above and will foster economic growth.

Is my analogy perfect? No! I have not addressed a variety of issues such as the necessity for a spectrum manager (currently the FCC), how leases would be issued, radio wave propagation, or modes of transmission. Let me know what you think.


Patrick Mullen said...

I do not understand why the FCC "auctions off" portions of the radio spectrum either. Apportioning it and policing it makes sense, but auctioning it off does not, unless you need to raise money to run the FCC.

Steve R. said...

The money derived from leasing helps to run the country. Government, should, in a minimal manner, be part of our competitive free market economic system.

Money derived from leasing, one could say reduces our taxes. In reality the tax burden is being transferred to those who use the cell phones.