Spectrum Markets: Challenges Ahead June 2-3, 2011 Kellogg School of Management Northwestern University

1. Spectrum Markets: Challenges AheadJune 2-3, 2011Kellogg School of ManagementNorthwestern University Charles L. Jackson clj@jacksons.net

2. There Are Many Challenges • I address three challenges: • Rights Definition, • Lawful Interference, and • Likely Extent of Spot Markets.

3. Rights Should Be Clear and Complete • FCC licensees are not told what future interference they are protected against and what future interference they must accept.

4. FCC Licenses are Not Complete • Interference protection is implicit and may be interpreted and redefined on a case by case by the FCC. • An important source of interference is operation in adjacent bands. • The LightSquared/GPS issue is getting a lot of publicity these days. • There are two important adjacent band interference mechanisms. • Out-of-band emissions • Unavoidable (technology can only control how much) • Receivers respond to signals in adjacent bands • Again, unavoidable.

5. Interference Rights Disputes Co-Channel • Terrestrial Cellular and Air-to-Ground Cellular • Northpoint vs. DBS • Ultrawideband Adjacent-Channel • Mobile Satellite Ancillary Terrestrial Component (ATC) • LightSquaredvs. GPS community • PCS G and H band • WCS vs. SDARS • M2Z vs. AWS-1 licensees regarding AWS-3 rules • A resource: http://www.silicon-flatirons.org/documents/misc/OOBSummit/OOB%20Summit%20Reading%20List.pdf

6. AWS 3 Rules: An Example • The disputed issue: Should the AWS-3 rules permit mobile operation in the AWS-3 band? Base-to-mobile AWS-3 Band Source: http://wireless.fcc.gov/services/aws/data/awsbandplan.pdf

7. One Party’s View CTIA, see http://fjallfoss.fcc.gov/ecfs/document/view?id=6520175612

8. The AWS-3 Dispute • The proposed AWS-3 band is adjacent to the AWS-1 band base station frequencies (licensed to firms such as T-Mobile). • M2Z asked FCC to give it a license to for the AWS-3 band and to adopt rules for that band that would permit use of technologies that would create significant interference to AWS-1 licensees. (TDD rather than FDD) • My quick estimate was that a licensee operating under M2Z’s proposed rules would reduce the productivity of capital in the adjacent AWS-1 F-block by about 5-10%. • AWS-1 auction payments exceeded $20 billion. • Infrastructure investment probably significantly larger. • T-mobile Dec 31, 2010 Total Assets $46 billion, Spectrum Licenses $15 billion.

9. The “Right” Solution for AWS-3 • Adopt rules that: • Protect the AWS-1 licensees from adjacent channel interference. • Protect to the reasonable expectations at the time license was auctioned off. • Allow AWS-3 licenses to bargain with AWS-1 licensees regarding interference. • Auction off the AWS-3 licenses. • Outcome • Fair to incumbents (expectations met) • Fair to new entrants • They know encumbrances in advance and can adjust their bids to reflect any future payments to AWS-1 licensees.

10. Practice Elsewhere • New Zealand (General case) • Typically, spectrum property rights come with a promise that no other party will emit more than -50 dBWin one’s licensed spectrum and constrain users to transmit signals no stronger than -50 dBW in other properties. • For example, rights holders have to accept a -52 dBW out-of-band emission in their licensed spectrum unless the band has special rules or they have contracted with their neighbor. • The U.S. has a similar constraint of -47 dBW that is somewhat flexibly enforced by the FCC.

11. The General Solution • Rights should be complete • Tell licensees what they can and cannot do. • Tell licensees what types of external interference they must accept and what types of interference they are going to be protected against. • Create mechanisms that allow licensees to jointly agree to vary from the general obligations.

12. The “Wrong” General Solution • Regulate receiver performance. • Regulators can only imperfectly foresee future needs. • Regulators respond to a variety of influences and pressures. • Regulating receiver performance is a second-best solution to the problem of easing spectrum coexistence.

13. Regulating AWS-1 Receivers • Arguably, the AWS-1 receivers are the weak point. • Problem flows from using AWS-1 receivers that match global standards. • But, is it more efficient to use the AWS-3 spectrum as M2Z wished or as was earlier assumed? • Regulation of AWS-1 receivers would assume that the M2Z plan is the more efficient choice. • Rights and bargaining would allow the M2Z approach if it is significantly more efficient than the earlier assumed use pattern. • Rights and bargaining will not force that outcome if it is inefficient.

14. Lawful Interference • Under any reasonable rights regime, interference will occur even though all rights holders are meeting their obligations. • There should be a mechanism for resolving such conflicts. • FCC approach • It is ad hoc. • The FCC has customs • First in time, efficiency • These are not binding rules. • New Zealand • Binding arbitration • Favors first-in-time

15. NZ Arbitration Statutory Language •  . . .the arbitral tribunal's decision must seek to balance the reasonable expectations, rights, and duties of the claimant and the respondent or other persons, without compromising public safety, and having regard to— • “(a) the costs and effects of possible alternative solutions; and • “(b) the technical compatibility between the claimant's receiver and the respondent's transmitter as determined by— • “(i) the nature and characteristics of the rights described in the claimant's licence and the respondent's licence; and • “(ii) the International Radio Regulations; and • “(iii) the ITU-R reports and recommendations; and • “(iv) Annex 10 to the Convention on International Civil Aviation; and • “(v) the International Convention for the Safety of Life at Sea; and • “(vi) any relevant reference standards issued by the Secretary; and • “(c) which of the spectrum licences held by the parties to the dispute was registered first; and • “(d) the desirability of minimising disruption to existing services; and • “(e) the terms of the spectrum licences; and • “(f) any other matters prescribed by regulations made under this Act or that the arbitral tribunal considers relevant.

16. NZ Arbitration Criteria • Balance the reasonable expectations, rights, and duties of the parties • No compromise of public safety • Take into account the following • Costs • The technical compatibility between the receiver and the transmitter • License rights • the International Radio Regulations • the ITU-R reports and recommendations • Annex 10 to the Convention on International Civil Aviation • The International Convention for the Safety of Life at Sea • Any relevant reference standards issued by the Secretary • First in time • Avoiding service disruption • Any other relevant facts

17. Are Spot Markets Likely? • People often analogize spectrum and land. • An imperfect analogy but sometimes useful. • What kind of spot markets do we see in land? • Few exist that I am aware of: • Parking lots (hours or days) • People rent camping sites (days or weeks) • A circus may rent a farmer’s field. (days or weeks) • Farmers rent fields (season or year)

18. Long-Duration Land Rights Encourage Investment • Naturally, investors do not like to build on land with short-term leases. • Who would build a $100-million building complex on land with a 5-year lease? • Similarly, many radio systems require substantial investment in infrastructure. • Geostationary satellite $0.3 — $0.5 billion • Lasts about 10 years • CMRS base station $0.5 to $1.0 million • Tower lasts 20 years, electronics obsolete in 5 years.

19. Applications for Spot Spectrum • Unique events • Super Bowl • Forest Fire • Burning Man • Capacity sharing between firms • CMRS carrier with a capacity crunch • Waiting for new technology • Waiting to get local zoning for a new cell • Short range uses such as Wi-Fi. • Unlicensed spectrum meets this need. • What else? • I do not see many applications for spot spectrum use. • Nevertheless, I think that regulation should permit and facilitate spot markets. (No harm, possible benefits)