The worldwide competition for bandwidth “is like the space race where the winner will see benefits in terms of innovation and economic growth that will last for years to come,” according to Julius Genachowski, chairman of the Federal Communications Commission (FCC). In an interview with Wharton legal studies and business ethics professor Kevin Werbach, Genachowski says that while the U.S. is leading the world in terms of developing infrastructure for the next generation of mobile broadband, the country faces “some real challenges” in keeping ahead. Among them: the possibility of hitting a wall when the demand for spectrum outstrips supply.

An edited transcript of the conversation follows:

Kevin Werbach: You are the chairman of the FCC, which oversees telecom, media and [other] tech issues. A big [subject] that you deal with all the time is broadband. So, from your perspective, how is the U.S. doing on broadband?

Julius Genachowski: We’ve focused the FCC on broadband because wired and wireless broadband, high speed Internet, is our central platform for economic growth and innovation for years to come. In many ways, things are going really well for the U.S. when it comes to broadband. Think about where we were four years ago: If we were talking about mobile broadband, we would have been talking about mobile innovation and we would have been saying, “Hey, in Japan and South Korea there’s incredible mobile innovation. In Europe, they are ahead of us on 3G infrastructure.” Flash forward to now, [and] the U.S. has regained global leadership in mobile broadband.

[In terms of] infrastructure, the U.S. is the first country in the world getting to scale with 4G LTE, the next generation of mobile broadband. No one else is even close. So we are the world’s test bed for 4G LTE applications and services. On the innovation side, it’s a completely different world. You know, around the [globe] they are using American apps, whether it’s Twitter or Facebook or Google — that’s what the rest of the world is using, a major change in four years. And then think about operating systems. Four years ago, the percentage of mobile devices globally that had American-made operating systems was under 20%. Today it’s over 80%. That’s a very, very fast change.

And so we are strongly positioned to continue to lead the world when it comes to mobile broadband, an incredibly important platform for innovation and economic growth. But we have some real challenges in order to keep that going.

Werbach: Talk a little bit more about some of the things that the agency has done over the past several years to promote that kind of broadband growth, and what you are doing going forward. I know there’s a lot of talk about a spectrum crunch, about not enough capacity going forward. So what’s on the table?

Genachowski: One of the things that we did at the FCC starting four years ago was to focus on broadband — focus on the opportunities, focus on the challenges. [We made] sure that we were removing barriers to broadband build out, whether wired or wireless — freeing up spectrum for mobile broadband. Spectrum is the invisible infrastructure that makes this all work.

One of the things that has happened is that success around mobile broadband is breeding a next generation of problems. The more that we use mobile broadband in the U.S., the more that we use data-rich applications and services, the more demand there is on spectrum. Well, spectrum is a scarce resource, and spectrum planning in the U.S. never anticipated this kind of demand. So, we’re in a global bandwidth race. I think this race is like the space race where the winner will see benefits in terms of innovation and economic growth that will last for years to come. Every country around the world wants to be the leader when it comes to broadband. We’re in a strong position now. But we’re going to run into a wall on spectrum because the demand for spectrum is vastly exceeding supply. We’ve got to use the old policy tools in a really smart way, and develop new tools to free up spectrum, to drive spectrum efficiency so that we can keep on encouraging the growth and development of the mobile economy.

Werbach: One of those new tools is something called “incentive auctions” which the FCC just launched a proceeding on a couple of days ago. Can you talk a little bit about what that process is and what are some of the benefits?

Genachowski: We’re proud of this idea, incentive auctions. Here’s what doesn’t happen when you get to the FCC. Someone doesn’t come and say, “Hey, welcome to the FCC. You’re the chairman. Here’s the warehouse with all the spectrum you can put on the market and make everyone happy.” That doesn’t happen because all the easy pickings on spectrum have already been taken and auctioned. So our challenge now is: Since we can’t create new spectrum — although hopefully we’ll see technology innovations that will help in efficiency, etcetera — we have to identify areas of under-utilized spectrum, inefficiently utilized spectrum, and reallocate them to mobile broadband.

One of those areas is broadcast television spectrum, where historically we’ve over allocated TV stations so that, for example, in New York there are 28 full powered TV stations. It doesn’t make sense. But how do you reallocate that spectrum to mobile broadband, particularly when that spectrum — the broadcast spectrum — isn’t national uniform spectrum? It’s a checkerboard of spectrum in different markets using different frequencies that isn’t really useable for mobile broadband. So the incentive auction idea is a mechanism to give broadcasters an opportunity to exit, and then allow us to reorganize the broadcast spectrum and reduce it, freeing up new contiguous, clear blocks of spectrum that we can put on the market for licensed and unlicensed use.

Just last week, we began the implementation process at the FCC. This is [an idea] that took a couple of years [to develop]. The President strongly supported it. And Congress, to its credit, adopted a bold idea to help move the country forward on mobile broadband.

Werbach: You mentioned unlicensed spectrum, or unlicensed use. Where does that fit into this picture that you describe?

Genachowski: First of all, I should explain what unlicensed spectrum is. When you use your mobile phone from a provider and you’re using it on their networks, they have licensed spectrum and exclusive use of the spectrum that they’ve licensed. When you’re using your device not on the cellular networks but on wi-fi, you’re actually using spectrum that was allocated on a different model. And that model is: Put it out there and let any innovator use it. What we found is that both models are very important; they both generate innovation, investment, economic activity. And we need to continue to develop both models.

So freeing up spectrum for licensed auction use has tremendous value. Taking the unlicensed concept to the next level, I believe, will have tremendous value, too. In the proposal that we released on incentive auctions, the [spectrum] that we free up primarily will go to adding spectrum to our licensed mobile market, where we really need it. But we’ve also identified spectrum to create, for the first time, a national uniform band for unlicensed spectrum, useable for broadband, that will become part of a balanced ecosystem. That will really help drive the mobile ecosystem, and I also think it gives the U.S. a unique opportunity to be a world leader, not only in spectrum policy but in the innovative technologies and services that are built on the spectrum platform.

Werbach: I’d like to take a step back and ask about broadband in general, including wired broadband. One of the things that the FCC did early on in your term was adopt the so-called “open Internet rules,” dealing with what’s often referred to as the net neutrality issue. Can you speak a little bit about how that fits in with this agenda that you’re talking about on broadband?

Genachowski: What we want in the United States is a framework, rules of the road that drive massive amounts of private investment and innovation both to early stage technology — innovators and disruptors — and to the broadband networks — wired and wireless — that carry the applications and services. When I got the job [in 2009], there was a major war between technology companies and Internet service providers about net neutrality. It was a destructive war that wasn’t providing clear rules of the road and was having a negative effect on investment innovation, not a positive one.

We developed a framework that, for the first time, put in place rules to preserve Internet freedom, preserve the ability of innovators to innovate, to come up with an idea, put it on the Internet, reach an audience and let the market decide whether it’s a good idea or a bad idea. The rules preserved that; [it’s the] first time we’ve ever had rules like that in the United States, so it’s a very big deal — giving confidence for the apps and services, Internet innovators. [It also provided] the certainty that the network companies needed to invest in their networks, to upgrade them and to give us faster speeds.

In the two years since we adopted this framework, we’ve seen an increase in innovation and investment across the broadband ecosystem in terms of innovative applications and services. We’ve seen rapidly growing investment and unbelievable innovation. We’ve also seen very significant increases in investment in wired and wireless broadband networks. And we’ve seen all of this in a period characterized by, of course, a very challenging economy.

Werbach: Are there other ways that you look to unleash that kind of competitive energy in the market or use market forces, as opposed to having to tell companies, “You do this, and you do that?”

Genachowski: Well, the answer is yes. We’ve adopted an approach that recognizes the power of free markets to drive investment and innovation and value for consumers. One of the things that we worry about in this space, and it’s always been an issue in this space, is whether there’s the competition we need to drive a successful free market. That’s something that is an issue, and will remain an issue.

Now, I’m a big fan of efficiency enhancing transactions that are consistent with a healthy, robust market. In fact, at the FCC in the mobile space, for example, over the four years that I’ve been there, we’ve approved, literally, hundreds of transactions involving spectrum and mobile companies, and we’ve dramatically increased the speed of our reviews. So they are happening much more quickly, and transactions are getting through.

But we’ve also focused on transactions that present competition issues, transactions that may require spectrum divestitures or other conditions. There was one transaction that we thought was just over the line. It would significantly diminish competition in the U.S., hurting investment, hurting innovation, hurting consumers, and making it less likely that the free market could work, and we blocked that transaction.

Werbach: That was AT&T, T-Mobile.

Genachowski: That’s right.

Werbach: So, last question. Going forward, what’s your metric for success? How should someone understand if you and that agency have achieved your goals?

Genachowski: I think [that would be] U.S. leadership in wired and wireless broadband. We’ve regained global leadership in a series of key metrics. We have the opportunity to continue that. But we have challenges that we can list: dealing with spectrum crunch, driving faster broadband speeds in the United States, preserving competition. We’ve got to keep working on getting these right so that we drive broadband deployment and adoption everywhere, and that we do it not just looking inside our borders, but recognizing that we’re in a global bandwidth race; that in today’s world, talent and capital can flow anywhere in the world; and that we need for the U.S. to have a strategic bandwidth advantage so that the capital and the talent flow here, and we can continue to innovate on the broadband platform as the world leader for years to come.