Stamps and Stewards: A third way to regulate radio operation

Radio operation to date has largely been regulated in two ways. The dominant approach has been licensing station operators, whether they’re amateurs, TV broadcasters, or companies operating cellular systems. In the last twenty years or so, device licensing (aka unlicensed in the US, and license exemption in Europe) has also become widely used: if a device has been certified to meet regulatory requirements, anyone can operate a “station” using it without needing a license. [1] In these two approaches, the regulation controls either the system operator (for licensed), or the device manufacturer (for unlicensed).

I’m exploring another way, where the regulator accredits a limited number of “stampholders” who can each an issue an unlimited number of “stamps.” One can see these stampholders as the designated stewards of a "spectrum commons," and the stamps as the mechanism they use for controlling access to a common pool resource. A device may only be sold if it bears the requisite stamp or seal, in addition to any other statutory requirements such as Part 15 certification. Control is exercised at the point of sale through labeling or marks.

This notes builds on the previous posts Licensing radio receivers (Aug 2011) and Licensed Unlicensed (Sep 2011). I learned long ago that if I can think of something, someone’s already done it. However, I haven’t found good precedents yet, and I’m still looking for canonical examples or ringing metaphors. Stamps (in the sense of signet rings and seals) and Stewards is the best analogy I’ve found so far. [2]

Follow-up: In Markets for adjusting interference rights (May 2012) I explore another way of negotiating adjustments to boundaries (e.g. power levels) between unlicensed bands and their neighboring bands given of the collective action challenges faced by unlicensed operators.
Uses

The stampholder method is suitable for both for unlicensed allocations, and decoupled receivers. I think it will be particularly useful in so-called dynamic spectrum access or cognitive radio sharing scenarios, but I'll leave that discussion for later.

Unlicensed applications

The stewards/stamps approach is designed to retain the benefits of unlicensed – e.g. anyone’s ability to deploy a radio network without obtaining station license, by choosing from a wide array competing devices – while addressing its collective action problems: (1) the lack of coordination (e.g. failure of IEEE 802.11 or the Wi-Fi Alliance to agree on unlicensed-unlicensed dynamic frequency selection or transmit power control etiquettes) which leads to inefficient sharing when there are many mutually interfering devices; and (2) the inability to adjust boundaries (e.g. power levels) between unlicensed bands and their neighboring bands by negotiation. A limited number of stampholders would be more likely to reach agreement on sharing etiquettes, and would be less likely to suffer from collective action problems when, say, a neighboring licensee would be willing to make a payment if all unlicensed devices reduced their transmit power, or when the neighbor would accept more interference if all the unlicensed players could band together to come up with an acceptable payment.

Stampholding also provides a mechanism to kill off an allocation if it has proven to be a failure – zombie allocations are a weakness of the current unlicensed approach (see my post Time limiting unlicensed authorizations). For example, the reserve price for an allocation of stampholdings could be set at 80% of the revenue raised at the previous auction. If the reserve price isn’t met by the aggregate of all the bids, no stamps are issued, and no new devices can be sold from then on. Once legacy devices sold have been deprecated, the band can be reallocated.

Managing decoupled receivers

Dale Hatfield has dubbed the situation where receivers are not controlled by a license holder the “decoupled receiver problem.” Examples include television receivers, unlicensed satellite weather receivers, and GPS devices. The problem arises because (1) the regulator has most leverage over license holders, and these devices aren’t licensed; and (2) the unlimited number of receiver manufacturers and operators makes it impossible for a neighboring licensee to come to a negotiated agreement over boundary disputes, since there are too many entities to bargain with – the same collective action problem seen in unlicensed.

I proposed "licensing" receivers as a way to deal with this problem in the August post. The word licensing isn't ideal; it not only makes some people uncomfortable, but the FCC (at least) may not have the authority to license receivers under current statute. The stamps and stewards works in a similar way, suggesting that licensing may have been the wrong way to think about the solution.

Mechanism

As explained in Licensed Unlicensed, the regulator would define the rules and entitlements for any operation in a particular band, but only devices bearing a prescribed mark or stamp could be sold or operated. A limited number of entities – the “stampholders” or "commons stewards" – would be authorized to issue these stamps, but there would be no limit on the number of stamps each could issue.

Since the word “stamp” can mean either the object making a stamp, or the resulting mark (the same is true, probably not coincidentally, for cognate terms like “seal”), I will use the term “stampmaker” where necessary to make it clear that I’m referring to the stampmaking object, not the mark. Thus in this metaphor, the regulator issues a limited number of stampmakers, one to a stampholder.

The limitation on the number of stampholders is intended to overcome a key deficiency of unlicensed as a commons: the lack of control on the number of actors managing the common pool resource. [3]

Depending on one’s ideological preferences, a stampholder can be seen as a rentier deriving income from its control of a stampmaker, or as a steward of a “spectrum commons.” It can charge fees from, and/or impose other behavioral conditions on, companies that want to put a product into the market. The rent it thus obtains is a reward taking the risk of purchasing a stampmaker (there may not be a sufficiently large market in stamps to repay their investment), and for being a joint steward of the commons of radio operations.

Additional conditions imposed by stampholders

In the unlicensed case, all devices would operate under Part 15 rules, e.g. transmit power limits, and requirements not to cause interference to, but accept interference from, other operations. Only manufacturers authorized by stampholders could seek Past 15 certification. A stampholder could impose additional requirements on devices as a condition for receiving a stamp, such as implementing a particular spectrum etiquette or industry standard.

In the case of decoupled receivers, the stampholders would be the holders of rights embodied in the receiver protection limits in this allocation. They would decide how receivers bearing their stamp would take protection limits into account; for example, they might define receiver standards for devices bearing their stamp, or collaborate with other stampholders to agree on standards all their devices would conform to.

Expiration

A stampholding accreditation could, and I think should, have a limited term, say 15 years. Since stampholders are not required to build out network, as cellular licensees are, there is no requirement for massive infrastructure investment that would support arguments for the indefinite terms of the entitlement. At the end of the term, current stampholdings would expire, and the regulator would hold a new auction. At this point, it could change the rules of the game if necessary, e.g. by changing the number of stampholders. (I have proposed elsewhere that regulators should make greater use license renewal to adjust rules, while conversely abstaining from any rule changes during the term of a license; see De Vries & Sieh 2011 http://ssrn.com/abstract=1907813.)

Number of stampholders

Judgment will be required to determine the number of stampholders/stewards to be accredited. There are countervailing goals: facilitating negotiation requires as few as possible, while avoiding market power abuses and increasing innovation by market entry suggests a larger number. It depends in part on whether one is regulating a commodity or differentiated market (Mark Bykowsky, personal communication).  If the devices in a particular allocation are commodities, three stampholders may suffice, whereas a variegated, multi-sectoral, rapidly changing scene might indicate ten. The number of stampholders will thus vary from allocation to allocation, and may change over time in a given allocation (e.g. by limiting the term of stampholding, and changing the number at renewal time).

Since one of the considerations when choosing the number of stampholders is the maintenance of market diversity and competition, rules may be required to prevent the aggregation of multiple stampholdings in the same allocation by one entity.

Regulatory restraint

However, the regulator will have to exercise great restraint in not attaching “political” conditions to stampholding. The mechanism should be used merely to designate a limited number of entities; all technical, operational and commercial decisions, with the exception of the most basic transmission permissions and receiver protections, should be delegated to them.

Designating stewards

As I proposed in August, the stewards/stampholders could be identified by auction.  Since there would be no limitation on the kind of entity that could become a stampholder, they might be RF chipset vendors (e.g. Broadcom, CSR, Qualcomm), device manufacturers (e.g. Cisco, Nokia, Motorola), service providers (e.g. Google, Microsoft, Verizon), certification providers such as UL, or consortiums such as SpectrumCo. Given the limited number of stampholdings, not every player at every stage in the value chain could be a stampholder. However, a company at one stage in the value chain could sign on with a stampholder at another stage, and so not be beholden to their competitors; so for example, chipset vendors that were not stampholders (Texas Instruments, for argument sake) could affiliate with a service provider (say, Google).

Auction design is rocket science, and I couldn’t even fold a paper airplane… but if I had to venture a mechanism, one might think in terms of a multiple round, ascending bid auction with the auctioneer (e.g. the FCC) declaring lowest bid at the end of every round. The auctioneer declares at the start how many accreditations, say N, will be issued. When bidding ceases, the highest N bids receive accreditation, paying the price they bid.

An auction for unlicensed stewards would differ substantially from the mechanism proposed by Bykowsky, Olson and Sharkey (BOS) for using an auction to decide whether to allocate bands to unlicensed use. [4], [5] For example, in the BOS proposal, winning an unlicensed allocation via an auction doesn’t endow the bidders with any privileges, other than having an unlicensed authorization at all. However, there are resonances between the approaches. For example, the stampholder approach provides additional incentive for participating in the bidding for an unlicensed allocation in a BOS auction, since non-winning bidders do not obtain accreditation. (Note, though, that Bykowsky does not believe that such an incentive is required, since their experimental results suggest that unlicensed bidders can overcome collective action problems.)

Update 7 Jan 2012: Gave a little more emphasis to the "commons steward" metaphor

• Changed title from "Stamps and stampholders: a third way to regulate radio operation" to "Stamps and Stewards: a third way to regulate radio operation"
• In a few places, replaced "stampholders" by "stewards" or "stewards/stampholders"

Notes

I thank Mark Bykowsky and Susan Tonkin for helpful conversations.

[1] There have been a variety of so-called hybrid or flexible license approaches, such as “light licensing” where anyone may operate in a band, subject only to registration (e.g. 3650-3700 MHz in the US, 5725-5850 MHz in the UK). Whitespace databases that provide ad hoc permission to otherwise unlicensed devices to operate in a particular frequency ranges at a specified place and time combine elements of a licensed and unlicensed regime (Stirling 2010). There are also “license by rule” cases where transmitters operate under a blanket authorization (e.g. walkie-talkies in the Family Radio Service)

[2] Other analogies include licensing taxicab companies not vehicles or drivers, Iceland’s fishing quota system, and privateering commissions. None of them capture all the essentials, and all diverge in important ways from the stampholder/stamp model.

[3] The successful common pool resource (CPR) management cases that Elinor Ostrom has described all seem to have a relatively small number of participants. Many of the eight design principles for CPRs that she describes in Governing the Commons: The evolution of institutions for collective action (1990) presume resource appropriators that know each other - very unlike the case in unlicensed wireless allocations, but quite similar to the traditional interactions between the engineers of adjoining radio licenses. To quote from a few of the principles (Table 3.1, p. 90): #1 "Clearly defined boundaries: Individuals of households who have rights to withdraw resource units from the CPR must be clearly defined"; #3 "Collective-choice arrangements: Most individuals affected by the operational rules can participate in modifying the operational rules"; #6 "Conflict-resolution mechanisms: Appropriators and their officials have rapid access to low-cost local arenas to resolve conflicts".

[4] M. Bykowsky, M. Olson, and W. Sharkey, "A Market-Based approach to establishing licensing rules: Licensed versus unlicensed use of spectrum," FCC OSP, Tech. Rep. 43, Feb. 2008.  http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280523A1.pdf

[5] M. M. Bykowsky, M. Olson, and W. W. Sharkey, "Efficiency gains from using a market approach to spectrum management☆," Information Economics and Policy, vol. 22, no. 1, pp. 73-90, Mar. 2010.  http://dx.doi.org/10.1016/j.infoecopol.2009.12.003