Thursday, September 29, 2011

Licensed Unlicensed: Having your Coase, and your Commons too

I lighted on the notion of issuing a handful of receiver licenses in allocations where transmitter licensees don’t control receivers (e.g. TV, GPS) to facilitate negotiations between operators in neighboring bands; details blogged here.

The same idea could be applied to unlicensed allocations, where the unbounded number of operators makes it essentially impossible for Coasian adjustments to be made: a neighbor that would like quieter unlicensed devices has nobody to make a deal with, nor do unlicensed users have an effective way to band together to make a deal if they’d like to increase their own transmit power. This approach also has the benefit, as in the receiver license case, of giving the regulator a tool for changing operating expectations over time, e.g. ratcheting down receiver protections or increasing receiver standards.

The catch-phrase “licensed unlicensed” is obviously a contradiction in terms; it’s shorthand for a regime where non-exclusive operating permissions are issued to a limited number of entities, while retaining the key characteristic that has made unlicensed successful: the ability of end users to choose for themselves what equipment to buy and deploy. These entities can use or sub-license these authorizations to build and/or sell devices to end-users.

Follow-up post

How it would work

These “unlicensed licenses” would have the same technical rules as unlicensed or license-exempt currently does, e.g. the Part 15 conditions that one may not cause interference to a primary, and must accept interference from anyone else. However, the ownership and transferability would differ: only license holders would be able to seek device certification, though that right could be sub-licensed to other parties so that any number of device designs could be sold by any number of manufacturers.

The regulator could assign these licenses as it chooses, e.g. by auction, lottery, beauty contest, etc.; the current received wisdom would suggest an auction. There would be no limitation on who might obtain them, but I suspect that they would be most sought-after by a handful of chipset companies. For example, while there are dozens (hundreds?) of companies selling Wi-Fi devices, they all pretty much use chips from Atheros-Qualcomm, Broadcom, Marvell, or TI.

This seems so obvious that someone must already have thought of it; and the fact that it hasn’t been done means there were flaws in the idea or the politics. Please let me know if this rings any bells.

Some benefits

This idea has an interesting side effect: it’s a plausible way to raise revenue from unlicensed, i.e. by an auction of (say) six manufacturer certifications. (Standard disclaimer: The purpose of auctions is to identify those who place the highest value on the operating right, not to raise money. Politician’s standard response: Yeah, right.) While I’m also contemplating an auction, this idea differs from the Bykowsky, Olson & Sharkey proposal that companies interested in unlicensed should bid against those interested in licenses; in my case, the allocation to unlicensed has already been decided.

The limited number of parties with skin in the game should make it easier to negotiate coexistence etiquettes. Advocates of unlicensed sharing often invoke standards processes as the way in which coexistence is delivered. However, 802.11 is becoming increasingly unwieldy, I’m told, and the 802.19 coexistence TAG hasn’t made much progress as far as I can tell. A regulatory limit on the number of parties to this negotiation would improve the chances of agreeing to win-win etiquettes.

Some questions

Auction theory questions arise. The dynamics are different from previous wireless auctions, since it’s not an exclusive license; rather, it’s an equal sharing of the “resource” among a limited number of players. Presumably an auction of five co-equal licenses with the same rights will raise less revenue than an auction of an exclusive right; but how much less? Any pointers gratefully received. I’m struggling to think of an analogy where a right to operate an indeterminate number of devices is at issue; neither airline landing slots nor taxicab medallions fit. The best analogy I have so far is seats on the NYSE, thanks to a conversation with John Helm; trouble is, not only has the NYSE now moved to selling one-year licenses to trade directly on the exchange, but the number of seats were very large (Wikipedia). There must be precedents, surely, by the “If I can think of it, someone’s already done it” rule.

There are also questions of competition policy and transaction costs. Just as in the receiver license case, one would want to allocate enough licenses to foster competition and innovation, but not so many that cost-effective negotiations is precluded. My impression is that the literature doesn’t give much if any guidance on picking a number; the answer is “it depends” – one would have to analyze the wireless situation and connect it to the key factors that literature has highlighted.

It’s interesting to compare this with Martin Weiss’s neat idea of “free licensed” (cf. unlicensed = license free). Martin’s only briefly mentioned it to me (9/24/2011 at TPRC), and he’s still developing the concept. As I understand it, the idea is to retain the regulatory leverage of licenses while leaving the manufacture and deployment of devices unconstrained. It’s another way to get the putative benefits of fixed license terms (cf. an earlier post) without giving up the decentralized and concurrent nature of “unlicensed.” I think the FCC’s 3650-3700 MHz light license could be seen as a version of this idea, though the licenses there are of indefinite term. Martin’s Free Licensed differs from Licensed Unlicensed in that I’m proposing a limited number of non-free licenses, whereas Martin’s talking about an unlimited number of free licenses. I suspect Free Licensed would work best for small numbers of relatively high power unlicensed operators in a region (e.g. WISPs – the WAN case), whereas Licensed Unlicensed is better suited to large numbers of low power devices (e.g. PAN/LAN).

The obvious question is, Where could one try this out? One possibility is the 3550-3650 MHz band (cf. Motorola filing), but I think this restriction added on top of the requirement for operators to hold a non-exclusive nationwide license and register their fixed stations may be too onerous. While I’m no fan of unlicensed secondaries “sharing” with licensed primaries, I’d propose this the next time such an opportunity arises as a way of mitigating the primaries’ worries about accountability.

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