Government’s Indispensable Role in the Mobile Phone Industry’s Explosive Growth

2931262187_c2c3237db1_oThis post was contributed by Michael Breen, an energy industry executive.

You like your mobile phone, don’t you? In fact, many of you are probably reading this post on your smart phone.

The amazing device you hold in your hand is equal parts phone, record player, newspaper, television, wallet, email tool and more, all wrapped up into a single astonishing entity. The only reason that these devices became a ubiquitous reality is because telecommunications companies, such as Verizon and Sprint, were confident enough to invest billions of dollars in erecting more than 200,000 cellular towers across the country. (There were just 900 in 1985). A key reason these companies felt secure with their outlays is the indispensable role of the federal government in the process.

What role did the federal government play? Through the Federal Communications Commission, which was created by the Communications Act of 1934, the federal government helped provide assurances that the investments of the telecom industry would eventually be recouped.

The FCC may be most famous in the public eye for trying to keep inappropriate content off the airwaves. You’ll recall the FCC attempted to fine CBS more than half a million dollars for Janet Jackson’s wardrobe malfunction during Super Bowl XXXVIII. Eminem also had his run-ins with the commission, which the rapper commemorated in “Without Me”: “So the FCC won’t let me be, or let me be me…”

But one of the key purposes of the FCC is to support “the nation’s economy by ensuring an appropriate competitive framework for the unfolding of the communications revolution,” as the commission says on its website. Essentially, the FCC auctions off slices of bandwidth to businesses to ensure efficient growth of the communications industry.

The FCC’s role in this process began in the 1930s, at the dawn of the radio and electronic media age. In that era, the federal government established a policy of allocating and selling frequency to telecommunications companies in slices. This process helped ensure that the buyers of frequency bands would be able to successfully turn their investment into profits.

This concept of “selling” parts of the radio frequency may be difficult to conceptualize, but it is fair to think of these bands of radio frequency as lanes in a highway. Just like the highway system with concrete roads and steel bridges, this frequency superhighway, with clearly marked lanes, is just as important to our economy and our society.  The first legislation for spectrum licenses was passed in 1910 and then put into action in the 1934 Communications Act. This is an excellent example of good government in action.

In 1934, before the cell phone was even imagined, the radio and television industries required an organizing framework to ensure their broadcasts would not be interfered with by another company with a higher-powered broadcast. Radio and TV, which were transformational technology of their time, needed the airwaves to be organized and sold as property. Just as a homeowner needs to know she owns a piece of property before spending the money to build a home on it, the communications industry needed to be confident that it owned the airwaves, before investing in programming. Additionally, manufacturers of radios and televisions needed to build their equipment with tuners that matched the frequencies being broadcast.

In the beginning, the FCC allocated 13 channels in the VHF (Very High Frequency) range for use by commercial TV stations. The building out of broadcasting equipment required tremendous amounts of capital. That investment would not have happened if the US government had not acted to protect the broadcast frequency licenses.

As originally implemented, the radio frequency was recognized a natural resource of the United States, and with the licenses came the responsibility to deliver value to the public good. The same concept has now been transferred to the electromagnetic spectrum auctions for cellular communications. Over the years there has been more than 100 separate auction of licenses. Undisputed sources of the revenue generation, these auctions are also an unqualified necessity. In 2015 alone, telecommunication companies spent $44.9 billion in wireless spectrum auctions.

Without the organizing principles of the frequency allocation, no business like Verizon or Sprint would have ever invested the capital required to deploy a nationwide system. And if there’s no nationwide system, there’s no iPhone 7 in your hand.

(Note that we didn’t even delve into the role of federally funded research in the rise of digital and mobile technology. Watch this blog for a future post on that subject).

Photo: Nikhil Verma

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