tv Radio Spectrum Regulation History CSPAN June 4, 2017 4:30pm-5:55pm EDT
cavalry especially. see the entire program at 9 p.m. eastern on sunday. announcer: he talks about his book the glucose spectrum -- the political spectrum. also we hear remarks may wireless policy specialist from verizon in a technology representative from facebook. this 90 minute event was hosted by the heritage foundation.
mr. hilboldt: good afternoon, welcome to the heritage foundation in our auditorium. we welcome those joining us on our heritage.org website and those who will be joining us via c-span television network. for those in house, we are the courtesy that mobile devices have been turned off or silenced as we prepare to begin. for those watching online and in the future, you are welcome to send questions or comments at anytime by emailing firstname.lastname@example.org. we will post today's program on our homepage for future reference, as well. leading our discussion today is senior research fellow and regulatory policy. he handles telecommunications and regulatory issues. prior to joining us here he was vice president at the for soundesident economy. also deputy chief at the office of plans and policy at the fcc and was at one time associate director of the president's council on competitiveness in the office of vice president dan quayle. please join me in welcoming james gattuso. james? [applause]
i will speak from here. a more casual approach. we are here to talk about spectrum policy. if you want to talk about net neutrality you are in the wrong place. this is probably the only gathering of people today on key not talkinghat are about net neutrality. we will see that as a good thing. it is hard to believe just a few decades ago spectrum in the united states, and around the world was one of the most constrained resources on earth. every detail of the use of radio frequency was dictated by the fcc or directed by the u.s. government. you had taxi radios allocated by the fcc. signaling allocated by the fcc. firefighters, forest
firefighters had their walkie-talkies regulated by the fcc. in fact, at one time it was commonplace to see unused firefighting frequencies in manhattan while there were unused taxi radio frequencies in wyoming. that is what we learned to live with. the inefficiencies of the system. it was abused. the system limited competition. them to political interference, as hard as it is to believe. in the fair use doctrine. today the system has been freed from this frankly soviet-like system. largely -- put that in
--ital, bold letters allowed to be in markets direct. it has been the largest and most successful privatization in u.s. history. think about that. when i first came to the heritage foundation, i was working on transportation issues. the sale of conrail was a big privatization item on the agenda. that raised about $1.7 billion, i think. that is nothing compared to what was achieved in spectrum. and remarkably, this revolution in public policy, which is so rare in washington -- nothing gets done, especially this big -- was achieved with very little partisan acrimony. there was acrimony between industries, between us. [laughter] mr. gattuso: but it was largely
partisan. this was something that was liberalization, democratic and republican administrations, both. our speaker today has written a book on all of this. most of what i know comes from tom, anyway. about 20 minutes, then we have some commenters who will correct what he says afterwards. knowhose of you who don't is at clemsontly university. before that he was at george mason university, wharton school. american enterprise institute.
all following telecommunications and spectrum policy. and he also served as chief economist with the federal communications commission, which was the highlight of his career. [laughter] asidettuso: just as an because i have gone off script already, i still remember when he was first appointed. he said that the chairman who a good conservative but not -- wanted to take things one step at a time. he said, has tom said anything that would be embarrassing? [laughter] mr. gattuso: you passed on that question. every one of his op-ed's for two years -- i don't know how he got through. but it was one of -- i count that as one of the major accomplishments in my short career at the fcc.
anyway, let me turn it over to tom hazlett. mr. hazlett: thank you very much, james, and i do finally recall working with you at the fec with bob pepper and i am delighted that heritage has invited me here today and it invited some of you to be here. i am a professor now at clemson university, and so i must start with a shout out to clemson university. this is last january, in case you missed it. go tigers. i did live here for 15 years until 2014, so we have gotten lucky on the sports front, and
it is great being at a fun school. but in my spare time -- when i'm not worried about the football team -- i've been working on this book. i hope you get a chance to buy it and read it, in reverse order, if you will. but it is officially published on may 23. going this way? oops, there we go. it was a little sticky. ok. in brief, what we're going to talk about today, herbert hoover and the 1927 radio act. don't get too excited. the vast wasteland. the price system is suggested by an economist. not taken too seriously set the outset. then the toaster model. andy liberalization that came after that. i will give a story from the
book in part about the gentleman on the innovative front. edwin howard armstrong and street jobs who i assume most of -- steve jobs, who i assume most of you know. more spectrum, please. the story on radio spectrum starts in about 1895, when two radios were put together by an inventor over in england and communications took place over some distance. and the radio was here and not too much happened, although there were applications certainly. in world war i, radio became an important application and of some interest. in the marketplace, there was not a lot of reason to be concerned about wireless because there were very few radios and very little interference that
would take place for one user against another. that began to change quickly in 1920 when he radio station in pittsburgh, pennsylvania decided to blast out at high power over an entire area broadcasting, trying to hit thousands, if not more, receivers. it was not point-to-point anymore to communicate say from ship-to-shore. now radio became what the stations hoped was a mass media service and that changed everything. there were conflicts. the transmissions at one station could make it more difficult for the listeners of another station to conduct their business, to hear the signals they wanted to hear. and there has been a lot of commentary over the years and even 100 years later about what was called -- and i love this phrase from the united states naby -- etheric bedlam.
out -- anyway, "etheric bedlam," was the phrase they chose to show there was chaos in . they came to be a standard view of what developed in the marketplace. in the 1920's, u.s. radio broadcasting world. and it comes from most notably the united states supreme court. i call this myth-calculation, because there was a stylized set of facts put together and they can be captured here in the united states court decision. in 1927 the court said the allegation of frequencies was left to the private sector and the result was chaos. without government control, the medium would be of little use a because of the cacophony of competing voices. so, one of the things i like about that is the united states supreme court misspelled
"cacophony." but there was more wrong, pr-spell check. -- pre-spell check. but there was more wrong than just a spelling. there was a very robust market in new technology. there are rules of the road. the rules of the road were forced by herbert hoover, secretary of commerce. he had authority under a 1912 radio act to minimize interference and the department use what is a very standard ,echnique in common-law "priority in use." to say that when a broadcaster had an established service that encroachment from others would be stopped. just on that simple set of rules, a burgeoning market develops. all 1927 radioas act, they were about 5 million
u.s. radio households. they were buying radio consoles, not like what we know today. these are multi-hundred dollar sets in current dollars. there is a craze. radio is part of it. i could chew the numbers of sales and so forth but this is better. art deco covers from news magazine, and you can see it has already entered the world of romance. by 1926, things are starting to fall apart in the social scheme of things. this looks like a contemporary situation where on the wedding night, the newly married couple is now apparently on their honeymoon and she is already crying because he is preoccupied with his radio. so you look at this and say, we have made a lot of progress. over 90 years we now have gender equity. maybe today he would likely to be crying because she is on her phone. but this was the world of radio.
already developing quickly and impressively in the pre-regulation era. what happens? the system was working. in fact, it worked too well for herbert hoover. hoover was very entrepreneurial and intelligent government official. he had been one of the most successful government engineers in the early part of the century and had famously and joined government in world war i in the relief -- belgian relief effort and became prized for his skill and efficiency. he also know a lot about the emerging radio technology into the rules he put into place were important in sponsoring development of the industry. but as a regulator, hoover made it clear he did not care about limiting interference. he wanted more jurisdiction, more authority to determine actually not just how markets developed but who got to broadcast and what they said.
this was a popular view of amongst other policymakers, republicans and democrats alike because they wanted this obviously influential medium of public opinion to have some regulatory component that could be influenced from washington. at the same time, the industry as it was developing exhibited some pronounced standard come in hindsight, standard elements of what has come to be known as industry capture. they wanted protection. major commercial radio stations that pop up and become popular, they wanted protection from entry. they thought the first-come, first-served rules was fine for what was then. but it could ban entry on new bands as the industry extended. so strategically, hoover stopped enforcing these priority in use rules. this actually occurs on a particular day when he puts out a press announcement saying
there will be no more enforcement, and that does invite entry of a couple hundred stations. there were about 550 stations and 200 more quickly entered the market. there is a lot of moving around amongst the stations. and there is some complaint. in fact they called it at the time "the period of the breaking of the law." so you do get some of what the navy might call "etheric bedlam." it could be fixed by restoring the law in various means. either through court litigation or of course by a statute that revisits the questions and roadlished rule of the that adopts the mechanisms already in place. during the breakdown of the law, september-november 1926, there is a court case in the state of illinois. it is not the top headline.
this is the next headline, "court fixes radio rights in air. wgn wins." that was a headline from the paper that owned that station in 1926. they actually go to court because interloper during the breakdown period when congress was not enforcing the rules, and interloper comes in and starts to lose their frequency assignment and broadcasts, in wgn's eyes, too close. wgn owned by the chicago tribune means "world's greatest newspaper." so they go to court. a judge -- a cook county judge gets this case. first impression -- reviews law, development, radio analogs it to water rights in the west and you have a scarce
resource that he says, well it might be pioneered or homesteaded by certain users and under the common law doctrine, awardsy of use, wards -- wgn property rights. that is what you see here being reported here on the newspaper. i think it is charming if you go back 100 years in a chicago newspaper and pick out a front page, it is not unlikely you will have a top headline that will have something to do with indicting a municipal official. so -- [chuckling] mr. hazlett: so there you have it. the other story is quite impressive. it did impress people at the time. property rights maybe created. and it goes on and so forth. seriously and it actually the decision is not published in illinois but it is published in the senate records december 10, 1926. there is urgency during this period.
this adds to it. the house and senate after years of bickering about what the new regulation looks like, they get together compromise, and free the federal radio commission with the radio act february 23, 1927. the brainchild of herbert hoover, signed into law by president coolidge. since that day we have had what i would call the political spectrum. there is a public interest standard for allocating radio waves. it is administrative allocation. the explicit nature of the program is that markets really cannot do this job. government has to plan out what people do with radio spectrum and they have to planet in the public interest. a very vague standard that means many things to many administrations. and anybody with a new radio technology has to ask for permission and get radio spectrum rights assigned specifically or them.
this has been called, mother may i. there was a commission created in 1934. on the wireless side we carried it forward and renamed it the federal communications commission. we had that regime 90 years later as we stand here today. immediately there is output restriction on the market. incumbent commercial stations are delighted for the next couple years. there are many small stations owned by nonprofit stations. they are knocked off the air. the major enterprises and commercial enterprises do very well. and ever since we have had this very protectionist system where new technology has had to pass the mother may i test, and things stretch out for years or decades and often entire new competitive opportunities are missed. that is called "silence of the
entrants," in the book. and there is another part of the story. the story takes a few twists. there are visionaries in the book. here is one of them. a british economist who came to the u.s. started nosing around in the 1950's and he thought these arguments given for why we have this special central allocation regime did not make a lot of sense. yes, access to radio spectrum may be a scarce scarce right or resource but we had a lot of other things that are scarce and they are assigned by prices through competitive markets and it seems to work pretty well. why not this? well, it was not clear to coase that it would work, but he saw that there were a lot of the imperfections in the existing system. a lot of "mother may i?" and inefficiencies that resulted from competition and not take place. the advocated at least a test
where we would have private ownership and frequencies and we would distribute the rights by auction to competitive bidders. in we would allow simple marketplace transactions, what he called the price system, to allocate radio spectrum. this id was mocked and savaged by the experts and by the regulators. they said, when coase testified at the federal communications commission in 1959, the first question, tell us professor, are you spoofing is? is is a big joke? then they awarded him a nobel prize in economics to sort of make up for it, and that was nice. one of the nice things about coase was he lived to be 102 years old. he sees a lot change in the world. if you're going to be castigated and treated with ridicule early in your career, that is my suggestion. live a long time and see if it turns out better. coase did.
he passed away in 2013. along the way, coase got to see markets take his suggestion. it wasn't that people said he was right, but they were a lot of factors that drove this. and certainly his enunciation of an alternative regime was among them. most particularly we got away from mother may i, where we had a world in which everything done through wireless needed a specific authorization. we went to much more generic licenses, de facto property rights, where we allow private properties to figure out with their own networks are, what devices use those networks, and how interference is going to work between the users. in essence we delegated all this complexity about how to coordinate economic activity to competitors in the marketplace. we got rid of that. in particular, parts of the wireless world. particular frequency and bands. not generically. it is a very limited project but we now have very important
slices of radio spectrum, proof of concept that the notion works pretty well and the rules are available to us to move forward in we had examples to prove it. and we will do that with the tale of two technologies. meet professor edwin howard armstrong. he preferred to go by the name of kernel because he served in the u.s. military in both world wars. he literally graduated and was immediately added to the faculty to teach physics. here is a picture of him in 1922. as a professor at columbia he opted out of taking a salary. he did not want to be on committees. he was the largest shareholder in the radio corporation of america in the 1920's with his patents. he decided to use the graduate students to do his research. it was a good deal for both parties. anyway, i love this picture, which is in the book. the world's first boom box.
he invents it and gives to his bride in 1923. that is cool. it is also cool that he is wearing a suit on the beach. so he comes up with a brilliant idea. in 1933, 1934, he develops a new way to send sound signals. a.m. was the established technology. he had a way to send crystal-clear signals much farther and more effectively with better reception. he went to the federal communications commission, mother may i? the first thing sec did was check with her experts, most of whom worked for rca. they were told by the experts at that it didn't really work. that took a while to get over but he was finally given allocation for the system and some experimental licenses in the later years of the 1930's, but by 1940, 1941, there were
about 400,000 users of f.m. radio and the united states. people who had gone out and bought those big fm radio consoles. 400 thousands -- 400,000. now the war comes, the colonel goes to do radio and production stops. when the war is ending, the federal communications commission comes back and takes another look at this band they have allocated for f.m. by the way, the service got rave reviews and was really anticipated to take off off after world war ii as a civilian technology that was a very popular with high fidelity broadcasting. the fcc decided no. we're going to move this band ofr the vociferous objection edwin armstrong. the sec ripped the existing allocation, 42 to 50 megahertz out of fm radio broadcasting, rendering every single one of
those radio receivers obsolete. all the towers, all the technology. and then they placed fm where it is today -- 88-108 megahertz. edwint wouldn't -- and howard armstrong fought this. he was depressed, despondent. he fought it. to a large extent, the reason he committed suicide in 1954 was over the exclusion of his technology come almost the murder of his technology by the federal communications commission allocation system. sadly or happily, however you want to look at it, in the 1960's fm was finally unleashed from regulation to really take a fair shot head-to-head with a.m. in just a short number of years fm totally eclipses a.m. the quality is outstanding compared to a.m. next time you are at a hotel and
you can get a.m., fm, check the a.m. compare how terrible it is. and know how he is smiling about the whole thing, the sec saying the whole thing didn't -- sec saying the whole thing didn't work. his widow received $6 million or $7 million in patent the outs -- patent payouts from the people he had been suing. she ended up very wealthy. his technology ended up very nice. but unfortunately for him he did not live long enough to see it. ok, now i will make a little bit more out of this. until thedead zone 1960's. the fm band. i don't know a few can see it very well but it says fm, 42-50. that is the dead zone. 1941 radio. there were dead zones everywhere. therest in fm radio, but was so much spectrum that cannot be utilized because there were
protectionist rules in place. particularly in television where a national fourth network on the experimental licenses was killed off by the tv allocation tables of 1952. we were just left with just three national competitors. regulators saw the problem. the most famous speech ever given by any u.s. regulator was may 9, 1961, when the regulator in washington said this is a vast wasteland. television is given all this valuable right to broadcast but they're not doing anything with it. it is a mess. the senseless sitcoms, the violent westerns. this is all boring and the commercials are worse. the chairman of the federal communications commission blasted the executive of the broadcasting industry and said i'm going to be the cop on the
beat. i'm going to hold your feet to the fire and take a good look at the renewals, in fact we will have new forms. new forms for renewals that will new forms for renewals that will ask you what you are doing for the public interest." he was not very popular with the broadcaster, in fact the broadcaster of gilligan's island took a shot at him by having a shipwreck called the ss minnow, spelled slightly differently. in 1964i think it debuted. but outside, it was popular to say the broadcasters were really going to be regulated in a new way. but there were no new forms. nothing happened. except something did happen. the minow fcc did something extraordinary in changing policy
to oppose the emerging cable television. a new platform was trying to compete at-to-head and it was blocked for a solid the teen years until the day regulation -- 15 years until the deregulation wave in the late 1970's. until then, cable was held in check and all the public affairs programming we have today essentially from c-span to cnn to fox news, bloomberg, al jazeera, vice, anything else plus documentaries and entertainment programming, sports, weather, all of that stuff, all of that competition completely now dominating the television video market. in fact, it is being challenged by the next generation of unregulated television. over the top television. this is what was blocked. ok? bottled up by regulations. before this could be released, a new idea had to come to market. this is perhaps the most
vilified speech or comment ever given by a federal communications chair. in 1981, when the ronald reagan appointee, mark fowler, head of the fcc gives an interview to "reason" magazine and says, television is just another appliance. a toaster with pictures. what he means by that is, we're going to regulate television just as another product. we want competition to do the work. we are not going to describe what the product has to be. we will let consumers did that choosing. to this day it has negative citations, including an 2012 on jeopardy. this was mad men for $800, the answer is in the 1980's growing broadcast empires had help from the "mad monk of deregulation."
mark fowler of this commission. what is happening is a toaster idea, minimalist regulation, let competition do the work, that comes roaring in the late 1970's, early 1980's with cable deregulation which was ancillary to wireless. then in wireless we got several -- cellular in the 1980's, much more liberal forms of communication. introduced with two competitors which was extraordinarily radical at the time. to head-to-head competitors in the wireless market. we had ended technology mandates in 1988, 1993 we authorized congressional statute license auctions. then we have liberal licenses come into the markets, clearly established by the mid-1990 and each carrier is its own
miniature fcc and they get to determine what radio, networks, services, applications use their space. there are some politics of broadcasting being different than cellular, we can go into that later maybe but it is clear the united states and in fact around the world the regulation of cellular and the mobile market is decidedly more liberal than the regulation of broadcasting. for the last 30 years, there has been this distinct shift in the ark of regulation. when the innovator apple decides to make a radio in 2005 which would become an iconic device that has now changed the world in its own way, it had to do what edwin howard armstrong had to do in 1934. it had to find radio spectrum for the radio. the world had changed. and when steve jobs took his
innovation to the market he found that he could buy radio spectrum. in fact, there was a market and the market was so robust and competitive that the carriers actually paid apple. there is a lot to that story but we will just leave it at that. it got to market, it got there quickly. not just the device, network, flexibility of communications. it was everything that could go with that. the world has changed because of the ecosystem, the content, application, services that now exist. we know around the world the radical transformation is that wireless now connects people who lived in isolation. i mean, there has never been more than about one billion fixed line phones in the world. the number is now going down. there are a lot more people. today as we are here, there are
over 6 billion cell phone subscribers. more people have cell phones than toothbrushes. that has meant everything. a malaysian farmer goes on and holds a cell phone over a field. background noise and the app then tells the farmer what pesticides the farmer should use to best manage the crop. ok? we know the innovation goes an amazing dimensions and amazing depth. that is what starts when you unleash the innovation. so, this message has gotten out. there are many regulators that have led much of the reform. it had to be an integral part of our progress. there is ongoing spectrum reform. as we are here in washington,
would be remiss not to talk about a process that is still ongoing by -- the formal bidding process for the year ended last month with the federal communications commission calling it in "incentive auction." this comes from the interesting policy of it in 2009-2010, the national broadband plan that conceded that there is a public interest allocation for tv had been too large. it was time to set aside the 1952 tv location table was stopped in days of "i love lucy" are over. new generations of video delivery are here. cable satellite, over the top. it devises a plan to buy back licenses. politically it is frozen. political spectrum can literally not renew them or take it back
and do the public interest allocation it says is needed. it needs to buy them better. that was the right path in my opinion to entice cooperation from marketplace participants. the auction that was proposed has taken place, concluded last week. the problem is we are a years into this program and we still have a delay. the fcc was complaining about 2010. we also have a lot less spectrum. we have taken less of a fourth of the tv band. the applications from 1952 are not efficient for the way we like to get services, including video, today which is through mobile devices and other wireless connections. i have a chart that basically says, we have 49 channels walled off, it is 290 megahertz if you
are scoring at home. in 2010, the fcc made a target to try to unleash 40% of that band, 120 megahertz to get it out of the market by 2014-2015. it is a good try. a good policy of it. -- witt. the fcc does deserve credit for heading in this direction. it certainly has not reached its own goals. as we stand here today, i would argue that a much more efficient way to liberalize the system would be to use market incentives which i call overlays to allow rates -- rights to use radio spectrum that respect the existing users. to create new rights that can be sold to competitors in the market to reuse the spectrum in a liberal, flexible way and
those would unleash incentives. marketplace competitors could buyout cable and satellite. in fact, the entire tv band. so instead of taking 10 years to get about 12 channels freed up, i would suggest a more market-oriented reform program could actually operate much more quickly and get the entire tv beyond turned around. -- tv band turned around. more overlays starting now. i appreciate your attention and i give you the closing quiz, who does not belong and why? it is not a trick. we have the inventor marconi,
the regulator herbert hoover, the innovator steve jobs. i would suggest that the regulator in the middle does not belong and why? because the mother may i system that hoover was fond of and we have adopted has proven itself an artifact of a prehistoric regulatory era that has been surpassed by the success and opportunity that the very encouraging deregulation of mobile markets has given us today. thank you very much and that's it. [applause] >> you mentioned marconi.
a few years ago i went to sicily and visited my relatives. they idolized marconi and sicily. not because of his free-market policies but because of other political ideas he had in the 1930's. >> let me just say marconi was a british and italian citizen. his views politically were interesting. our next speaker, first commentor. quickly, background. previously -- well, currently as vice president of wireless policy at verizon. held other positions at verizon. she was vice president at telecom. and before that she worked as an aide to a chairman at the fcc and at the national
telecommunications and information administration. >> thank you. professor hazlett, the answer is "overlay," read the book and you will get the joke. as always, it is a pleasure to read what tom writes. it looks like i did not read this, right? i actually read it in on a kindle. that is how many notes that i made to it because i found i was constantly underlining. thinking, i don't remember it this way. frankly, not too many of those kind of notes. needless to say, great one-liners. great quotes. the best stories. ultimately, it is impeccably researched with a fabulous selection of footnotes that will probably take me about a decade to go through and ray -- read.
actually, i think i have written some of them but not as many as the others sitting at the table. i'm glad you invited me here. it is overwhelming for me to be among people i considered to be scholars in the industry. i work for a wireless carrier. what is interesting for me is most of my career has been focused on mobile wireless. and, it is always interesting for me because a good portion of the front part of this book is the history of spectrum allocation which i sort of consider a little bit like studying geometries. you learn theorems. then you go through to deal with the rest of your life. in a way i felt like what i was
doing reading tom's book was going back and relearning my geometry theorems and remembering how we got to where we were. it is also kind of a fascinating shift. the primacy of broadcast to the primacy of global communications. i realize i work for a company and maybe that's the reason i'm saying it, but know the reason you sitting in front of me, you are probably on your mobile device more than you are watching broadcast television. it is a change and has taken place in a large part because of the things tom outlines in his book. i also have to laugh because he talks about -- one of the things he talks about is really what i remember as my first time i was
actually aware the federal government had some control over television which of course was george carlin's seven words you are never allowed to say on television. we actually, as a good -- kid, we used to play that record in the lounge of my all-girls high school. it really was, i was like -- well, this is interesting. i am not allowed to say these words at home but that is parental regulation. i did not realize in fact there was this agency that regulated speech in the broadcast world. so, my world in mobile began almost 30 years ago at national telecommunications information administration. at that point, the man who later became chairman of the fcc was the chair. he had started work on taboos. tom mentioned the taboos in the
book but he does not want to explain -- they are talking about the moment in need's a because of how the broadcast allocation table was. it was not just having two separate distance, there were problems that had to do with the manufactured receivers that did not allow you to use spectrum. you had to separate by six channels. i was asked to head up a project to look at this and see what the constraints were. how could you do something that could free up the spectrum. when there was a change of the head to janice, that paper morphed into a larger study that is also quoted in the book. u.s.spectrum managed policy and agenda for the future which interestingly talked about almost everything that tom
talked about in his book. it was prior to auctions being adopted. at that point, flexibility had sort of begun. in particular, the -- and actually i have my notes but i am sort of going to go forward a little bit because it fits here. particularly in 1988 when the commission adopted the digital cellular ruling. and tom alludes to that and mentioned it in his sides as the way forward but i actually feel like that deserves almost a chapter in and of itself because when that happened, if you understand the cellular industry to begin with, there was a government standard in the beginning. that was an analog standard. in 1988, that commission made an astounding decision and said, you know what? we will not make the right decision if we choose the
digital standard. basically we are going to leave it up to the companies to do that. and, you know, they were right. to quote a former fcc official, in fact he may even be sitting here but i doubt it. there are other conclusive disk on my finger with a chief scientist to said, if we had chosen a standard we would have chosen the wrong one so what happened in the u.s. as a result, some people look at it as being a mistake. we had two standards, one that was promulgated through the rest of the world and the other was a little standard called the cma which by the way became the standard for most of the others in the 3g world after that. it is interesting that also what that did was it led to our ability as carriers to say, you know what? we see a need to move to the next generation of technology. we see a demand in the market, we want to do things differently. combining that, what i consider to be a critical decision along
with the liberalization in the types of things that tom was talking about, i think really did lead to the incredible market we have here today. the other interesting thing, too, and this is probably just a little bit of a think i disagree with -- you characterize cellular as being, you know, liberal. but, in fact, the cellular rules only recently work updated by the federal government, by the fcc. to actually permit us to do some of the things that have been permitted for the last 20 years. until then, we did not even have geographical licenses. there was a sense you had geographical license but you still reported at the edges of your geographic license when you made changes. pcs, when it came on, the commission said, you know, look, this is what you are selling --
we are selling you and if you have problems at the edge just negotiated with your neighbor. all of that worked really well but it took almost 20 years for the fcc to catch up to the other service. i know you want me to talk longer on this but there are a couple things i want to add. for me the interesting thing was, too, if you remember back in that era when pcs was being adapted, a couple comments on that. in the book you talk about actions being adopted. i think the pcs that -- coming in in 1989, there was his interesting thing where the rest of the world, the europeans, were actually doing pcs on spectrum currently held by the federal government so there was a little bit going on where it
gave them a quid pro quo. you are after our spectrum here, you want more spectrum from the government. what we want you to do, congress, is we want you to actually adopt options. so the fcc and and tia took this on as a fight. it has been mentioned many times before but i don't to get in but he said, ok, we are going to take this on as a fight and really get it adopted. the arnie as it was not stopped it until there was a centrist democratic president with an omb that really wanted money. all of those things have been a place before but i think it worked out in and interesting way. at the time, wall street as well as a lot of consultants to my predecessor companies were
saying this was going to be a horrible mistake to have all this spectrum out here. the bottom line, this gets to the end of my remarks, is that was not a huge mistake. it turned out to be one of the best decisions the commission could have ever made in terms of releasing more spectrum. they continue to try to release more spectrum. we affirm believers. -- we are firm believers. at the end of tom books, he outlines a number of reforms he thinks should take place. am i mistaken, i don't think any are new ideas but it is just a matter of there is still more room for us to do things. at the top of the list of my list is to get more spectrum of there. and, you know, it used to be we did not like more spectrum because it might be more competitors but that hasn't a large part changed. we like the idea of there being enough spectrum out there that the government is not always looking at us saying you have too much.
overlays are important. i think you're right that the incentive auction, that authority could be used by the fcc to free up more spectrum. i firmly believe and have had discussions about with different people that the commission should also look at liberalizing more. you know, just little pieces of spectrum that are all over. there are all sorts of stories from people who tried to do things and they could not do it because the rules would not allow them to do this so you have to go back to the commission to get the rules change. there ought to be a way to fix that. so, just before closing there are a couple of just little notes i wanted to mention or make. there are two people not mentioned in your book who passed away recently that for the record i want to mention. one was actually critical back in the early 19 80's in terms of mobile services and getting
cellular adopted and then wayne shelley, who you mentioned in the washington post book as being one of the first investors. wayne shelley did it in cellular and was the first pcs licensee to launch 23 years ago. so both of them recently passed away. they were both, you know, entrepreneurial. kevin later went on to work for qualcomm and was the cdma evangelist for many years. a very important person in this range. i have a lot of other things to say but i will stop now because i want to give pepper a chance to make comments. >> our next speaker. robert pepper. robert is -- heads up global connect. conductivity policy.
-- sorry. i have it in my notes down here. at facebook. previously he was vp for global tech policy at cisco. previous to that you were at the fifth -- the fcc for 15 years? >> 20. >> it went by quickly. >> pepper was the chief policy advisor to the chairman for 20 years. and after your initial mistake of hiring me as your deputy he , had an amazing career as the advisor to both democratic and republican chairman of the sec and the only person i know who
could carry on a discussion of any aspect of the fcc area. he has a bachelor of arts degree in and masters degree from -- and phd. and thus actually is to be called dr pepper. [laughter] , and's great to be here bringing back sort of what i think of as the dream team. it was an amazing time when we actually begin to institute some of these changes. by the way, the whole nation of having -- notion of having a book about spectrum that is fun and makes you laugh is almost an
oxymoron. so tom, kudos to you for not an easy read, a fun read. and incredibly informative. and i think, extraordinarily important. some of the big takeaways, i am really glad you mentioned that. it was a time when things came together where there really was the stream team. -- dream team. all of the stars were in alignment. moving away from the command and control of mother may i to a much more controlled approach of spectrum management, no longer having mother may i and then having spectrum management is almost done oxymoron. so i think if we take a look at lessons learned, there were three. at the end of the book, i think
there are three fundamental lessons. when people asked me about, what is good spectrum policy in my current role i say there is really three components of good spectrum policy. flexibility, folks ability, and flexibility. flexibility in technology decisions we have already heard about. it is really important. standards tend to be used as barriers to entry. protectionism, we had -- tom talked about fm -- sure -- charlotte talked about some of the mobile wireless standards. we migrated away from that. as the rest of the world was requiring sort of gsm standards, we provided flexibility. when andy and erwin
came from qualcomm with this crazy idea of cdma has a different way of thinking, just like armstrong wanted the frequency modulation in stead of amplitude modulation. it is pretty crazy. we said, sure. you know, we're not going to prevent you from trying, right? we will let you take the risk if you can convince some crazy operator that has spectrum to do that, terrific. that is flexibility in technology. the second is the definition of service, right? when we did the pcs auctions or licensing, because we were taking spectrum back from -- migrating the electric utility users. in fact, that almost did not
happen because senator hollings from south carolina had been convinced by the electric utilities in south carolina that literally if the fcc allowed for the migration everything would go dark and the lights would god in south carolina so we had to deal with that. but basically we said you can do whatever you want. and later we reclaimed the spectrum from the tv band. we said, you can do anything you want in the case except for broadcasting. also to allow basically any service definition. there was no service definition. the third type of flexibility is the transferability of the licenses. this goes back to a really important decision in the radio days going back to the 19 40's where the fcc tried to restrict who a broadcaster could transfer
their radio license to. basically, the commission was slapped and said, no you cannot limit that. if you think about those three forms of flexibility and overtime beginning to introduce, increase flexibility in place -- license definition and service definition and some very clever, usually former fcc people who actually understood how to navigate this process. you know, the people -- you you know, morgan o'brien, who bought up a lot of these little, you know operations. came to the fcc and said, we are putting these together. can we interconnect into the public network where people could terminate calls? right? we knew what was going on.
this was about the same time that evan and john wrote a really seminal paper. asking the following thought exercise question, what would the net consumer welfare gain be if we took one 16-megahertz tv station in los angeles and allowed whoever got that license to provide effectively a cell phone service. right? and, you know, this was a huge number. it was what? about $1 billion in consumer welfare gain? consumer surplus. by the way, that was when james was there as deputy. evan was from the office of planning policy. tom is our chief economist.
and, that was a pretty radical question to ask. a really interesting thing happened. we thought that the broadcasters would scream bloody murder if we published this. it was a working paper which had the advantage of it was a paper series historically. represented the view of the authors. was very clear it did not necessarily represent the views of the chairman and commission but was really to advance the thinking. we thought they would scream bloody murder. when the paper ended up going out, a funny thing happened. i think it was the next day. john williams got a call. our engineer. chief engineer from a unprofitable tv station in los
angeles, saying, how do we apply? we said, no, this is just, we are going through this analysis, right? so, the broadcasters actually some of them were very interested. although the traditional, incumbent broadcasters through their trade association was appalled. but the real opposition came from the head of the cellular telephone industry who tried to kill the study because at the same time there was a proceeding at the fcc asking if there was sufficient competition in the cellular industry and the working paper demonstrated there probably was not. and so, the cellular industry tried to kill the study.
but al --- i do not see a citation in the book. as chairman he was supportive and he said, get it out before somebody stops it. and working with janice at an case forking the spectrum auctions and the work that evan and john and charlotte have done with our -- al at the fcc. but it was not just a small group. things had begun to change. one of the other lessons is that it is absolutely true and it became absolutely clear not just theory but in practice that government, through all of this mother may i regulation, had
created artificial spectrum scarcity. the real economic and social benefits of spectrum is to get it into the market. let innovators innovate within. take risks. sometimes fail but you have this third type of flexibility that allows the market to self-correct through the transfers of licenses. last point. i go through this in terms of the lessons learned and there is a great story here. one of the things i have been doing since leaving the fcc and i am still working on is, how do you connect the 4 billion people today on the planet not connected to the internet notwithstanding the fact we have cell phones, gsm phones, two g. the question is how do we get more people connected and predominantly in the development
world that will be through smartphones. one of the things we just it, we did a study with the intelligence unit looking at 75 countries and 46 different indicators and we came up with something called the internet inclusion index. among the takeaways from that is that even where people are connected, the majority of people that are connected, there is still half the world that needs to be to the internet, but the majority of those who are connected are under connected. they are under connected because in order to have the full benefit of the internet through smartphones and other wireless connections, you need 3g or preferably 40 to have that persistent connection to benefit. the biggest barrier to that
happening, there are several but two or three of the biggest barriers is the lack of spectrum. if you want broadband, you need big chunks with a lot of flexibility for the operators to make those decisions. all too often in the still developing world, tom talks about this in the book, not necessarily in the context of the developing world, all too often regulators and other parts of the world see spectrum as a broken atm machine that spits out cash. often times it is the communications minister or telecom regulator that is fighting with the ministers of treasury that want to generate revenue by generating artificial scarcity, not having flexibility because they want to use spectrum to raise money for the treasury without understanding
that spectrum being used in the economy is actually going to generate way more economic benefits for the society than just nominal tax revenue. >> thank you very much. i have a list of about half a dozen of follow-up questions i would like to present your we have 10 minutes left. why don't we open it up to the audience? >> could you state your name? >> evan correll, fcc. one of the things i've been thinking about with the property rights was the issue of whether the property rate owners should
have the right to a specific frequency or the right to a channel in the band. it turned out that what made the incentive option work, it made competition among broadcasters possible, the fact that broadcasters did not have the right to a specific frequency, but they have the right to operate in a band. the fcc was able to have them compete against one another, because if one broadcaster wasn't willing to go, there might be another broadcaster who was, and the first broadcaster would be moved to a different, lower part of the band. had the property rights been defined in terms of a specific
frequency, it would have looked like the problem you have with real estate development, that you needed to actually get every broadcaster within the band, part of the band that you are trying to repurpose, to clear. and you would be in a bilateral negotiation as opposed to a competitive market viewed i did not really appreciate that when i thought about the property rates. i thought about things like flexibility, flexibility of use, flexibility of technology, transferability, all of the things that were talked about. it turns out that you want to repurpose things using a competitive market mechanism,
not having to find the right to a specific frequency was an asset as opposed to a liability. i just wanted to know your views on that issue. >> thanks, that is a great question. there is a logic to mitigating the holdup problems we have. the tv band is a classic example of a wonderfully productive natural resource where the rights have been assigned willy-nilly since 1939. we are literally paying for those allocated positions. there are rights holders in the band that for political, regulatory and legal reasons, you cannot move without paying them off and problems sometimes develop. but -- and i do see the logic of what the fcc did while trying to have bidding for generic
licenses and not hold up by particular broadcasters, but there is holdup on the other side. the fcc has gotten less than a quarter of the band turned over for mobile. that is not nothing. it is an accomplishment given historical precedent. but the idea that there is going endemic holdup from reallocating the whole to 94 -- 294 is not shown by what has happened here. i think that the -- that at least we can agree that going forward with the 35 channels still stuck in tv, that there is no incentive option, there is no statutory authority to go forward, except with the overlays. let me say, the most successful part of that incentive option is coming up, and it is coming up because despite your one-on-one
holdup negotiations, you have actual, identified, mobile license holders sitting on top of actual, identified tv stations. they will make deals and it will not take 39 months. the fcc set aside 39 months. that is my prediction. they have the deals, traits can be made. it is a bargaining situation, both sides can come together and make deals. i think that is going happen. there is a lot of positive dynamic by getting negotiations even when there is some holdup. in open market situations, like we talked about real estate, there are all kinds of transactions that take place because the buyers make differential bids in different parts of the market and they play, in this case, the broadcasters against each other, similar to what the fcc did. taking account of holdups is
completely appropriate, but there has to be accounting at the end of the day saying look, there is problem getting this frequency into the highly of that highest valued use. we have to move forward at this time. i think just saying this generic bidding is going to solve these particular problems. it gets the entire answer. >> any other questions? michael? >> hi, i work here at heritage. there is this infrastructure plan kind of dangling out there and i use spectrum as incredibly important infrastructure for wireless and other telecommunications technology. all recommendations to the president and congress, we include a generic recommendation to increase access to spectrum
and auction off more. how would you best advise the administration, the fcc, congress to best capitalize on this opportunity? it is been mentioned this is out there, i view it more as giving more access to the spectrum is infrastructure itself, but there is also the fact that it does generate revenue for the federal government. any advice on the best way to capitalize on that would be great. >> i was pleased to see it was reform recommendation number eight in the professor's book, that i think it is about spectrum, but the thing that if you read about what all the carriers are doing right now, it is also about densification of networks and deploying small cells in many different places. that is an infrastructure issue
in a large way. the fcc has recognized they have an ongoing proceeding and they are looking at ways to do it. several states and localities are also recognizing it is a great way to bring in more advanced 4g and also potentially 5g. in a way, i agree that spectrum is a component, that in some ways it gets down to actual infrastructure. >> i would agree with that. you need both. especially with some of the newer technologies and some of the things we have done at the fcc earlier with authorizing use of 60 gigahertz. by design, the signals go very short because oxygen molecules absorb the energy, and we can reuse. now, the chipsets are available at low monetary cost and low
energy cost. things can be done today that were theoretical yesterday but are becoming very practical, and we are working on some of those. but in order to deploy that, you actually need access -- you are using small cells, the small cells have to go someplace. there are all kinds of issues that will enable the use of the spectrum in terms of things like access to rights, public lands and so on. it has to go hand-in-hand. the other thing about spectrum i think is important, it is is not new, it has been over the last several years, the biggest trend in spectrum technology is dynamic sharing of spectrum. opportunistic use of spectrum. using some of these more advanced technologies. this is one of the things that
the department of commerce has been looking at and the new one that has been chartered now for the administration to look at spectrum sharing. the question is, how can more of the spectrum that is being used exclusively by government for government purposes, how can that be shared for commercial purposes in ways that also continue to protect mission-critical government uses? in the past, these were mutually exclusive but they are no longer mutually exclusive. spectrum can be used much more efficiently with more flexibility and more dynamically if the right rules are in place that allow that to happen. the infrastructure, really scaling infrastructure to people, individuals as well as locations, is going to be spectrum, spectrum that is going
to connect to robust, high-capacity backhaul. a lot of it will be fiber. you need the multi-megabit or gigabit backhaul because the radios have to be connected to something. >> i do write about some of these ideas in the book, and certainly on the infrastructure front, the walling off scares frequencies does not make any sense. it doesn't make any sense, as bob said, in developing countries, where you desperately need this sort of thing. you look at the indian market today, and if there is a place that really wants to have the information economy take off and needs broadband, and they have stuck to the growth of the market for senseless reasons.
the u.s., obviously, we have done better on some of these things, but i think we still have a long way to go, and certainly turning around some of the fossilized rights structures, that can be done with techniques for liberalization that we have learned. i just want to guard against making the same mistakes, that is to say, put rights into the market with responsible parties that can reconfigure. bring investment in to upgrade radios and mitigate the incumbent problems, because they have some real problems in migrating to other technologies and so forth, but don't create these tragedies, what lawyers call the anti-comments. too many fragmented rights and we continue to do that in some respects. i think you want to keep focused, not just on the technology and the opportunities that are there to have better radios, it also what the market
is going to look like in 5, 10 or 15 years. will people come back to the government for new rules or can they adopt dynamically in the marketplace and make economic deals that make sense? if i can take a moment to thank both charla and bob for the generous comments. i have learned a lot from them and many people in the book. they are cited. there is about a third of the book stated that did not make it into the final edition. al sykes was an innovative voice and learned a lot from. i do appreciate very much, and jim, i appreciate you and heritage having this.
>> thank you for being on the panel. andy or avoidance of internet neutrality which was not mentioned once today. and thanks to all of you. it is a smaller than average audience, but a dedicated group. no one left even though we ran exceedingly long. thank you very much. that is it. [applause] [captions copyright national cable satellite corp. 2017] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] >> you are watching american history tv, all weekend every weekend on c-span three. to join the conversation, like a son ace book. -- on facebook.