On February 3, Cecilia Kang of the Washington Post
wrote an article about a federal plan to create a super WiFi network. The story was widely picked up and circulated, with an array of media outlets reporting on the promised new network and the major mobile carriers' plans to block its creation. (See Mashable's "Government Wants to Create Free Public 'Super Wi-Fi
" and Business Insider's "Telecom Corporations Are Trying To Stop The Government From Offering Free 'Super WiFi.
Soon enough, however, contrary reports surfaced saying that the media had misunderstood the FCC's debate, and that a free Super-WiFi was not actually in the works. (See this story
from Jon Brodkin of Ars Technica.)
So what is happening? As it turns out, the FCC is currently considering the “reverse-auction of unlicensed spectrum" to spark innovation. The story is much more complicated than the original news suggested. This debate has been ongoing for years and will continue into the future. Despite the fact that it won’t create what was being touted as a free, public, Super WiFi, the move by the FCC may potentially have very significant ramifications. Here's what the "reverse-auction of unlicensed spectrum" means, and why it matters for tech and media investors.
Unlicensed Spectrum and the Plan
To get the facts straight about unlicensed vs. licensed spectrum, we contacted David Valdez, Senior Director of Public Advocacy at Computing Technology Industry Association (CompTIA).
He explained the key differences between the two types of spectrum: licensed, which is used by cell phones and the major telecommunications companies like AT&T
(NYSE:VZ), and Sprint
(NYSE:S), and unlicensed, which is used for WiFi, Bluetooth, garage door openers, and other devices. Licensed spectrum is exclusive, so a network can only be used by the company that has rights to that spectrum, while unlicensed is open to any number of companies and devices. Generally, if you have a device that communicates with another devices, and is not a cell phone, it functions on unlicensed spectrum.
What is being discussed at the FCC is UHF band, a super strong spectrum that's projected by powerful TV antennae. TV stations use this unlicensed spectrum in the form of guard bands between channels to help eliminate interference. These guard bands manifest as white space, the fuzzy channels, and are essentially inefficient.
TV stations own the channels, so they own the frequency, and through non-interference licensing with the FCC, they have access to those guard bands. The FCC’s plan is to incentivize stations to release inefficient channels and open up the guard bands to be used as additional unlicensed spectrum, which companies could buy access to from the FCC.
The FCC plans to repackage channels for TV stations to make them more efficient, rendering the guard bands unnecessary. Moreover, it will compensate TV stations for the auction of the unlicensed spectrum.
This would be about a two- to three-year process and would create what Valdez calls “the world’s first nationwide unlicensed spectrum band suitable for robust wireless broadband, on contiguous low-band frequencies.”
The Importance of Unlicensed Spectrum
A reverse-auction of unlicensed spectrum could have huge benefits for the country's small to medium business (SMB) ecosystem. Licensed spectrum is an industry worth billions of dollars, and it is hard for SMBs to enter into it. It's extremely difficult for small companies to innovate on licensed spectrum because, as Valdez said to me, “At the end of the day, the AT&Ts and Sprints have the last call on who runs on their network.”
Unlicensed spectrum could be highly available to SMBs; it could be the place where they have a level playing field as far as opportunities for innovation. To draw an analogy, in the early days of the Internet, all an entrepreneur needed to innovate was some coding experience, some capital, and Internet access. This is how Mark Zuckerberg created the social network juggernaut Facebook
(NASDAQ:FB). Valdez compared the entrepreneurial freedom of the Internet with that of unlicensed spectrum: Innovators in tech devices will benefit from unlicensed spectrum in the same way that Zuckerberg and his contemporaries did from the Internet, though probably to a lesser extent.
Unlicensed spectrum is also important to the big businesses; all of the major mobile carriers use unlicensed spectrum to offload their traffic. When you get to the office or go home, your cell phone can connect to WiFi, which is broadcast on unlicensed spectrum from a router, alleviating traffic on the licensed, mobile network. If there was more of this unlicensed spectrum available, the major carriers could definitely use it. Innovation
As Julius Genachowski, Chairman of the FCC, has said, “Freeing up unlicensed spectrum is a vibrantly free-market approach that offers low barriers to entry to innovators developing the technologies of the future and benefits consumers.”
In his paper presented to the FCC on January 25, Valdez spoke for the benefits of unlicensed spectrum, arguing that a "nationwide contiguous unlicensed spectrum will attract the widest pool of investors and entrepreneurs." There are three key points supporting his idea:
Unlicensed spectrum would spur investment and job creation in rural, remote, and underdeveloped areas.
Say a dentist in a small town wants to invest in data management software that requires an Internet connection. Without an affordable, reliable connection to high-speed Internet, such an investment is not possible. Though access wouldn’t be free, because someone has to pay for it, unlicensed spectrum could create opportunities for businesses in small or remote communities that major providers with licensed spectrum have little or no presence in. There is already a company, Carlson Wireless Technologies, that uses TV white space in the form of fixed wireless microwave and UHF digital radio systems to provide broadband access to rural areas.
Unlicensed spectrum could bring a new wave of innovation led by small- and medium-sized businesses.
SMBs, being smaller than the big players, have nimbleness and lack much of the red tape that makes larger firms slower to act in terms of innovation in niche and underserved markets. One of the big areas for growth here would be in cloud and virtualization platforms, products, and services. We could also see increased potency and reliability in wireless routers, remotes, and any others devices that communicate with other devices over unlicensed spectrum.
There is historical precedence for the potential of freeing up unlicensed spectrum.
In 1985, the US government made a very limited amount of unlicensed spectrum available, producing an unexpected burst of innovation with products as wide ranging as baby monitors, garage door openers, and wireless stage microphones. These products just did not exist in the mainstream market before that unlicensed spectrum was opened up.
Going back even further, we can examine the dissolution of AT&T and the Bell operating system in 1984, per a Justice Department mandate. AT&T had a monopoly on telecommunications in much of the US and Canada; people even had to rent actual phones from the company. In 1949, the Justice Department alleged in an antitrust lawsuit that AT&T and the Bell operating system were using their monopoly to stifle related companies and technologies, especially the fledgling computer industry. The dissolution of Bell, which owned many wires and equipment that are still in use, paved the way for the Internet, arguably one of the greatest drivers of progress in human history.
The Case Against Unlicensed Spectrum
All that being said, many big companies are making their cases against the plan.
The most vocal detractors are major cell phone providers, but some other tech companies have raised dissent as well. Intel
(NASDAQ:INTC) has said that unlicensed WiFi spectrum could crowd the airwaves, and moreover, that those airwaves should be devoted to 4G cellular network. Executive Director of Communications for Intel, Peter Pitsch, has said, “We think that that spectrum would be most useful to the larger society and to broadband deployment if it were licensed. As unlicensed, there would be a disincentive to invest in expensive networking and provide users with optimal quality of service.”
Another big tech company, Cisco
(NASDAQ:CSCO), urged the FCC to reconsider because of uncertainty regarding what freeing up unlicensed spectrum would effectively do. The company argues that the FCC should “firmly retreat from the notion that it can predict, or should predict…how the unlicensed guard bands might be used.”
Other major tech companies, like Google
(NASDAQ:GOOG) and Microsoft
(NASDAQ:MSFT), support the plan to make unlicensed spectrum available. It is worth noting that these are over-the-top-technology companies, meaning that they develop and market services that use existing network; without having to worry about maintaining spectrum exclusivity, they stand to gain from more unlicensed spectrum, which will potentially boost innovation in the tech devices the companies sell, without any significant costs to the established firms.
Tap Water and Bottled Water
Is there room for both licensed and unlicensed spectrum? David Valdez put it like this: It’s like bottled water (licensed) vs. tap water (unlicensed). The cost of tap water is virtually zero, but even Valdez says, “If I’m going to drink water, I’m going to drink bottled water.” Here’s the thing about this analogy: Tap water is not likely to sink bottled water; they serve different needs and different markets. Licensed spectrum offers exclusivity, much as bottled water offers better taste and purity.
In the end, there are no easy answers about how we should use unlicensed spectrum, but the importance of the discussion -- and its potential impact on innovation and US businesses -- is only becoming clearer. Roslyn Layton, an American Ph.D. fellow in telecom economics at Aalborg University in Copenhagen, Denmark, tells me that the issue requires much more transparency and clarity, a fact illustrated perfectly by the initial confusion about a Super WiFi network. Furthermore, she says this debate must take into account the value of competitiveness and the questions of investment in infrastructure. Who will finance the plan, and how will it affect businesses, big and small? Should unlicensed spectrum be auctioned off? Ultimately, says Layton, "This is not a matter of yes or no."
If the Microsoft Surface Pro Was a Monster Hit, We'd Know It
Google's Cloud Is a Pandora's Box
Why Match.com Is Taking Part of Its Business Off-Line With 'The Stir'