Spectrum is an invisible, finite resource that’s been regulated since the Radio Act of 1912 and is central to our digital ecosystems. But given the rate of evolution within the technological sector, these regulations, which were built for the communications tools of many decades ago, need to be revisited. There is a better understanding among policymakers that we can use this finite resource more efficiently if we update the regulatory boundaries around spectrum uses and the regulations that bind them. While the tangled legacy system we have today may not be the best way to regulate an increasingly wireless economy, many thinkers are working to shape the future of spectrum regulation, including our most recent guest on Explain to Shane.

Shane is joined by Thomas Hazlett, the H. H. Macaulay Endowed Professor of Economics and director of the Information Economy Project at Clemson University. He is the former chief economist at the Federal Communications Commission and author of the best-selling book The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone (2017). He is a leading voice in telecommunications, media, and the internet, and has been recognized as such for many decades.

Below is a lightly edited and abridged transcript of our discussion. You can listen to this and other episodes of Explain to Shane on AEI.org and subscribe via your preferred listening platform. If you enjoyed this episode, leave us a review, and tell your friends and colleagues to tune in.

Shane Tews: When you were the chief economist at the FCC, you seemed convinced that the existing system wasn’t working. What was it that was really frustrating for you there?
Thomas Hazlett: Well it’s not really a state secret that there are lots of problems with radio spectrum allocation. If you read the history of the United States as written by regulators, we’ve had regulators since, in fact, before the 1927 Radio Act because the Department of Commerce had some jurisdiction early on. The regulators themselves are telling you what problems they have, what challenges they face and how difficult some of the disputes are that they have to manage. But we’ve had a reasonable amount of success over time as demonstrated from the wireless age in which we’re growing up in. And just think about our students at the university now who were born in the 2000s, born in the 2000s, they were born into a wireless age where in fact the phone on the ear is the normal way of comportment. It’s not some kind of mysterious or mystic communication system.

There is amazing new stuff that’s gotten into the world. We have entire wireless ecosystems now that have more than a million apps at the Apple Store, more than two million apps at Google Play. We’re able to do all kinds of things in ways that we never imagined. We have whole industries like ride sharing that could not exist, did not exist before the smartphone with wireless communications.

So, we’re often running on this experiment now, they say 125 years old or so, but we’re still grappling with the conflicts that arise. And in fact, the conflicts with better technologies and more creative, entrepreneurial ideas for how to use the signals that go through space, we’re constantly pressed to have more conflicts and to resolve more disputes because the value that customers are getting from a resource that becomes scarce when there are more people who want to use it than there exists of the resource at a price of zero. The price is important, but as long as you’ve got that condition for economic scarcity, you’re going to have conflicts.

What is it we need to be looking at back towards the FCC for that would be a huge change to the current incumbent way that we use spectrum?
There’s a lot of regulation going on. Some of it’s technical. Some of it’s actually regulating content, which has nothing directly to do with conflicts in radio space, just has to do with political preferences of the regulators. And they impose things like the equal time rule or fairness doctrine, and have public interest standards for issuing licenses to companies that then have permission to create a television station according to the FCC rules. At any rate, the FCC has, what you might say, centrally planned the television market. They put down all the basic rules, but they have used private industry and private enterprise and some of the incentives of a capitalist system to assign station licenses to private companies, and those private companies now do compete with TV shows and other programming to make profits. So, it’s a mixed system. The United States was sort of unique in having a system that did depend so much on private industry. The British Broadcasting Corporation, like state monopolies in almost all other advanced countries with television, actually let the government do all of the programming and all of the operations. So, the US was a mixed system, and that was sort of cutting edge, pro-competition, liberal. And it was unique.

At any rate, the FCC as the regulator puts out this map for where the stations go and how much spectrum is allocated to television. We set aside actually 81 over-the-air channels. And as some of us remember, that was way more than the actual number of stations any of us were ever treated to in a competitive environment. Even if we grew up in Los Angeles, as did I, we had no more than about seven or eight channels to choose from over the air. That’s all that could survive in the market environment once the FCC had put out all of these TV stations. Of course, most of the TV channels were never assigned actual stations. They were set aside to make it easy not to get interference between the stations. So, most of it was just blank space. And this goes on for decades that this is all we have.

Are we starting to cure the lag in the difference between the technology and the use of the spectrum?
Well, yes and no. The problem we have is there’s still a lot of what the FCC, fortunately, refers to—mockingly—as command and control. It now says, “Oh, we’re into flexibility. We’re into delegating decisions about technology in the market because we don’t want to stop the march of science.” We have done that. We’ve documented it’s been too long. The delays and the lags have been oppressive. We’re on the cutting edge now, and we’re going to let everything get to market. But in fact, when it comes to allocating new airwave rights, immediately there’s a political opportunity or challenge, however you look at it, set up because there are interests that would be happy for the FCC to adopt their plan and would be financially rewarded for it.

And so there are all kinds of trade-offs that the commission is being told to make on behalf of particular technologies or services that are popular. So, when the government gets to plan, “Oh, are we going to have mobile services here? Are we going to have Wi-Fi services here? Are we going to have space-based services here?” they’re making judgments that, I say this collectively, we’d all rather have the market making, all except those regulators who get to be in the loop on important billion-dollar choices and for some vested interest that might get those decisions in their favor. There’s a very small part of the world that really is advantaged by that, I’d call, obsolete regulatory system. But the great majority of the regulators themselves see this opening as an opportunity to do more, even if they haven’t taken it to the final steps all the way to reallocating.

There have been discussions on overlay licenses, which are central to your work, and you are widely recognized as one of the few experts who have thought really deeply about this and written extensively on it. So, walk us through what an overlay license is, because it sounds like it’s a whole other level of bringing market forces into play.
It is. And, you know, I have to be honest about it. It was an idea I had thought about, but the real convincing and, in fact, the elaboration of the idea came from the Federal Communications Commission, from regulators who were facing a problem and had to solve it. And the problem was very similar to the regulatory problem I’ve just described in television, where you had a big, very potentially productive band of airwaves that could be doing a lot more for the world than just over-the-air television. And you could have squeezed those broadcasts into a much smaller space, made much more productive use of the spectrum. But the incumbent TV station owners were very clear and very influential in the political process, so they did not want to give up what they called their spectrum.

Well, the problem was it wasn’t their spectrum. They couldn’t literally go out of the television business and open up a wireless telephone company using the airwaves allocated their license. That could only be the decision of the regulator. And so for decades, this delay, this new technology could not get in there because of the scattered way we had sort of given out some of the access rights to licensees and the difficult political path in front of regulators to try to put Humpty Dumpty back together again.