The Department of Defense is currently hoarding a significant portion of the mid-band spectrum that is vital to further developing existing private 5G networks in the United States. In order to connect Americans faster and more efficiently, the Federal Communications Commission (FCC) is attempting to auction off this mid-band spectrum to the private sector to support the successful growth of networks with foundational operations across the country.
But this approach may be in jeopardy. The Department of Defense (DOD) recently put out a request for information (RFI) that alarmingly alludes to the idea that the DOD will own a government-run 5G network. This would lead to the DOD contracting out a private company to create both the mid-band spectrum-sharing technology and a new network for the DOD to control.
By creating a nationalized 5G network and not auctioning spectrum to successful private companies already years into 5G development, the Department of Defense would cost taxpayers billions of dollars, slow down 5G development, and put the U.S. behind China in the race for 5G.
Increased Cost to Taxpayers
Building 5G networks to reach over 330 million Americans is not a cheap endeavor. Since 1996, combined private and public (taxpayer) investment in building the nation’s wireless network has equaled $1.7 trillion and another $300 billion in total would be needed to finish building out 5G networks.
Currently, the private sector receives private capital funds and loans to build the network. The idea of a government-backed network entering the mix with zero cost of capital and no profit incentive makes parties funding the private sector, including banks, nervous.
Entering a deal with a private company that is competing with the federal government becomes risky and potentially decreases banks’ willingness to lend these companies money. Such increased risk forces banks to hike up fees and interest rates as they hedge against future risk. This leaves the private sector spending more money on interest payments instead of spending that money on product and infrastructure development. Ultimately, if the federal government really wishes to create a nationalized 5G network, it will not only affect the retail market but the capital market as well.
Furthermore, creating a government-owned 5G network would remove commercialized development’s significant economic opportunity. Through a free-market approach, the race to 4G boosted U.S. gross domestic product (GDP) by nearly $100 billion, created an 84 percent increase in wireless-related jobs, and brought business to the U.S. as the global hub for app development.
Through that same free-market approach, private 5G development could give the U.S. economy a predicted three million jobs, $275 billion in additional investment, and $500 billion in GDP. Although a nationalized network could also generate employment opportunities, there would be significant delays based on the years the DOD would take to create a sustainable strategy for 5G development, likely delaying both hiring and international investment.
A free-market approach to 5G development would also reward innovation with higher profits and more opportunities for different markets to reach new customers. Without competition, there is less incentive to develop and push for product innovation because there are fewer rewards for success.
Maintaining control over mid-band spectrum with a national 5G network and contracting out services to one private contractor to create shared spectrum use would ultimately take away from multiple companies that are primed to offer 5G services. Four major private providers already offer, or will soon be offering, 5G services in at least 135 cities across the country. Instead of “experimenting” with creating this new entity, the U.S. should auction off this spectrum to private industry, which already has the necessary infrastructure and resources to make these mid-band spectrum allocations flourish.
As showcased by a recent University of Pennsylvania Law School Center for Technology report, the telecommunication industry needs competition. Their report analyzed local governments who created their own municipal broadband via fiber to the home (FTTH) and defaulted on their municipal fiber network debts or faced bond rating downgrades. Their findings show there are real financial risks in operating a broadband utility and the private sector bears those risks better than taxpayers. The same should be said of 5G networks.
A government-owned 5G network would undermine auction-based competition for spectrum licenses, delivering little incentive for innovation or excellence. Without the risk of financial failure, a nationalized 5G path would discourage the efficient use of the spectrum.
Efficiency and Innovation
Currently, the U.S. has the most successful auctioning model in the world—so much so, that Finland, India, Canada, Norway, Poland, Spain, the United Kingdom, Sweden, and Germany have followed America’s lead.
The U.S. generated $120 billion from 1994 to 2014 using this auctioning spectrum model. Emphasizing this model’s success, the FCC’s first 5G spectrum auctions on the 24 GHz and 28 GHz bands raised more than $2.7 billion in gross bids, and the upper 37 GHz, 39 GHz, and 47 GHz bands made over $7.5 billion in net bids. The U.S. has every tool to create an even more successful 5G spectrum auction moving forward with the help of telecommunication auction modeling created by recent Nobel Prize winners Paul Milgrom and Robert Wilson.
The potential for the highly sought-after mid-spectrum that the DOD holds is billions of dollars more than the U.S. government could seriously utilize. Beyond this obvious economic potential, an auctioning approach also saves the United States from the possible legal ramifications of a government-owned 5G network that leases out its spectrum.
Currently, two U.S. government agencies target 5G development: the National Telecommunications and Information Administration (NTIA) in charge of the federal spectrum and the FCC in charge of the commercial spectrum, spectrum management, and state and local public safety spectrum.
If the DOD were to lease its government-owned spectrum to the private sector it would create a governing overlap with these agencies and create statutory complications. As it stands, the DOD lacks the statutory authority to manage leased spectrum and would need to rectify at least two statutory complications:
- The Miscellaneous Receipts Act precludes federal agencies from collecting and spending money as they see fit. Money should be deposited with the U.S. Treasury and allocated by Congress. If the DOD leased out spectrum to commercial companies to help build its nationalized 5G network, it could not legally administer the revenue.
- The Antideficiency Act prohibits federal agencies from spending money outside what Congress has authorized.
Therefore, leasing out the spectrum would likely spark many court cases.
Not only is DOD’s nationalized 5G network a poor concept, but it begs the question of why the DOD needs so much spectrum. Analysts believe that this spectrum is being used predominantly for aircraft and intelligence operations, which are typically carried out internationally and not domestically. Although there are considerations for domestic bandwidth for things like defense measures against terrorist attacks similar to 9/11, the DOD is still sitting on billions of dollars’ worth of unaccounted-for spectrum. This makes evaluating auction-based spectrum reallocation versus leasing virtually impossible.
Moreover, why does DOD need a 5G network across every inch of the U.S.?
Instead of hoarding spectrum for possible future uses and technologies that have not been developed, the DOD should give the private sector the opportunity to grow technologies that are already developing. Additionally, the DOD should better utilize time spent on exploring a project outside its current statutory authority by leading cybersecurity policy efforts. Such tools would protect commercial 5G networks from potential outside cyber-attacks and connect the U.S. network faster.
Around the world, nationalized 5G network models have failed.
To build out long-term evolution (LTE) broadband, Russia allocated spectrum through a wholesale model to the company Yota in 2010. Other service providers were to go through Yota to offer services to civilians and the public sector. Similar to the DOD’s target model, Yota was the sole contractor for these services and ultimately failed, harming not only connectivity for the Russian people, but also for the public sector as a whole.
Similarly, South Africa attempted a comparable model to build out its broadband and also failed in the deployment of services.
The DOD should stop exploring a nationalized 5G network and instead create a well-coordinated national 5G policy. Originally, the spectrum’s allocation provided enough development of the spectrum to serve everyone. However, with more recent technologies using up different spectrum waves, from radios to television carriers to cellphones, and now 5G connection, commercial development requires more room.
The DOD’s 5G network proposal does not address the FCC or the NTIA, who must be engaged, as they actively allocate and manage spectrum. Right now the FCC has a clear plan—Facilitate America’s Superiority in 5G Technology (the 5G FAST Plan)—to open up mid-band spectrum for commercial use. The 5G FAST Plan also seeks to update infrastructure policy and modernize outdated regulations. By creating a nationalized 5G network instead of reallocating mid-band through an auction, the DOD would inhibit marketplace ventures from best utilizing the valuable mid-band spectrum and would directly contradict these already developed policies.
International Concerns
Another serious concern is what a nationalized 5G network would do to our diplomatic reputation internationally. As the global free-market leader, the U.S. leads the promotion of decentralized policies among international counterparts in the International Telecommunication Union (ITU). If the U.S. were to create a nationalized, centralized 5G network, it would directly contradict every policy angle it has promoted among other nations, costing us credibility and global authority as a 5G development leader.
Without consistent U.S. advocacy at the ITU and exemplary leadership in decentralized free-market telecommunication strategy, China’s nationalized 5G networks may look more appealing and could endanger other countries.
The Chinese Belt and Road Initiative (BRI) is currently an increasingly successful global infrastructure development project that wishes to build a “digital silk road.” The BRI brings exposure to Chinese government-backed companies like Huawei that may infiltrate smaller international markets. Huawei is deemed a security threat to the U.S. government and other technical leading countries globally. Its close ties to the Chinese government allow it to be a tool of possible espionage. If U.S. companies are not given the chance to grow on U.S. soil and eventually develop further as 5G providers, Huawei will be a major supplier in other less-connected nations. This would be devastating for smaller countries because the Chinese will have access to their data and intellectual property. It would also be hugely problematic for American companies because business would be virtually impossible to conduct with other countries whose networks are vulnerable to security threats.
For all these reasons, the Department of Defense’s ideas of a nationalized 5G network should be permanently put to bed. Instead of limiting our country’s 5G capability, we should foster opportunities for American companies to expand and bring revenue back to the U.S. economy through higher connectivity. Such economic expansion only comes with freeing up mid-band spectrum for auction.