Do you teach entrepreneurship? Click here to find out how to get free copies of Unleash Your Inner Company for your class.

Wireless Spectrum and Fossil Fuels: “Scarce” Resources that Keep Proliferating

Cover Image for Wireless Spectrum and Fossil Fuels: “Scarce” Resources that Keep Proliferating

What do oil, natural gas, and radio spectrum capacity have in common? All three were predicted in recent years to run out. But all three have kept growing thanks to continuous innovation.

Wireless Spectrum Capacity

Technology Review notes this month that just two years ago, the US FCC chairman and AT&T execs saw a crisis: wireless was running out of spectrum. Think sports events and stadium concerts where thousands of fans snap photos, record videos, and email or text them. But to the rescue came short-range WiFi stations, operating on unlicensed parts of the radio spectrum, which enabled much of that traffic to move over high-capacity land lines, completely bypassing the precious wireless spectrum. Further coming to the rescue: smart new devices that sense available frequencies and shift between them to avoid interfering with other devices (see, for example, Cognitive Radio). AT&T now acknowledges that the crisis never happened.

Ironically, bandwidth scarcity is created – artificially – by the very FCC policies that were designed to allocate it most efficiently. Airwaves reserved for TV stations and federal agencies often go unused, according to Tech Review. Fixed allocations cannot keep up with innovation, and no one can predict what innovation will enable. According to a 2007 report of the International Telecommunication Union and the World Bank, “…past and current regulatory practices have delayed the introduction and growth of beneficial technologies and services or have artificially increased costs. As a result, there is a renewed emphasis on … more light-handed market-based regulation.” Microsoft’s Spectrum Observatory monitors which frequencies are being wasted by such regulations. Among their goals is extending the success of unregulated short-range WiFi to wider-area broadband parts of the spectrum.

Oil and Natural Gas

Similarly, as recently as 2010, the U.S. military warned of massive oil shortages by 2015 (see here, for example). Somehow their intelligence missed hydraulic fracturing (fracking) and horizontal drilling of shale, which in recent years have opened up many previously unprofitable oil and gas reserves. As a result, shale went from 1% of US natural gas in 2000 to 25% in 2011, according to the National Center for Public Policy Research. North Dakota has gone from being a minor producer of oil to second only to Texas, surpassing Alaska. The US is now expected to halve its reliance on Middle East oil by the end of this decade and could end it completely by 2035, some analysts say.

These game-changing innovations in both radio spectrum capacity and oil and natural gas production have occurred in relatively unregulated segments of their respective industries. In the case of wireless, the innovations are in unlicensed parts of the spectrum and in the devices themselves. In oil and gas, fracking is regulated primarily by states, who can be sensitive to intra-state variations in geology and hydrology of shale formations; less so, thankfully, by the EPA.

Both FCC and US military predictions proved very wrong very quickly. Their fault is in trying to do the impossible: make predictions about complex innovative, technology-based market environments in the first place. Similar are Federal Reserve models of market perceptions of the riskiness of US debt as a function of amount of debt outstanding. Factors that are imperceptible in such complex technological and economic environments today can lead to huge differences in outcomes tomorrow. The boundaries of what we can predict in such environments are much narrower than generally thought. Better that we recognize this and avoid policies that depend upon predictions that we cannot meaningfully make.