Let new guys into the game
November 4, 2003

Shortly after the end of World War II, Henry J. Kaiser, who made millions building the "Liberty Ships" so essential to our war effort, decided to go into the auto business.

After he announced his intentions at a press conference, a reporter sought out a General Motors executive for a response to Kaiser's plan to take on the "Big Three" and his pledge to put $50 million of his own money into his upstart company.

The GM executive's response was classic: "Give the man one red chip, and welcome him to the game."

The message was clear: Setting out to compete against established players in an existing and highly profitable industry is expensive and perilous. GM, Chrysler and Ford at the time had virtually all the chips, more friends in Congress than anyone could count and a dedication to the status quo. Kaiser sold a few cars over the next few years but eventually left the field to lick his wounds.

He failed because the Big Three were willing to do whatever they could to protect their very lucrative position. Without real competition, they piled up profits selling second-rate vehicles to consumers who didn't have many options. It wasn't until the Japanese snuck up on them that they were forced to wake up and pass the fruits of real competition on to their customers.

However, before they got down to the job of producing better vehicles, they ran whining to Washington in an effort to close the borders to foreign competition so that they wouldn't have to improve their products. That ultimately failed, and today, prodded by the knowledge that they have to compete on quality, price and style, they are producing vehicles as good as any in the world.

The first reaction of any established business or industry sensing a competitive threat is to try to stifle competition and kill emerging technologies that threaten to make what it does obsolete. That's what has happened in the telecommunications industry as new ways have emerged to deliver programming to this country's TV-obsessed public. Broadcasters enjoyed a monopoly that they fought to protect against the advent of cable, and cable companies later banded together to fight those who sought to deliver the same programming by satellite.

Today, satellite companies, in turn, are fighting just as hard to prevent the deployment of new and potentially cheaper technologies that could cost them market share or render their investment in hundreds of satellites obsolete.

The threat comes from land-based systems similar to those that deliver cellular phone service. If the technology proves itself, it is estimated that the resulting competition could save television viewers something like $2.8 billion a year. In addition, it could give rural customers access to broadband Internet connections they do not have ready access to now.

That potential threat is illustrated by a startup called Northpoint Technologies, which wants to build such a system but doesn't have what Kaiser had when he launched his company. What Northpoint does have is a patent on the new technology and a high-powered team of lobbyists who are promised a piece of the action if they help the company succeed. Those lobbyists argue that Northpoint ought to be given the spectrum of airwaves to carry its signal so that it can compete, while the firms now dominating the market counter that the spectrum is too valuable for the government to give away and should therefore be put up for auction.

Northpoint argues with some logic that it shouldn't have to pay since none of the existing players did. The company fears that with buckets of money at their disposal the satellite companies would simply buy up the spectrum themselves to kill the new technology in its cradle. The government, strapped for money to rebuild Iraq and meet domestic needs, likes the idea of an auction, and with logic of its own says that just because it stupidly gave spectrum away earlier doesn't mean it should continue to do so.

Congress will ultimately decide the issue--on the merits, one hopes. If the new technology is everything its champions argue and if deploying it would in fact save consumers as much as some have suggested, Congress should find a way to make sure the technology gets a fair chance.

The government says giving away the spectrum to deploy such a system would be like giving the new guys a gift of as much as $100 million dollars. That's a lot, but not when compared either to the gifts the big guys have already been given or the potential $2.8 billion that deploying the new technology could leave in the pockets of American consumers.