Did Google's unsubsidized Nexus fail in a free enough market?

The Tech Liberation Front has a post about Google's failure to attract customers to its unsubsidized smart phones, and reasons that the widespread subsidization of phones by wireless providers (the reason your iPhone only costs $199) must be the market, revealed.

I'm a bit weary of the "market has spoken" kind of talk, though, considering how managed the wireless market really is. The government doles out spectrum rather arbitrarily, shaping the market in a pretty heavy-handed way. Even an auction system is still imposing a perhaps unnecessary layer of government control – open spectrum and competition in interference avoidance might utilize the spectrum more efficiently than either the status quo or an auctions.

I'm not sure how exactly the government intervention is pushing carriers towards offering subsidized phones, but the whole industry is just too managed to be accepted at face value as a working market. I'm not saying that there should necessarily be a complete free-for-all, but until the government does with long distance-capable bands what it did with the frequencies now used for wifi, I'm going to be skeptical of any weird things that the wireless industry comes up with.

Here is my archive of open spectrum-related posts, for those interested in the idea of ending government control of the airwaves.

Obama's FCC guy is big on open spectrum

Today I read perhaps the most positive thing about Obama as I've read in a long time: one of the two people heading his "FCC transition team" is a vocal proponent of open spectrum. His name is Kevin Werbach, and he's written the most complete and compelling open spectrum manifesto that I've ever read (despite the fact that it's six years old). He veers off into silly analogies (the highway analogy halfway through irked me a lot) that muddle his point more than anything, so skip those, but other than that, highly recommended. However, it's really, really, really long, so I've just excerpted some of the best parts.

First, a great two-sentence summary of open spectrum:

The assumptions underlying the dominant paradigm for spectrum management no longer hold. Today’s digital technologies are smart enough to distinguish between signals, allowing users to share the airwaves without exclusive licensing.

And here, an explanation of what interference is, and why it's all relative:

“Interference” is thus highly contingent on real-world factors. Again, this shouldn’t be surprising. Put two television sets next to one another, and you may get a sharp picture on one but a fuzzy image on the other. The difference is that one set has a better tuner. Do we register “interference” when it shows up on one set, or both? Should the most poorly designed set define the requirements for everyone else? What if there is no set in the room but a hypothetical set with certain characteristics might experience a degraded picture there? Under current spectrum policy, such hypothetical “interference” prevents frequency sharing.

Whatever rules we set will influence behavior. If “interference” is defined with reference to a dumb receiver, vendors will try to save money and make receivers as dumb as possible. If, on the other hand, manufacturers have no guarantee of spectrum exclusivity, they will have the opposite incentive. They will build devices robust enough to deal with a variety of situations...

...and this is something I had know idea about: the sinking of the Titanic set the precedence for the laws that still regulate our spectrum. Imagine that...the fate of the Titanic had profound consequences for the telecommunications industry for almost a century!

Here he explains that all of the "science" that current spectrum regulation is based on is flat-out wrong, and we don't even know enough today to say how much we can really jam into the thing (though this question is mostly theoretical...the limit is definitely very high):

Nonetheless, the licensed spectrum model has been the dominant paradigm for so long that there is a surprising amount we simply don’t know about how radios work. For example, we don’t know as a theoretical matter what the maximum capacity is of a geographically defined system filled with randomly distributed radios.

We do know that many of our intuitions are wrong. Research has shown that many factors we believe should decrease the capacity of a system—adding more transmitters, creating more alternative paths for signals to travel, or putting receivers in motion, for example—can actually increase capacity. This occurs because the more data a smart receiver has about the surrounding environment, the better it can do in distinguishing the desired signal.

The commercial viability of any system using these techniques will depend on business conditions.

I'll stop there, because there's just so much in it to quote that I don't even know how to excerpt it all. But if there's one tech-related thing you read this year, it should be this. Let's just hope this guy's thoughts are actually borne out during Obama's presidency.

FCC frees (some of) the spectrum

Amidst the hullaballoo of the presidential election, it's easy to miss a piece of news that is potentially more important: the FCC has freed the "white space" of the electromagnetic spectrum for unlicensed use, à la wi-fi. The parts of the spectrum that they've released were formerly used for padding in between television stations and in niche wireless microphone devices, but advances in technology have allowed these pieces of the spectrum to be used without interfering with traditional broadcasts.

Like wi-fi, these portions of the spectrum will be free for all to use (I expect with some minor restrictions), and won't be monopolized like the current bandwidths used by cell phone carriers. But unlike wi-fi, these spectrum ranges allow signals to travel "two to three times farther than WiFi signals can today, including through obstacles." While this isn't far enough to allow potential carriers to set up a single antenna and serve a large area like with current cell phones, it is possible to have ubiquitous connection through the use of mesh networks.

It's difficult to know today exactly how these spectrum ranges will be used in the future, but it strikes hard at the heart of traditional cell phone carriers' business models, and has the potential to introduce desperately-needed competition into the wireless data industry. For past posts on the spectrum, check out the open spectrum archive.

Net neutrality and Wired's wishy-washy libertarianism

By most measures, the Internet is one of the most libertarian spheres of the economy. This is qualified by saying that this only applies to the non-wireless forms*, but nevertheless, internet access and content delivery are relatively competitive and free markets. Net neutrality advocates, however, are looking to change this, by forcing ISPs (this mostly applies to last-mile providers) to not discriminate with regards to bits – that is, allow all content through, and do not charge different prices for different content.

Though exaggerated, the fears of ISPs using non-neutral practices to throttle traffic are not unfounded – some ISPs have been filtering BitTorrent traffic in some way or another). But BitTorrent users and providers don't exactly have much clout, and so it cannot be that they are the only force behind the movement which has won the support of the soon-to-be president Obama. Valleywag believes that that huge ad company that also happens to have a search engine (Google) is in favor of the legislation because they believe that ISP's will eventually try to bite into its ad revenues by demanding more to move Google's bits around the Internet:

It's all about net neutrality. What's "net neutrality"? As far as we can tell, it's a bunch of rhetoric that amounts to regulations that affirm Google's God-given right to avoid giving Internet service providers a cut of advertising revenues. An Obama presidency would mean Google can save money on lobbying fees. Well, times are tough, and every penny counts. It's good to know that even the saintly Vint Cerf votes on pocketbook issues. He's the father of the Internet, and he approved this message.

What's interesting about net neutrality, though, is that it's incredibly popular among the internet literati, despite its anti-libertarian core. Wired magazine, which the cloud at Wikipedia says adheres to "strong libertarian principles," is unabashedly in favor of net neutrality legislation. In their Obama vs. McCain scorecard they award McCain a D for opposing net neutrality, and give Obama an A for supporting it. Interestingly enough, on their scorecard of five issues, they reward the libertarian position with good grades only twice (in the spectrum and H1B visas sections), while awarding good grades for statist positions on three other issues (broadband [read: broadband regulation/subsidization], investment in green tech, and net neutrality). They left out a bit one – intellectual property (where Wired favors of the libertarian approach) – though they slightly redeemed themselves by mentioning it a few days later.

When you think about it, it's kind of pathetic that Wired is supposedly the standard-bearer for techno-libertarians, when its editorial opinions on the hottest issues in technology of the day are split 50-50 between libertarian and statist. As an alternative for political ideas (Wired, despite its politics, is still an excellent source of tech/science news and analysis), may I suggest the inspiration for this post – the Technology Liberation Front blog, which bills itself as a "tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology."

*The electromagnetic spectrum, over which all wireless communication travels, can handle a lot, but for about a century the federal government has strictly controlled its use, creating spectacular inefficiencies and blocking out huge majorities of the spectrum to open uses à la wi-fi.

Is government really a better technology incubator than the private sector?

Wired has an article about a newly-launched commercial satellite, with the highest resolution of any commercial satellite: 41 cm (the lower the number, the better quality the image). Unfortunately, though, these images won't be available to Google (the exclusive commercial customer), or to anyone except government agencies. Dating back to the Cold War days, the federal government has prevented companies from offering commercial satellite imagery at anything near useful resolutions. However, as far as I can tell, it lifted some of these restrictions at some point "in the 1990's." According to the original Wired article, this seems to have ignited a great leap forward in commercial satellite imagery:

But only in recent years the technology became available to the public and businesses while concurrently making dramatic strides in coverage and resolution. For example, when Google Earth launched in 2004, its imagery was low-res and spotty. But by March 2006, a third of the world population could get a bird's-eye view of their own homes in high resolution.

But like I said, don't count on getting the 43 cm resolution that's available to government agencies – Google only gets pictures at resolutions of 50 or above. While this 7 cm differential isn't too big, it'll get bigger in a few years when the company is supposed to launch a satellite that can take pictures at a resolution of 25 cm, which of course will only be available to the government. And though I couldn't find any figures from recent years (as it's still a classified national security matter), it seems that as far back as the late '90s, the private Federation of American Scientists estimated the US government's resolution capacity to be 10 cm, and even better if they dip the satellite down closer to earth.

And this isn't the only case where government technical expertise runs laps ahead of the private sector. The Wired article quotes a backer of the project noting that hi-res satellite imagery is part of this longer tradition, "[j]ust like the internet, just like GPS, just like telecom." And indeed, this has become a popular meme these days: in the second presidential debate, Obama claimed that one of the reasons that the government needs to intervene in the green energy market is that government intervention has in the past has produced the beginnings of the most profound technological developments of the century. But why? Well, in the case of wartime inventions (which is what Obama references), a lot of it can be attributed to a crowding-out effect: as we still see today, government jobs often pay more than the private sector for technology jobs, and thus their presence will dampen entrepreneurship in the private sector.

But also, the government can do something even more pernicious: outright ban private sector development of a certain technology. This is what clearly happened in the case of hi-res satellite imagery, and which also happened in the same way with GPS. GPS was outright banned for public consumption in the US until the early '80s, and even then, was only available at the relatively useless accuracy of 400 feet. It wasn't until 2000 when Clinton (seemingly unilaterally?) ended the signal degradation and allowed the civilian GPS market to flourish, though it's unclear if today the military has better capability because they invest more in it, or because they restrict/degrade the civilian signal.

And the last category that the satellite company representative mentions – "telecom" – has had similar restrictions on its adoption. As Tim Wu explains in a NYT op-ed, wireless adoption (the next exciting frontier in telecommunications) is hampered by government policies which restrict access to the bandwidth over which wireless signals of all kind are carried:

After physical wires, the other major way to move information is through the airwaves, a natural resource with enormous potential. But that potential is untapped because of a false scarcity created by bad government policy.

Our current approach is a command and control system dating from the 1920s. The federal government dictates exactly what licensees of the airwaves may do with their part of the spectrum. These Soviet-style rules create waste that is worthy of Brezhnev.

Many “owners” of spectrum either hardly use the stuff or use it in highly inefficient ways. At any given moment, more than 90 percent of the nation’s airwaves are empty.

The solution is to relax the overregulation of the airwaves and allow use of the wasted spaces. Anyone, so long as he or she complies with a few basic rules to avoid interference, could try to build a better Wi-Fi and become a broadband billionaire. These wireless entrepreneurs could one day liberate us from wires, cables and rising prices.

Just something to think about when someone tries to tell you that only the government can make the investment necessary for innovative technologies like satellites, computers, or the internet. The private market, either due to outright restrictions or the siphoning away of talent by the federal government, is often not given the chance.

Why are cell phones so ugly?

I've been saying this since before the iPhone came out: cell phone software is ugly! And I can't help but think that plenty of other people had that same thought. So the question is, why did the market develop better interfaces sooner? My instinct is to look for market perversions, and sure enough, in the cell phone business, you find the mother lode: regulated spectrum. The FCC doles out pieces of the spectrum, artificially limiting something that – with technology – can be infinitely divisible. This limits competition in cellular service, and the hardly-competing oligopolies can get consumers to buy phones bundled with service plans (long service plans at that). In a competitive market, retailers don't bundle, because customers are extremely discerning with regards to price. So, it's probably just a spillover effect from the cartelized broadcast spectrum. The alternative would be an open spectrum, usable for all (or almost all, depending on who you talk to).

Anarchy on the airwaves

Google has recently launced a campaign to lobby the FCC to free up radio spectrum currently used as whitespace between channels. The main opponents of the move seem to be high-end audio equipment manufacturers, who say that interference would be much more common and difficult to deal with if the space were free to be used by any device.

Ultimately, though, the problem is not insurmountable – technological solutions do exist:

Meanwhile, companies are preparing for the worst. For instance, Lectrosonics is now offering a wider range of frequencies for its wireless microphones.

Until last year, the company's wireless microphones spanned a range of 537 MHz to 768 MHz. Now that a part of that band has been auctioned off, the company has reworked its devices to operate in the 470 MHz to 691 MHz spectrum. It has also added another band, the 944 MHz to 952 MHz spectrum, to the mix.

Those changes haven’t been easy. Over the course of a year, Lectrosonics reallocated engineering resources and spent "several thousand dollars" getting each new product certified by the FCC.

"We have a limited amount of engineering resources and there are hard costs such as FCC licenses that we have had to get," says Winkler.

It's interesting how one of the big costs – FCC licenses – are not reflective of inherent technological issues, but rather the bureaucratic process for allocating spectrum.

Of course, the spectrum itself has no hard limit on use, and can theoretically be divided infinitely. Someone at Intel rebuts broadcasters' claims that allowing the whitespace between channels to be used would damage reception of existing channels by pointing out that the aforementioned audio devices already use the spectrum in question (though broadcasters obviously have bigger reasons to fear competition). The infinite divisibility argument and the idea that individuals can successfully defend their airspace using technology without resorting to top-down allocation are the rationales behind the open spectrum movement.

Google has reason to advocate such a policy, since they are very strong on content but are choked by the monopoly on wireless delivery in America and abroad. Obviously they believe that small amounts of the existing bandwidth, if left free to anyone to use, could be successfully developed and eventually used by Google to push content to consumers while bypassing the traditional wireless gatekeepers. Many hardware companies supports open spectrum, as increasing the ubiquity of wireless communications would increase demand for wireless devices and software.

The revolution will not be broadcast on satellite radio

It looks like the Sirius and XM satellite radio merger will go forward, but not before some representatives hold the deal hostage so that they can steer some business towards a favored private-equity firm. Apparently the new über-station will not be black enough:

Members of the black caucus on Capitol Hill have been arguing for the merged company to lease five times that amount of spectrum to companies owned by racial minorities. Short of that, caucus members have warned in letters to the commission and meetings with Martin, they would oppose the merger.

In an interview yesterday, Rep. G.K. Butterfield (D-N.C.), chairman of the Congressional Black Caucus's working group on satellite radio, called Martin's proposed compromise "completely unacceptable."

The article doesn't really explain why, however, these esteemed black members of our illustrious legislative branch of government are all of the sudden so worried – is part of the merger a plan to fire all of the black DJs? Why is the situation right now tenable, but if they merge, it will not be? But anyway, I digress. The most shocking party is how blithely Butterfield admits that he's engaging in blatant rent-seeking on behalf of a "minority-run" firm:

Butterfield said he got the idea for the 20 percent set-aside for minority-owned companies from Georgetown Partners, a minority-run private-equity firm based in Bethesda, and its managing director, Chester Davenport.

But wait – it gets better! Despite the fact that "he hoped Georgetown Partners would fill that role" (i.e., the 20% stake set aside for minority-owned companies), "Butterfield said he was not pressing for the 20 percent leasing arrangement on behalf of Georgetown Partners or anyone else." Yeah right.

...by the way, I should add that I think that all discussion of dividing the bandwidth is pretty ridiculous in the first place. The FCC came into being to divide up the spectrum and stop anyone from interfering with anyone else's transmission. However since then, we've gained a more nuanced view of the spectrum, and it's now generally understood that it can be infinitely divided. Technology that can better parse out the individual signals is already available and would be developed at a much faster pace if the government were to relinquish control of the airwaves. That's the theory behind the open spectrum movement, which I've talked about before.

Open spectrum

In light of the recent end of the FCC's latest spectrum auction, I think it's a good idea to examine the idea of spectrum licensing and the FCC. Currently, the FCC divides up the spectrum between technologies and companies, using its technocratic expertise as a guide. Some of it is unlicensed – like baby monitors and Wi-Fi – but appliances using it must still adhere to certain specifications, intended to eliminate interference. But is this even necessary? Some people think not. Open spectrum backers (including techno-libertarian Larry Lessig) argue that "interference" is all relative, and is not an issue (or would not be an issue with the proper competitive pressures) with technology that can separate the data from the noise. They argue not just for an increase in unlicensed spectrum – which is still subject to government interference – but a complete liberalization of the airwaves.

It might strike some as communistic, since we generally think of the airwaves as a good, and naturally market liberals would want these to be in private hands. However, they are not any old good – they're infinitely divisible, utterly non-excludable, and pretty damn indefensible – unless you have the power of the state. Without a government, it's hard to imagine any sort of collective agreement being made – more likely is that each firm would work individually to project and protect their data stream. In my mind, it's a similar situation to that of intellectual property – we've attached this label of "property" to these things and have neglected the important differences between these goods and traditional physical goods.

And when you think about all the airwaves as fundamentally planned by government, it raises questions as to how truly "natural" our information and entertainment habits really are.