Institutions, Spectrum, and the Future of the Internet Ellen Goodman & Phil Weiser Talk at Annenberg School of Communications December 6, 2006

FCC Independent Agency – Creature of Congress Independent Agency – Creature of Congress “8 th Floor” – political “8 th Floor” – political Bureaus – risk of capture (public choice theory) Bureaus – risk of capture (public choice theory) Players: Players: –Industry: telecom.; software and hardware; Hollywood; online –Public interest –Federal government –States and localities

Spectrum Use User petitions for spectrum User petitions for spectrum FCC allocation proceedings FCC allocation proceedings –Value of existing use vs. new uses: economic efficiency, economic efficiency, technical efficiency, technical efficiency, communications efficiency communications efficiency –Communications values, e.g., diversity and localism FCC assignment FCC assignment –Auctions –First come, first served

Frequency Allocations

Critique of Command and Control Exclusive Property Theorists Exclusive Property Theorists –Create property rights in spectrum – Resolve disputes in spectrum “courts” Commons Theorists Commons Theorists – Open access to spectrum: mesh networks – Resolve disputes ex ante through technical standards

Spectrum Conflicts: An Institutionalist Perspective Role of courts, arbitrators Role of courts, arbitrators –Define and enforce property rights in neutral fashion Role of FCC Role of FCC –Political as “dirty word” or necessity for vital resource Role of standards bodies Role of standards bodies –Lack of public accountability –Commitment to technical integrity

The Coase Theorem Don’t Dictate Outcomes—define property rights, allow bargaining (if transaction costs low), and welcome economically efficient result. Don’t Dictate Outcomes—define property rights, allow bargaining (if transaction costs low), and welcome economically efficient result. A Coasian Failure?—the enduring survival of UHF broadcasting A Coasian Failure?—the enduring survival of UHF broadcasting Long Live TV broadcasting?—does over-the- air broadcasting serve social values not captured by the marketplace? Long Live TV broadcasting?—does over-the- air broadcasting serve social values not captured by the marketplace?

Property Rights and Institutions Under NIE (new institutional economics), the general rule is that the market cannot define and enforce property rights. Under NIE (new institutional economics), the general rule is that the market cannot define and enforce property rights. How property rights are defined and enforced matters—a lot. How property rights are defined and enforced matters—a lot. The exceptional situation is where social norms render property rights irrelevant— i.e., small groups like neighboring ranchers. The exceptional situation is where social norms render property rights irrelevant— i.e., small groups like neighboring ranchers.

Social Policies and the Future of Regulation –Current Content Regulation—which is broadcast- centric—is less relevant in new media environment. –Self-regulation among media companies (e.g., a ratings system) –Public pressure (e.g., OJ episode and News Corp) –Regulation of Technology to Facilitate Oversight Spam regulation Spam regulation ITU—Next Generation Network initiative ITU—Next Generation Network initiative

Concluding Points Spectrum policy provides an illustrative window on telecommunications policy. Spectrum policy provides an illustrative window on telecommunications policy. The relevant institutions—the regulated firms; the FCC; standard setting bodies; Congress; courts; and public opinion—all can play different roles. The relevant institutions—the regulated firms; the FCC; standard setting bodies; Congress; courts; and public opinion—all can play different roles. One critical set of roles revolve around the definition and enforcement of property rights (often with an eye to economic efficiency goals). One critical set of roles revolve around the definition and enforcement of property rights (often with an eye to economic efficiency goals). Another critical set of roles revolve around social policy and content regulation (with an eye on non- market-based values). Another critical set of roles revolve around social policy and content regulation (with an eye on non- market-based values).