Misguided regulations of the airwaves are thwarting precious opportunities
to innovate and create so-far undreamed of services.
Good is the enemy of great.
we venture capitalists fear most is not the failed investment, nor the
modest success, but the lost opportunity. Ten good deals in the wrong
market will never do as well as one in the right market. And venture capitalists
who can't latch onto rising stars have to find another line of work.
Americans need to
develop a similar fear of opportunities lost to a lack of innovation.
And we need an economy strong enough to erase future obligations, like
the social securityhealth care shortfall, rising energy costs and our
addiction to foreign debt. It should be a national priority. If we fail
to reinvigorate the country's engines of innovation, I worry that the
balance of innovative economic power will shift more or less permanently
Take the Internet.
Thirty years in gestation, the World Wide Web created billions in new
wealth and is as intertwined in our lives as Monday Night Football and
Why was it so successful?
Because the "great" had enough time and enough freedom to emerge.
The federal government
never mandated rules, regulations, or a purpose for the Internet, and
large corporations dismissed it as a fad. As a result, entrepreneurs had
time to experiment with new business models at nearly zero incremental
cost -- without a license or oversight. Greatness took root.
A decade later, on
the heels of the merely "good" CB radio, the now-ubiquitous
cellular phone market was created. A few slivers of unlicensed spectrum
-- virgin bands of wireless broadcasting channels for cordless phones
and Wi-Fi -- were slowly released, all under the watchful eye of the Federal
Now, you can't escape
the ring of a cell phone, and Wi-Fi hot spots infest every coffee shop
and hotel lobby. Sounds like a great success, right? Guess again. Our
misuse of spectrum is one of the greatest lost opportunities of the last
century, falling victim to the siren call of the merely good.
What's wrong with
our current spectrum policies? First of all, more than 90% of all spectrum
is wasted - a perishable commodity leaking opportunity away every
second. Cell-phone use plummets during evening hours, which is why wireless
companies give away after-hours minutes.Over-the-air
TV now serves less than 20% of the market. Each analog channel could be
replaced by six digital channels. And one TV tower blankets an entire
city transmitting a single program, instead of hundreds of small street-corner
antennas each sending out hundreds of different shows and reusing the
same bandwidth over and over again.
In a free market this
commodity would be cleared in no time. But licenses and regulations discourage
both the innovation and investment that would absorb it.
Second, in a country
that celebrates its support for the entrepreneur and small business, the
price of entry is too high. What small business can afford hundreds of
millions of dollars for a wireless license to simply discover if a customer
might want to purchase a new wireless service?
In a dynamic and changing
world, what entrepreneur would buy a license laden with usage restrictions
-- the kind meted out by the FCC forcing one band to be used for only
voice calls and another only for local commercial TV? It's like buying
a truck from Ford, with a restriction that it can be driven only on Sundays
while carrying nonagricultural products.
And third, spectrum
is so politicized that nimble decision-making is impossible. For more
than a decade the FCC, in a vain attempt to save the U.S. consumer-electronics
industry, has pushed high-definition TV onto broadcasters.
For more than two
decades the FCC has weighed conflicting comments suggesting new spectrum
policies - and has taken only baby steps toward deregulation and
minimal spectrum swaps. Before that, the FCC delayed new technologies
like UHF channels or color TV, to placate the Big Three networks. Smart
entrepreneurs had to go elsewhere for inspiration.
In short, today's
spectrum usage is sodden with the inefficiencies that arise when a command-and-control
economy prescribes exactly who will produce what and for what purpose.
Freeing spectrum would
create another opportunity like the Internet. A fully functioning market
would expand current spectrum usage by 100 times and add 100 times more
entrepreneurial ideas than exist in the minds of the current spectrum
Imagine, for example,
private mobile broadcasting that would help architects visually track
construction problems at remote sites. Or new games, such as three-dimensional
hide and seek.
Who knows? I don't,
and that's the marvelous thing. History has shown over and over that once
a real opportunity exists, people apply their creativity to it.
What stands in the
way of change? The principal obstacles are the current owners of billion-dollar
swaths of spectrum, who in any freeing of spectrum would resist losing
their dominant positions.
AND SELLING BANDWIDTH
Yet the FCC and Congress,
if they had a mind to, could find a relatively painless way around those
owners - and even, eventually, get them to acquiesce. I suggest
a three-point spectrum-freeing plan over time that would:
retain their current TV licenses for any purpose they desire, in exchange
for releasing the rest of the TV spectrum for unregulated purposes. HDTV
broadcasting should be an option, not a mandate.
restrictions from cell-phone service providers, providing they resell
that spectrum to third parties. If entrepreneurs want to monitor vending-machine
inventories at 2 a.m., great. Let the market decide whether free minutes
or fees are best.
all licensed spectrum to a Chicago Board of Trade-like commodities exchange,
trading spectrum on a second-by-second basis to entrepreneurs and businesses
alike. For each trade, the government could charge a 1% fee. Let supply
match demand and variable cost.
The combined revenue
from the taxes paid by profitable entrepreneurs and the users fees paid
for auctioned spectrum, I believe, would prove more than enough to rapidly
purchase back the additional spectrum held by the large corporations that
paid billions for it.
Talk about win-win-win!
Everyone would gain, especially the U.S. economy. As the successful pioneers
of the first broad, free-market-driven spectrum exchange, we would set
world standards for usage and equipment. The U.S. economy, the home of
innovation and the lone entrepreneur, would prevail once more.
Greg Blonder is
a general partner at Morgenthaler Ventures and is based in Princeton,