Wireless Carriers Running Out of Capacity … Hmmm, Wonder Why?

Posted by Jason | Posted in Government, Technology | Posted on 30-12-2009


Over the holidays, AT&T had bandwidth issues with their iPhones. Here is an example of what you get when government controls resources.

AT&T previously acknowledged that its network has been overwhelmed by iPhone users in New York and San Francisco, where dropped connections and long waits for running programs are not uncommon. These data-hungry cell phones compete for bandwidth with broadcast TV, radio and Wi-Fi networks, and wireless carriers like AT&T and Verizon say that they’re running out of capacity.

We’re told that the situation in New York City over the weekend had mostly to do with AT&T underestimating iPhone demand. But unless policies for allocating spectrum become more conducive to new technologies, turning away potential customers could become more frequent.

The reality is that the demand for mobile broadband is exploding, thanks to the popularity of the iPhone and rivals like the Palm Pre, the Blackberry and Verizon's Droid. According to the Federal Communications Commission, the use of smart phones has grown by nearly 700% the past four years, and mobile data are increasing at a projected rate of 130% annually as more people use their phones to send photos and watch videos.

Spectrum is finite, but it doesn’t need to be as scarce as it is. The problem is how the frequencies are being managed. Less than 10% of the spectrum coveted by wireless carriers has been allocated for commercial use. Much of the rest is controlled by the government. Television broadcasters and satellite companies also possess excess spectrum that could be made available to wireless carriers. Competitive bidding is the best way to allocate spectrum, but the government auctions are much too infrequent—only two in the past four years—and the licenses often come with cumbersome restrictions. The result is congested networks, frustrated customers and slower innovation.

Legislation sponsored by John Kerry and Olympia Snowe in the Senate, along with Henry Waxman and Rick Boucher in the House, would mandate an inventory of available spectrum to identify bands that are unused or underused. It’s a good place to start.

via Wireless Carriers Running Out of Capacity – WSJ.com.

Government action, especially from idiots like John Kerry, is not a good start in my opinion. The reason the allocation of spectrums is not in accordance with the demand of users is because the government allocates them. The government decides which bands are allocated for which type of technology.

Government never allocates resouces well, so why would anyone think that this is different. The market should allocate the spectrums. In the market, if cell phone usage is growing, the value of spectrums used by another technology would increase. If that technology is not growing, or in many cases shrinking, then those spectrums would naturally be put up for sale to make profits for the companies who’s technology isn’t in as much demand anymore.

Why aren’t these allocated by the market? Well, I’m sure people believe these are a public good, and that government must control these. Government must protect us from…. Anyway, they probably say that some wealthy guy will swoop in and buy them all up. Yeah, I’m sure a very rich guy would outbid the likes of AT&T, Verizon, Apple, etc. I’m also sure he’d love to have his money tied up in something if he can’t produce profits from it.

“Yeah Prof, but what about the speculators?”, you say. Well, what’s wrong with speculators. If speculators bought up some spectrums, what would be wrong with that? “Well, they’d drive up the price, Prof.” True, but who says that’s a bad thing. Ask yourself, what are they speculating on. Speculators don’t just buy things up for grins and giggles. They buy them up in anticipation of some news that will make their investment worth more money. Let’s say there is a new technology that comes out next week, and that technology needs a band on the spectrum. Now, let’s say all the spectrums are taken. Oh, wait, the speculator has a band. It may be pricey, but it’s available for sale. The speculator made a good bet, and he’s about to reap his reward. Now, if it wasn’t for that speculator, there would have been no unused bands available for sale. The speculator rationed the bands for us. Not only that, he didn’t sell it at low fixed price like the government would (just to be fair) to someone who would willy nilly buy it for some technology that no one uses. He held it out for a technology that had enough demand that the price he was charging was still a good investment. In other words, he made sure that the most people possible got the benefit.

The government on the other hand would allocate bands based on politics. What is the most beneficial way for them to use these spectrums to get re-elected. It always comes down to re-election. They use our supposed public goods against us to entice us to re-elect them again and again. All this does is encourage them to find new public goods, which is confiscated from private goods, to gain more power over us.

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