Monday, March 12, 2007

About Spectrum Gold Rush

The S&L Crisis of Our Time
When the history of our time is written, the current spectrum auctions will be its S&L Crisis.

Just as it did 25 years ago, the government is giving away a "sure thing" to sharpies that in fact is anything but. Back then it the power to get over-extended in the real estate market. Today it's the power to get over-extended in spectrum hoarding.
Two things are actually happening at the same time.
a.. We're finding all kinds of spectrum to be suddenly useful, so the government is selling it to hoarders.
b.. New radios and cellularization are making every hertz of spectrum ever-more powerful.
All this is precisely what happened a decade ago, with fiber bandwidth. The Internet boom made fiber lines appear attractive. But DWDM, which I've called Moore's Law of Fiber, was proving that the capacity of each line could be increased a hundred-fold, and more.
The same thing is happening again. Demand for wireless services is increasing arithmetically. But the ability to supply that demand is increasing geometrically. The cost of providing that service, in the form of Internet bits, is being driven down toward zero.
Here we have some of the playes in the 1980s scandal. Recognize any of 'em?
As in the Internet broadband market as a whole, the only thing holding all this up is the bottleneck that cable and phone providers have on the "last mile," the network that exists between a fiber co- location and your home or business. Anyone who can bridge this gap -- with WiFi, WiMax, or any other radio-based solution -- can capture enormous value (as in the open source business) by keeping their own costs low and keeping their own prices below the competition indefinitely.
The only reason this has yet to happen is because the value-capture is short-term. At the end of this process, the value of a wireless bit falls to nearly zero and nearly everyone goes under. (That's why it would actually make sense for the industry to support municipal WiFi builds.)
But the result of the auctions will be that new players have put billions on the table, money they will need to get back by building competitive services.
And so the process will begin.
When all this unwinds, we're going to find some crooks who bilked the auction process, we're going to see some suckers who bought air, and we're going to see the government bailing-out the industry in order to save what is left, just as it did last time.
Let's pray the government in power then drives a harder bargain than the one that met the S&L mess.
Dana Blankenhorn

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