If the FCC had never existed

Much of the tech media is thinking about the problem of wireless spectrum in the wrong way.  It is helpful to think about why the commission was created, and the problems that have been created in the market by its existence.

The FCC/FRC was created in response to complaints by large national carriers that smaller regional broadcasters of dubious quality were broadcasting on all available frequencies with such power that the national broadcasters couldn’t get a clear signal through. 

The government at the time thought it would be a good idea to control the broadcast frequencies so that they would have spectrum available for use with military equipment  domestically. 

So a deal of sorts was struck where in return for being regulated, national broadcasters would receive a monopoly on broadcast licenses.  This would later cause the breakup of these same broadcasters.

The spectrum was allocated by frequency with buffer zones between blocks.  Power output limits were also part of the regulation package, without which, the allocated frequency blocks would have been useless.  This represented a modern and efficient set of controls based on the technology of the era.

Skip ahead a hundred years and see what has happened.  The technology has improved, the regulatory framework is obviated by the technology. However, since we have an intruder in the market preventing normal forces from solving the problem, the same companies who were given the monopoly control which innovations consumers are allowed to buy.  These same companies set, fix prices, and collude to gouge both content companies and consumers to the tune of ridiculous profits.

Let’s spin back to the past and examine what would likely have happened if the FRC and subsequently the FCC had never been created.

In the late thirties, the first experiments with digital technology were beginning to be performed. At the same time, content companies were beginning to have difficulty broadcasting because of band saturation on radio and later television frequencies.

The war had and was driving incredible advances in communications technology, including experiments with digital broadcast technology.

What Bell would have done was to seek profit from all of the major broadcasters of the era. They would have said, “hey, we have this cool way of using digital transmission to allow us to send tremendous amounts of data from different sources to different destinations through the same frequency using codes to distinguish one broadcaster from another. Why don’t you all pay us a small fee to register yourselves with us, and we’ll build a network of general broadcast / receivers throughout the country.  We’ll use more frequencies as necessary, but since we can pack you in, we will always have plenty.”

This didn’t happen for many reasons, and has its own problems, but what would happen next would have been the rapid rise of bundlers.  Companies whose job it was to use the spectrum they chose as efficiently as possible to maximize their own profit. It would have sped the pace of innovation and prevented the mess we have now.

Eventually the government would have stepped in and mandated that these bundlers reserve spectrum for military and government use. The bundlers would have complied.

Fast-forward this system to today.  We would have hundreds of free market companies competing for the most efficient use of spectrum, with AT&T, T-Mobile, and hundreds if not thousands of competing Telecom and internet providers.  The barrier to entry for these providers would be very low since they would just need to pay the bundler of their choice which best suited their needs.

These bundlers would have built powerful networks of broadcast / receivers everywhere, on roadsides, inside buildings, etc.  There would be no lack of spectrum, and no need for excessive, heavy-handed regulation, as each advance in technology would allow the bundlers to use ever less spectrum and sell both the technology and license their spectrum to even more bundlers.

This didn’t happen, so where do we go from here?  There are few places where it is so obvious that regulatory interference has caused irrational behavior in the market as in wireless.  The FCC should embrace digital technology and require broadcasters to form independent corporations to act as the bundlers that I described.  These bundlers would manage the infrastructure for the broadcasters with the broadcasters riding on them.  Once the system was in place, the licensing system would be replaced by power output limits, and the FCC would assume a greatly reduced role.

There are many flaws to my proposal, but we have to get the FCC out of the spectrum licensing business.  Technology is sufficiently advanced that we do not need this frequency based system. It is causing more harm than good.  We need to let the market work to provide better access to everyone.  It is critical that the barriers to entry for wireless carriers to be lowered if we want real competition and innovation in wireless going forward.

Google Should Voluntarily Break Itself Up AT&T Style

When Google added world plus social, at first I didn’t think there was much of a problem. I understood that since Twitter and Facebook limit the ways in which Google interacted with them, it wasn’t really possible for Google to offer truly social search. This cabal between Facebook and Twitter is quite obviously hugely damaging to Google’s future interests as a company. So I also supported the need for Google Plus.

However, as I have been thinking about it, most companies in the past have gotten into trouble, become anti-competitive, or foes of the free market under the banner of simply looking out for their business interests in responding to a threat. Inside most potential monopolies, the issue that crops up after smashing a formidable challenge is when to stop.

Google is promoting G+ as the bulk of its social search, G+ is completely unavoidable as you are using the search engine. This puts Facebook and Twitter at something of a disadvantage. They also promote YouTube in a similar in-your-face manner, putting Vimeo and other web video companies at a disadvantage.

It isn’t hard to imagine a world in which startups don’t even look at web video because YouTube is un-assailable. Similarly one could imagine, though it is more of a stretch, that eventually Facebook and Twitter would whither and die at the hands of Google Plus since there is really only one search engine, and the entire world uses it. That world would be ridiculously anti-competitive, and no one, including Google really wants to see that.

I believe that if Google had had its just desserts, Facebook and twitter would have given it unfettered access to their data, and Google Plus would have been unnecessary. But since they didn’t G+ is more than beneficial for Google’s survival, it is essential. The same thing could be said about YouTube and Google Music in the face of iTunes.

One could argue as well that Google hasn’t been very effective of late at controlling what is going on within the company. Clearly there is a massive amount of resource contention, and a general challenge in keeping everyone on the same page, and playing for the same team. In addition, there is the kind of limited thinking that prevents the company from disrupting its own business units. Microsoft had(has) this problem, so did IBM, and so did AT&T.

AT&T, however operated like a well oiled machine, they had no problem crushing all competition and effectively responding to all challengers. Google is just as innovative as AT&T used to be, they will similarly get through their management issues, in fact I think they are very near this point. Google getting through their effectiveness issues however, is exactly what bothers me; Once they become as effective as AT&T used to be, isn’t that where the government steps in?

So what I propose instead is that Google break itself into separate businesses voluntarily. One of the main rules of business today is never to let a competitor, or government, disrupt you. It is better, and more profitable to disrupt yourself. I would suggest to Google, for this reason, that now is a good time to do it.

I would imagine that Google would become 5 corporations, split along the lines of social, media, search, mobile, and advertising. This would see Google Plus, Reader, Gmail, Google Talk and Google Docs become the Google Social business. Google docs may initially seem like a strange product to call social, but the purpose of Google Docs is to collaborate on work. That is pretty social as far as I’m concerned, in fact, it is probably the most social that people are in general.

The media business would consist of YouTube, Google Music, Google TV, and the nascent Google Games. The search business is self explanatory. Mobile would be Android, but also Motorola with the new purchase. And Google advertising would be their display, print, and television advertising business. Each company could retain a small portion of ownership of the other company that it was dependent upon. For example, Google media might maintain a 5% to 10% stake in Google social such that they can be sure that their requests are heard and honored. All of the business would have a small share of the advertising business, but the total should not add up to more than 40% so that the advertising business could remain autonomous.

The resulting companies would end up becoming far more competitive and profitable than their corresponding business units, due primarily to the need for providing open APIs to the other businesses that need their services. In the process, these businesses would make these APIs available to other startups who could build off of Google’s services as a platform, driving further profitability and end user lock in.

This would in turn surround their competitors, who are still just a simple silo, and who would begin to run into anti-trust concerns themselves. The now ridiculously nimble Google, which could be known as the Googles, would have them surrounded.

As a single entity Google is vulnerable to the same diseases which have, in the past, felled their erstwhile competitors. As multiple independent profitable companies, the Googles could remain dominant for decades. This would be better for the industry as a whole because each Google business with public APIs would provide a platform for numerous job creating profitable startups. C’mon Google, do what is right for the market, and for your business. Don’t wait for the DOJ to hold a gun to your head like AT&T. Even with the government forcing the issue with AT&T, being broken into the baby bells seems to have worked out pretty well for them.