Wireless data fails through its own success

On Monday, Steve Jobs had his iPhone 4 demo fail due to Wi-Fi congestion problems at the WWDC conference. (Blogger Liz Gannes of GigaOM theorizes that ad hoc hotspots set up by attendees contributed to the problem.)

Also this week, while passing through O’Hare airport, I desperately tried to log onto the Boingo paid hotspot but could never get a reliable connection among the dozens (hundreds?) of travelers also trying to use Wi-Fi.

There’s been a lot of publicity about AT&T cutting back on unlimited all-you-can eat bandwidth for its 3G service — thanks to heavy usage by a significant fraction of the iPhone customers — as well as the speculation that other 3G carriers will do likewise. The problem isn’t going to go away with LTE (or WiMax).

But this is also clearly a problem with Wi-Fi as well. Networks designed for people checking email or flipping 2 web pages a minute cannot handle the traffic generated by YouTube.

What the wireless industry seems to ignore — probably deliberately — is that this is an inherent (and perhaps insolvable) problem of wireless communications. Wired communications are scale free — you can add new wires and routers and switches indefinitely.

On the other hand, wireless spectrum cannot be extended indefinitely, and there’s only so much smaller you can make the cell sizes (from microcells to picocells). The past decade has benefitted from increasing spectral efficiency, but spectral efficiency in 4G is only slightly better than 3G.

So while Moore’s Law seems like it will have a 50 year run, the improvement in wireless data efficiency appears it will only run about 20 years before it hits the wall.

Has the industry overpromised? Is it ready for the consequences when it fails to get the additional spectrum it dreams of? Right now I see the problem, but not the complete implications or possible solutions.

Have you heard? DTV is coming!

You may not have heard, but next February most analog NTSC television broadcasts are being discontinued and replaced by digital ones. According to the FCC countdown clock, it’s only 109 days away.

Of course, I’m being sarcastic. You’d have to be under a rock not to have heard about the switch, which where we live has made it into the newspaper and also been the subject of a test shutoff. Most of all, it has been been the subject of daily PSAs (“public service announcements”) on all the local TV channels, including PBS. My wife and I wonder who wouldn’t have heard about it. Perhaps people who don’t watch TV. (If so, why would they care?) This really gives new meaning to the word overkill.

Even the Federal Communications Commission is joining in the overkill. Apparently having a comprehensive DTV website for several years isn’t enough, since the FCC decided to engage in an unconventional form of government sponsorship. As a trade magazine reported last week:

Federal Communications Commission chairman Kevin Martin on Thursday was named Porker of the Month by Citizens Against Government Waste for using taxpayer money to sponsor a NASCAR driver from North Carolina, Martin's home state.

"For using taxpayer funds on an unnecessary project, diverting focus from more important telecommunications concerns, recklessly spending without consulting with his peers and attempting to use his influence to shore up his own political prospects, CAGW names FCC Chairman Kevin Martin its October 2008 Porker of the Month," CAGW said in a press release.

Last week, Martin announced that the FCC would pay $355,000 to sponsor stock car racer David Gilliland's No. 38 car, owned by Yates Racing, in three races to raise public awareness about the Feb. 17, 2009 switch to digital TV.

Gilliland's Ford crashed near the end of last Sunday's Sprint Cup race in Martinsville, Va.

“Even though the [FCC] has inundated networks with paid announcements for months, Martin considered it necessary to use additional taxpayer dollars to pay for the car and driver to bear slogans such as ‘Is Your TV ready for Digital?’” CAGW said. “While spreading public awareness over the transition from analog to digital broadcasting is important, the National Association of Broadcasters has stated that the public is already largely aware of the switch."

The NAB (the main lobbying group for local TV stations) budgeted $700m for its ad campaign to make consumers aware of the DTV switch, including $327m on PSAs. While the NAB had a big push to members earlier in the year — including a major emphasis at its April tradeshow — apparently since June it has not felt it necessary to update them with any new information.

Even PBS is joining in the propaganda act. The same PBS that is supposedly interested in public service, consumers, and all that is fair and good.

Wednesday night on the Boston PBS station, WGBH, I saw a locally produced special issue of “This Old House” on the subject of the DTV conversion, with their regular hosts Kevin O'Connor and Norm Abram. (This is over and above all the one-minute PSAs the two men have been doing for months). The two were joined by another PBS host, Maria Hinojosa, for a one hour “how to” show on converting to DTV.

In the episode, the two men wandered through one neighborhood, handing out Zenith® brand converter boxes† like the tooth fairy. They also gave a woman a new compact DTV to replace the analog TV in her kitchen. Try getting that deal in your neighborhood!

(† This is the box I bought myself at my local RadioShack using the $40 FCC rebate).

The show — as with their regular PSAs — shows the same pro-adoption bias as the commercial networks have shown. One host said “Digital television has several advantages over analog.” There was no suggestion that spending money to switch to DTV is a waste of money to pay an additional charge to get what you have now.

Don’t get me wrong. The FCC had to move broadcasters off their analog channels to reclaim the old channels and sell them to other companies. (The broadcasters got an unusual sweetheart deal of keeping their old channels for several years after they got their new digital channels). The change has already happened in North Carolina. However, every issue has two sides, and you will never ever hear on TV any disadvantages of the switch.

What’s the big (frankly) deal? If you turn on your TV on Feb. 17 and there’s no signal, then you’ll know that all those warnings for year were real and that you will actually have to do something. (Of course, as O’Connor and Abram helpfully explained, it doesn’t apply if you have cable or dish). So at worst, you lose a day or two of TV viewing until you fix it.

After puzzling over this blatant over-exposure, I came up with two possible explanations. One is that even a small percentage of complaints of the 113 million US TV households will generate a tech support and PR nightmare for the FCC and local stations. Apparently the decision to shut off analog early (as a test) in Wilmington, NC generated an unexpectedly high number of calls.

The other possible explanation is that the TV stations are terrified of losing their customers. Anything that forces customers to re-evaluate may have them not come back. I could see it if it were teenagers losing their signal — and perhaps switching to Hulu, GooTube or the iTunes Store. However, I suspect people who can’t figure out how to install a DTV converter box aren’t watching online videos using a Flash® enabled web browser.

eBay for Billionaires

This month the FCC is winding down its auction of 700 MHz mobile radio spectrum. The auction that began on Jan. 24 was labeled by one industry columnist as “eBay for Billionaires”. As the IEEE Spectrum reported:

Observers have called 700 megahertz the last great band of spectrum to come up for auction in this age of ubiquitous wireless devices. By virtue of having a lower frequency than today's third-generation services—which all operate at 1700 MHz and above—its signals can travel farther and better push their way through apartment and office walls.

The auction of 62 MHz of spectrum is one of the largest since the FCC first began auctions in 1994. The FCC’s first major auctions allocated 90 MHz of mobile phone spectrum in auctions, first with the A-B block in 1994-1995 (raising $7 billion) and the C block 1995-1996 (nominally raising $10 billion). These auctions of 1.9 GHz spectrum increased the number of cellphone providers in each market from two to six or seven, fueling the competition, price cutting and demand stimulation that pushed US cellphone penetration from 24 million at the end of 1994 to more than 250 million today.

As with the original AMPS A- and B-block allocations (50 MHz total) of the 1970s and early 1980s, this spectrum is coming from UHF TV channels. The original 850 MHz AMPS spectrum (from UHF channels 70-83) was tied up by broadcaster lobbying and litigation for almost twenty years. This is one reason why AT&T invented the cell phone but was not the first in the world to deploy commercial service, as I described in my 2000 paper on the history of first generation cellphone systems in the US, Europe and Japan. (BTW, does anyone else remember the original TVs with UHF channel 83?)

This time around, the allocation of channels 52-69 is less contentious because these are NTSC channels being surrendered in exchange for HDTV spectrum already in use. Selling the spectrum (and thus being able to spend the money) is a major reason why Congress mandated that NTSC broadcasts be turned off 380 days from now.

Even as someone who’s written about mobile phones for more than a decade, the 700 MHz spectrum allocation is dizzyingly complex, with all the clever rules and allocations. I’ve found three good sources:

• I got my first introduction by talking for 15 minutes with a FCC rep at the CTIA show last October, who also pointed me to the FCC website for “Auction 73” provides a plethora of information.
• Even before that, industry veteran Om Malik did an exemplary job of boiling down the auctions in layman’s terms on his Gigaom blog.
• The industry trade journal, RCR News, has the best ongoing coverage with a special web page tracking all the auction news.

Of the four major carriers, AT&T and Verizon are bidding and Sprint and T-Mobile are not. The identities of the bidders is not available, only their bidding amounts. AT&T is also buying up spectrum previously acquired by Aloha Spectrum Holdings, a transaction approved Tuesday by the FCC.

Overall, the auctions have been successful — raising approaching almost $19 billion, versus a predicted $10 billion. However, most of the attention has been not on the total amount but the two odd conditions imposed upon the auctions for the “C” and “D” blocks. Normally economists would expect conditions to reduce the prices, although economist Peter Cramton argued (on my blog) that open access would increase prices by challenging the mobile phone oligopoly.

The first special auction is the C block, a nationwide license with 22 MHz of bandwidth that would normally be the most desirable of the auction. However, it has the subset of “open access” conditions proposed by Google and loathed by AT&T and Verizon. If the bids had not met the $4.4 billion reserve price, the spectrum would be reauctioned without the conditions, but magically an unnamed bidder (everyone assumes it’s Google) bid the spectrum to $4.7 billion last Thursday — guaranteeing that the spectrum will be sold with open access conditions. Of course, this doesn’t tell us who will end up with the spectrum, only that it will have open access conditions.

However, the 10 MHz D block has proven more problematic. It came with an obligation to build a nationwide public safety radio nationwide — depressing the sale price it hopes of funding those radios with an off-budget expenditure. As predicted, the auction has failed with the death of Frontline Wireless, the politically connected startup that died two weeks just before Auction 73 started. The only bid of $472 million is far below the $1.3 billion reserve price.

If Congress really cares about safety radio, it will auction the spectrum without restrictions, take out the $1.3 billion that the feds hoped to clear, and send the rest of the proceeds to the local governments to build their own systems.

Bye bye Frontline

Yesterday I noticed an interesting tidbit regarding the US 700 MHz spectrum auctions that begins on Jan. 24. This is the largest auction of land mobile spectrum in more than a decade, and the one where Google has pressed (with some success) to get open access provisions instituted.

Deposits (of $130-280 million) were due last week. Frontline Wireless, which last month said it was going to bid, did not place a deposit. In fact, IDG reports, it’s gone out of business:

Frontline spokeswoman Mary Greczyn said Wednesday the company would have no further comment beyond saying Frontline is "closed for business at this time."

Frontline was always a political animal, with Reed Hunt (Clinton’s activist FCC chairman) as frontman and backing from James Barksdale (FedEx, McCaw, Netscape) and John Doerr (Kleiner Perkins partner), the former head of NTIA and ex-director Louis Freeh.

So was it because they couldn’t raise money — a sure sign (if you have KPCB partner on your board) that the business model made no sense. Or was this always just a stalking horse pushing open access — a credible threat — to force the big telcos to worry about open access?

Frontline’s plan was always to bid on the spectrum which had a mandate to help build public safety communications — a sure way to reduce the price of the spectrum, both because of the costs associated with meeting that commitment, and also by eliminating bidders who wanted unrestricted spectrum. Of course, this would be a cross-subsidy from the Feds (getting less money for spectrum) to misc state and local public safety agencies (who get a big investment in their communications by the bidder).

Now that Frontline is gone, there’s a worry that no one will bid on the spectrum. Or a firm could buy the spectrum cheap, and then walk away if it doesn’t like the terms.

To me, this is yet another example of why the US fails when it attempts to emulate the statist industrial policy of other countries. Our policies should encourage (and protect) competition, to reward efficiency and allocate resources based on market demand. If the government wants to do something, it should pay for it as a line item rather than mandating that private firms do it for them.

Wireless rich get richer

The WSJ this morning had an article summarizing the announced bidders in the forthcoming FCC 700 MHz auctions next month.

• Bidding: ATT, Cox Communications, Echostar, Frontline Wireless, Google, Leap Wireless, Verizon
• Not bidding: Comcast, DirecTV, Sprint Nextel, Time Warner Cable [also T-Mobile]

The two largest US carriers are bidding, and the next two are not. The 2004 AT&T-Cingular merger has gone well, while Sprint Nextel has yet to recover from its 2005 merger. (The 2000 joint venture to create Verizon Wireless is long since settled).

Of the remainder:

• Google is trying to reshape the wireless industry by its bidding, even though the WSJ thinks it has no intention of winning.
• The relatively small Leap Wireless is seeking to grow its spectrum footprint after fending off the hostile takeover by Metro PCS.
• My former business associate Tom Evslin has criticized the plans of the highly political Frontline Wireless team, for trying to get its spectrum under the guise of "public safety."
• Only one of the three major cable TV companies is bidding, which means they’re not worried about the telco quadruple play competing with their triple play offerings.

Even with the potential new entrants and the wide variety of spectrum alternatives, their impact is likely to be at the margins. Instead, it seems likely that the new spectrum will be paid for by the most successful companies, to cement their existing market dominance.

Finding an audience

I’m coming up on the six month anniversary of this blog, and thus doing a cost-benefit analysis of continuing the blog.

Soon after I started the blog, my friend David Wood told me (to paraphrase) “you seem to be finding your voice.” But, as I discovered, a more important issue for bloggers is finding an audience. Blogging is somewhat like journalism, but there’s at least one major difference: no circulation figures. (There are technical solutions, but AFAIK they give page views not unique visitors).

I’m guessing regular readership is between 10 and 100. Consistent with that, I count 31 unique comment-ors on postings this year (although that assumes that the anonymous comment writers are distinct).

Many of the comments seem to be from people who don’t read the blog, but find it through some sort of search engine search or news/blog monitoring service. I got flooded with comments (relatively speaking) by the Wavoids after smirking about the ongoing misfortunes of Wave Systems. My old mentor Charlie Jackson checked in after I noted how his company FutureWave Software created Flash (née Splash).

Last week, I got probably the longest comment yet, from economist Peter Cramton, on my post about FCC chairman Kevin Martin’s suggestion that “net neutrality” should be imposed on at least one of the bidders for wireless data spectrum. Cramton quoted his own game theoretic work that argued that, absent the credible threat of entry, the oligopoly of major carriers will depress prices — and thus open access would actually increase the number of bidders and thus prices. As his posting notes, his filing was sponsored by Reed Hundt’s company (Frontline Wireless); thus academics would treat it with kid gloves as compared to his three or four papers in economics journals.

Cramton is the single most knowledgeable economist in the U.S. (if not the world) on the economics of spectrum auctions. He has been doing research on spectrum auctions for more than a decade, starting with the PCS auctions (designed by the late John McMillan) in 1994-1995. For almost as long, he’s been arguing that auctions are the most efficient way to allocate scarce resources like spectrum.

Technorati Tags: blogging, spectrum

A little competition goes a long way

Today the Wall Street Journal had a flurry of pieces about the potential for “wireless net neutrality” for at least some of the next round of the FCC's spectrum auction. The planned auction will parcel out the UHF channels 52-59, analog channels being surrendered by broadcasters (nominally in February 2009) with the conversion to HDTV.

Of course, “net neutrality” is anathema to the Journal. (For those who slept through religion class, anathema is a Greek word adopted by the early Christian church to cut off heresies such as Arianism).

This all was stirred up by an interview with FCC chairman Kevin Martin that ran in Tuesday’s USA Today, in which he said:

“Whoever wins this spectrum has to provide … truly open broadband network — one that will open the door to a lot of innovative services for consumers,” Martin said in an interview Monday.

What this would mean in practice: “You can use any wireless device and download any mobile broadband application, with no restrictions,” Martin explained. The only exceptions would be software that is illegal or could harm a network.

In response, the Journal had not one! not two! but three! articles on the subject — a news piece on page A2, an op-ed column and an official editorial. The editorial blamed the plan on former Clinton FCC micromanager (now lobbyist and regulatory arbitrageur) Reed Hundt.

In Tuesday’s article, Martin had use locked iPhone was held up as a representative example. The every same day, Hundt’s company, Frontline Wireless, took a full page ad in the Capitol Hill newspaper which seems to imply that a lack of net neutrality (locking the iPhone to AT&T) is depriving voters in 13 states of their Darwin-given right to use an iPhone.
The op-ed column, by respected Brookings economist Robert Crandall, was a little more measured and rational in its criticism of the Martin plan. However, his defense of vertical integration (and thus attacking measures helping VoIP providers) seems early 1960s, i.e., pre-MCI, pre-Carterfone, pre-Execunet.

Martin’s plan is consistent with the use of regulation to promote competition. This apparent paradox captured by the book published on 1990s financial and telecom liberalization by my friend and mentor, Steve Vogel; he called the book Freer Markets, More Rules.

Net neutrality — like earlier decisions such as Carterfone and Execunet — means that restrictions are levied on one part of the value chain (PSTN, wireless access) in hopes of increasing competition on another level (handsets, value-added services). In this case, the goal is to prevent use of vertical integration as a barrier to entry and comeptition. In free markets, such regulation is only justified by a presumed market failure, such as the “last mile” monopoly of wireline telecom, or the oligopoly (three national carriers with 77% market share).

It remains a question of fact (not of economic theory) whether the potential benefits of one outweighs the potential risk of the other. However, there are plenty of complaints by startup entrepreneurs that it’s impossible to offer new applications (particularly on Verizon) without getting the carriers’ cooperation; this certainly seems to be stifling the rate of innovation, even if Crandall were right that a lack of regulation would lead to the optimal economic efficiency.

Meanwhile, the WSJ news article, like the hundreds of other articles this week (as in Information Week), note that Internet services like Google and Skype would benefit from FCC rules guaranteeing access to wireless data networks. Of course, Skype stirred up the whole idea of wireless net neutrality with its FCC filing in February.

The carriers’ lobby group, CTIA, claimed the plan was tailored to benefit Google and called it “Silicon-Valley Welfare”: CTIA president Steve Largent clamed:

Crafting special rules for a company with a market cap of $170 billion to address problems that don’t exist in our competitive market makes absolutely no sense whatsoever.

Of course, the claim of "Silicon Valley welfare” is drek. Of course, imposing restrictions on some spectrum would reduce the value of that spectrum to operators that don’t want “net neutrality” — such as those using “walled gardens” — potentially reducing the number of bidders and certainly the amount paid for the spectrum. If the FCC goes ahead, it means that it believes the benefits of competition at one level outweigh the reduced auction price (and potentially reduced investment) by the carriers. Given last year’s legislators are more politically like Hundt than ex-Rep. Largent, Martin is likely to get enthusiastic support from a less-than-free-market Congress.

Beyond that, the CTIA’s Chicken Little claims are completely implausible. Hundt makes it clear that he thinks only one of the six bands should be auctioned with the open access mandate. That means three national carriers (five if you buy the CTIA math) plus five new spectrum owners would be without net neutrality, but an 11th owner would be so restricted.

Such apocalyptic rhetoric seems like a really stupid strategy by the carriers and CTIA, on two fronts. First, if net neutrality is limited to just this one new band, that would likely reduce the pressure for the existing carriers to open up their networks. Carriers would be free to offer better (albeit non-neutral) solutions and customers would decide whether (or if) neutrality was something that they valued. Hey, Steve, what’s more free market than that?

Second, the US carriers — unlike those in Europe — have been shooting themselves in the foot by blocking Wi-Fi enabled handsets, as when Cingular requested Nokia drop Wi-Fi from the E61 so they could sell it as the E62. Wi-Fi calling is inevitable, but for a long while it will be difficult to use, so the carriers should let it happen and spend some time figuring out (as the European carriers seem to think) there’s a way to make money off of it. Last week, David Pogue reviewed a cool home Wi-Fi hotspot for your cell phone which (not surprisingly) is being offered by the #4 US carrier, Germany’s T-Mobile; they even get an extra $10/month for all the resulting “free” calling.

If the wireless carriers really can’t cope with this limited competition, then their anguished wails mark the death cries of soon-to-be-extinct dinosaurs. If it’s not that serious, they’ve shot their credibility by crying “wolf” one time too many, undercutting their influence on other issues of importance.

Technorati Tags: 3G, Google, mobile phones, spectrum, VoIP, Wi-Fi