Posted: 1 Apr 2012
Date Written: March 29, 2012
Setting aside a few junk bands in the spectrum for unlicensed use was a radically deregulatory policy that combined free market principles with shared access to a ubiquitous, essential resource. Correcting a 100-year old public policy mistake unleashed a torrent of entrepreneurial activity, innovation and investment.
Allowing the public to use the radio spectrum on an unlicensed basis removed the biggest barrier to entry into wireless communications. The unlicensed model succeeded because a new and much wider group of entrepreneurs had the opportunity to develop products and services servicer that consumers value and are willing to pay for. Once the barrier to access to an essential input was removed, equipment manufactures can develop devise, network operators deploy infrastructure and applications developers provide services. The unlicensed model succeeded because removing the spectrum barrier to entry decentralized decision making, deconcentrated investment, promoted an end-user focus, allowed user innovation and lowered transaction costs.
Ironically, the FCC, which fathered this remarkable success, has never studied it in detail. Predictably, the advocates of exclusive licenses have never come to grips with the remarkable success of the unlicensed model. Unfortunately, these gaps in knowledge now pose a threat to the future of mobile data communications. Without a proper appreciation for the vital importance of unlicensed to the success of wireless broadband communications, some policy makers are proposing a short-sighted spectrum policy that would strangle the future growth of the unlicensed model.
This paper shows that by every measure of economic performance – device shipments, users, usage, efficiency, value and innovation – the unlicensed model has equaled or exceeded the exclusive licensed model in the past decade. Simply put, without access to unlicensed spectrum, wireless broadband service would be much more costly and far less valuable. Consumers would buy less of it resulting in fewer jobs and less tax revenue.
By the end of 2010 there were thousands more devices certified for use in the unlicensed spectrum than in licensed spectrum. The number of users of unlicensed spectrum in the United States exceeded the number of users of exclusive licensed spectrum for broadband data purposes by 30 percent. The dramatic growth is even stronger in business applications, where intensive intra-firm communications improve the efficiency of health care delivery, the electricity grid, inventory management and fleet monitoring.
Cellular broadband providers were offloading over one-third of their traffic into the unlicensed spectrum, with the expectation that that figure would grow dramatically. Avoiding the construction of over 100,000 cell sites, they avoided incurring annual capital and operating costs of over $25 billion. Instead the initial hop to the Internet was provided by Wi-Fi networks at less than one-tenth the cost.
Counting standards, network technologies, devices and applications, there was substantially more innovation in the unlicensed space than the exclusive licensed.
Valuing users and uses at market prices puts the annual value of activity in the unlicensed space at over $50 billion, at least as high as the value of activity in the exclusive licensed space.
The challenges of continued expansion of mobile communications involve not only increasing quantities of data traffic, but also increasing diversity in the needs of different types of communications. The prospects for unlicensed spectrum to continue to play a critical and expanding role are great. Making additional high-quality spectrum available for unlicensed use will grow the sector because the complementary relationship between unlicensed and licensed increases the value of licenses. The much larger wireless data sector that results will generate more economic activity and more general revenues.
Suggested Citation: Suggested Citation
Cooper, Mark, Efficiency Gains and Consumer Benefits of Unlicensed Access to the Public Airwaves (March 29, 2012). Available at SSRN: https://ssrn.com/abstract=2030907