Up in the Air

Each economic era has a resource that drives wealth creation. In the agricultural era it was land. In the industrial era it was energy. Today it may be the airwaves, also known as the radio-frequency spectrum -- the most valuable resource of the emerging information economy. Economists estimate that in the United States alone the commercial value of access to it could be more than $750 billion. But it's a resource that's being managed wastefully and inequitably, and what's at stake is the future of technologies that can enable the tremendous economic and social potential of anywhere, anytime access to high-speed data networking.

The spectrum is nothing more than the range of those electromagnetic frequencies that are useful for transmitting radio signals. It is divided into bands and measured in hertz (Hz): the wider the band, the more information-carrying ability it has. The illustration below shows only the prime frequency bands. This is where the most familiar consumer services, such as broadcasting and cell phones, are clustered.

Today the primary constraint on use of the spectrum is not capacity but, rather, how the government manages access to it. In every nation the spectrum, like the atmosphere and navigable waterways, is managed as a publicly owned asset. The Communications Act of 1934 prohibits private ownership of the airwaves and authorizes the Federal Communications Commission to allocate frequencies to various services and to grant temporary licenses consistent with the "public interest, convenience, and necessity." Over the years the prime frequencies that allow signals to penetrate buildings, trees, and bad weather have all been allocated, exclusively and mostly free of charge, to broadcast TV and radio stations, the military, and a host of industries and services -- which now, thanks to digital technologies, actually only need a fraction of that space.

The problem is that the government's seventy-six-year-old allocation system -- based on zero-cost licensing and a zoning system that allocates access according to service -- gives current users no incentive to relinquish frequencies, or to use their portion of the spectrum more efficiently. Regulators rigidly define -- and freeze in place, often for decades -- the precise frequencies an industry may use, and for what purpose. This system can hobble new industries. Although cell-phone companies, for example, are desperate for additional frequencies, licenses are simply not available, at any price. In 1993 Congress mandated auctions to assign new licenses, but it has not given the FCC authority to auction or charge rent for prime portions of the spectrum that have already been licensed. On the contrary, pressured by the broadcasting lobby, in 1996 Congress effectively doubled the share of the airwaves licensed at no cost by local TV stations -- a giveaway then valued by the FCC at up to $70 billion, but now worth far more.

A consensus has emerged that spectrum licenses should be traded freely and allow users more flexibility, so that companies can supply whatever services are most profitable. But no consensus has emerged on how to get from here to there. Granting property like rights to commercial users would make licenses more valuable to those users, but the vexing economic and political question is this: How can the public collect a fair return from politically powerful licensees who were given their share of the spectrum free?

In recent years the FCC has been less concerned with this question than with creating a private market for spectrum access. One possible way of doing so would be to grant commercial users complete and permanent control over the frequencies they now borrow. The FCC is already moving in this direction. Another possibility, popular in Congress, would be to lease frequencies for a fixed period and allow users to provide any service during the term of the lease.

Technology, too, is changing the terms of the debate. The fastest-growing service in telecommunications today is Wi-Fi (for "wireless fidelity"), which enables laptops and other devices to transmit data wirelessly, over unlicensed frequencies, anywhere within a certain area. (Wi-Fi is found at 2.4GHz, where it shares a band -- once derided as the "junk" band -- with such in-home devices as cordless phones, microwave ovens, and baby monitors.) Unlicensed spectrum is managed like a public highway: subject to certain rules of the road, access is open, free, and shared. The Wi-Fi boom has to date focused on short-range mobility, but already dozens of entrepreneurs are using unlicensed spectrum to offer high-speed wireless Internet connections over areas up to thirty miles from a connection to the Internet backbone. This is important for rural areas, where high-speed wire connections are often unavailable or unaffordable.

Those who advocate expanding unlicensed access to the airwaves argue that in the near future meshed networks of "smart," frequency-hopping broadband devices will provide Americans with nearly ubiquitous communication at high speed and low cost. But because offering shared access to prime frequencies now licensed for exclusive use would increase competition and reduce the value of licenses, current licensees are already lining up to oppose it.