Braving the telecom lobbyist backlash

Until recently, the sale of these spectrum licenses was shaping up to be like every other auction: The big carriers would pick off the best pieces, the small carriers would fight it out for the rest, and maybe one crazy new entrant would overbid, go bankrupt, and tie up a slice in court for years to come.

Then a few people started talking about "open access"--the idea that the wireless market should work more like the Internet. To everyone's surprise, FCC Chairman Kevin Martin appeared to be listening, and he made some modest proposals for the 700 MHz spectrum auction that would unlock devices and applications. This could allow you, for example, to buy any phone and use it on the new network.

Now the backlash has begun. The well-paid lobbyists of the incumbent carriers tell us that open access is corporate welfare for Google, a vast left-wing conspiracy, and an attack on property rights. I'm not buying it.

I'm one of those who wish the wireless market were more like the Internet: lightly regulated, zero barriers to entry, and relentless competition. But the freewheeling Internet would not exist if it weren't for strict regulations in the underlying telecommunications market. Those rules made sure the phone companies couldn't prevent us from attaching modems to their networks or interfere with the traffic that ran across them.

The wireless market is nothing like that. Why can't you buy a phone that works across Verizon, Sprint, AT&T and T-Mobile? They use different frequency bands and different technologies, but it's easy to build a phone that works across all of them, and it needn't be very expensive. The problem is that you would need the permission of each carrier to use the phone on their network. Good luck with that.

I can't connect a device to their networks without their permission, and I can't run an application on one of their phones without their permission. But I can't just tell them to go to hell and start my own network, because there's not enough spectrum to go around.

Open-access rules would go a long way toward fixing these problems. With open access, I could connect any device to the network and run any application. And if that wasn't good enough, I could rent capacity from an "open-access" licensee at wholesale prices. The business model for that licensee would be to sell capacity to guys like me--triggering market forces that generate competition. More competition, of course, means more choices and lower prices for consumers.

The telecommunications lobbyists say none of this is necessary. They point out that the market for wireless voice is highly competitive--prices have fallen from 43 cents per minute to 7 cents per minute in the past 10 years alone. But one reason that the market for voice is so competitive is that in 1993 smart regulators banned the incumbents altogether from a major auction to guarantee new entrants. (Hey, maybe we should try that again?)

More importantly, this auction is not about voice--it's about data. And competition for wireless data and applications is a lot less healthy than competition for voice. Why can your kids buy a song online for 99 cents, but a little clip of music for a ringtone costs up to $3? Why do games that are free online cost $3 per month or more on your cell phone? Why do you have to pay anything for text messages when you're already paying $20 per month or more for an "unlimited" data plan?

It's 2007. If I'm willing to pay for the device and the bandwidth, why can't I get all the same stuff on my phone that I can get on my PC? There's only one explanation: a handful of carriers decide what devices and applications we get, when we get them, and how much they will cost.

The telecommunications lobbyists say they want a "fair" auction with no strings attached. Of course they do. In an auction without conditions, the incumbents have huge advantages. They already have "sticks in the air"--a network of cell towers--so they can build out another network faster and cheaper than a new entrant could. And if they let a new entrant in, they could lose some of their customers and be forced to lower prices to keep the rest.

For these two reasons, the incumbents can afford to bid more for spectrum than any rational new entrant. In fact, rational companies will opt out of the auction altogether, lowering the potential revenue to the Treasury--exactly the opposite of what the telecommunications lobbyists would have us believe.

The 700 MHz auction represents the last chance for a generation to carve out a small piece of spectrum--a sandbox--and manage it like the free and open Internet. I believe that thousands of entrepreneurs would use the opportunity to launch innovative new wireless devices and services, create new jobs, and gain back the lead in mobile technology that America has ceded to Europe and Asia.

If not, you may as well dig out your old black rotary phone, because Ma Bell is back.