With the rapidly increasing popularity of smartphones, tablets and other devices, there has been a “tidal wave” of demand for spectrum – i.e., the capacity for wireless communication, according to Wharton legal studies and business ethics professor Kevin Werbach. In this interview with Knowledge at Wharton, Werbach discusses the ins and outs of spectrum, the current debate over spectrum allocation and the ways in which it impacts businesses and consumers. He also explains why, in his view, the best way forward is to encourage more sharing to maximize the use of spectrum, open up opportunities for smaller players and ensure future innovation.

An edited version of the transcript appears below.

Knowledge at Wharton: First of all, could you define spectrum? What is it, and how does it work?

Kevin Werbach: Spectrum is the capacity for wireless communication. The best definition that I’ve found is attributed to Albert Einstein, but he probably never said it. The story goes like this: [Einstein was rumored to have said], “Imagine a really huge cat. It’s so big that its head is in one part of the city, and its tail is in another part of the city. You squeeze the tail, and all the way at the other end, the cat meows.” That’s wired communication, like your landline telephone. Wireless, which is what uses spectrum, is exactly the same, except there’s no cat.

Spectrum is basically the way that we make use of the airwaves — the frequencies over the air for cell phones, Wi-Fi, garage door openers and so forth.

Knowledge at Wharton: We’re currently experiencing something of a wireless spectrum crunch. What are the different forces that have come together to create this problem?

Werbach: There has been a tidal wave of demand for wireless data. Think about the iPhone, the first really successful commercial smartphone. It is only about six or seven years old, and last year something like one billion smartphones were sold. Tablets, like the iPad, use even more data. The networks that we have today have to carry many more times the level of data traffic than the networks of a few years ago, and the trends are pointing toward more explosion of that data usage.

Knowledge at Wharton: So basically, everybody is taking — even maybe just me on my iPhone — a tiny little piece of the pie, and so is everybody else.

Werbach: Well, the challenge is, it’s not a pie. Because spectrum is not a wire. You’re transmitting over the air, and then another device is trying to receive over the air. The challenge is, the devices, as they get smarter, can use the spectrum more efficiently — a really good device can find a signal where another device didn’t. There are different technologies and approaches that can be used. Also, the government sets up the framework under which spectrum is accessed.

For example, video requires much more capacity than text. So, all of the streaming video that is happening is taxing networks. But how much the demand affects the networks depends on all of these other factors.

Knowledge at Wharton: What is the current debate over spectrum allocation, and what are the proposals on both sides?

Werbach: We’ve had this debate for about the past decade, but it’s really coming to a head now. Traditionally, the government allocated spectrum through a command and control mechanism. They would say, “All right. Here are all the frequencies. We’ll divide them up. This spectrum is for television broadcasters. We’ll either give it to them, or have some mechanism [to allocate it.] Typically, in recent years, that method has been to auction it off. This spectrum is for cell phone companies.” And they would parcel out spectrum that way.

“The estimates are that the actual usage of spectrum is roughly 10% — in other words, roughly 10% of the spectrum … is actually in use at any time. There are tremendous inefficiencies in the system.”

The problem is that this doesn’t use spectrum nearly efficiently enough. The estimates are that the actual usage of spectrum is roughly 10% — in other words, roughly 10% of the spectrum, if you looked at all of it, is actually in use at any time. There are tremendous inefficiencies in the system. So, the debate has been about, how do we improve that? And one view has been that we just need to give more exclusive property rights to people who get the spectrum. Because the idea is, then they’ll buy and sell it, and use it more efficiently.

The other view, which is really where I come down, is that there are all sorts of technologies that now allow spectrum to be shared. So, we don’t need exclusivity. We can actually maximize use of the spectrum. And that becomes even more important now, as demand increases.

Knowledge at Wharton: I was reading some other things you’ve written about this recently. You point out, for example, that a surprising amount of sharing is going on right now, even by some of the really big names in the wireless business. Why would encouraging more sharing actually increase what these different businesses are able to do?

Werbach: This is what has changed in the debate, although not everyone quite realizes it. It used to be, you had people favoring property rights on one side, and people favoring what’s called “unlicensed use.” Things like Wi-Fi devices, the access points you might use with your computer, or your other devices are spectrum that is dedicated by the government for unlicensed use.

But what has happened increasingly is those have come together. Think about your iPhone. It’s got a cellular radio on it that uses licensed spectrum, and it’s got a Wi-Fi radio, and also a Bluetooth radio that use unlicensed spectrum. Increasingly, there are ways to do some of both. For example, the President’s Science Advisory Board … looked at the challenge of federal spectrum. There is a tremendous amount of spectrum that is used by government agencies — mostly the military, but also the Federal Aviation Administration and all sorts of other agencies. And they use it really inefficiently; they don’t necessarily need as much as they have, whereas, there is tremendous demand in the private sector.

But the problem is, the federal agencies are still using it for some things. The challenge is, if you have this military radar that is only on part of the time in part of the country, but that still serves some valid defense purpose, how do you make that spectrum available the rest of the time to the commercial sector? It turns out that we can use these sharing mechanisms to do that. We can give the government agencies the protection they need, but also allow other access. Increasingly, what we’re seeing is that these things are coming together.

Knowledge at Wharton: Another thing you had written about was about white space between broadcast frequencies. Can you talk a little bit about that, and explain how that fits in?

Werbach: One of the projects that the FCC has been shepherding for, again, roughly the past 10 years is opening up the so-called “white spaces” around broadcast television channels. The way television is set up in terms of spectrum is based on the technology of the 1950s. Back then, devices were really dumb. There were these guard bands that would say, “No one can transmit here,” so that a TV seeing the station on one side would be able to distinguish it from the station on the other because there is a big space in the middle.

“Really, we’re talking about maximizing capacity. We’re talking about what configuration lets the spectrum be used the most intensively.”

Today’s technology is so much more efficient. We can actually use that space in the middle, have someone transmit there, and the devices on either side won’t see it. This is all being put into place while the FCC is looking at reallocating that television spectrum. We’ve moved to digital television in the United States, and now the FCC is doing what’s called an “incentive auction,” where they’re trying to get broadcasters that aren’t really using their spectrum to give it back in return for a payment that comes from auctioning the spectrum.

And the challenge is, if the FCC does that in the wrong way, it will actually close off this white space. It will basically only make spectrum available to those who buy it at auction, which doesn’t leave a lot of room for experimentation, for little players or new players to come in, for people in rural areas who don’t necessarily have those resources, and for the whole massive industry that makes devices to come up with innovations that take advantage of that open white space.

That is partly why I’ve been writing recently that the FCC has to decide this in a way that leaves open that capacity for sharing and innovation.

Knowledge at Wharton: It sounds like one of the main things that the industry and the government are grappling with is that we have a system in the U.S. that was created decades ago to do something, and now the world of technology, the world of broadcasting, has completely changed.

Werbach: Really, what we’re grappling with is our failure to appreciate what spectrum is, and the failure of our metaphors. We think it’s like a resource. We think it’s like land, and that there is [only] so much of it, and it gets used up. And this parcel of land is here, and that parcel of land is there.

But it doesn’t really work that way because everything is contingent…. People think that … if I transmit here, and you transmit here, that the signals run into each other. Actually, they pass through each other. They’re just … beams of energy. It’s all a question of the devices and how they are able to interpret information. What we need to do is understand that sharing is really part of spectrum, no matter how we use it. Even in the so-called exclusive rights [situation], we’re sharing by giving you one frequency, and someone else another frequency.

We need to have a broader perspective that this is not about [for example,] capitalism versus communism, when we talk about sharing and property rights. Really, we’re talking about maximizing capacity. We’re talking about what configuration lets the spectrum be used the most intensively.

And you’re absolutely right. That needs to be done in the context of today’s technology, as opposed to old, outmoded assumptions.

Knowledge at Wharton: Is there a point where we could eventually hit a wall, and there is no more spectrum?

Werbach: Again, the spectrum is always there, and it doesn’t get used up. If I transmit over the air with my device, that spectrum doesn’t suddenly go away. The moment I stop transmitting, it’s clear again. The issue is, how can we make spectrum use more efficient? And again, it all depends on the infrastructure. For example, you take a cellular network like your typical cell phone system. They can create more spectrum by putting in more towers because they’re basically subdividing it more so you’re only connecting to a local area, as opposed to a much wider area.

“There is a real danger of … this being pushed in a direction that squeezes out the sharing, just because people don’t appreciate the value that it brings.”

But that costs money, and there are other tradeoffs there. It is the same thing with the sharing. There are … tradeoffs in terms of efficiency and so forth with these different mechanisms. At some point, yes, there’s a theoretical limit. We actually don’t know what it is. There are many practical limits. But again, if you look at all the capacity that is out there, we’re not using most of it. So, potentially we’ve got a long way to go.

Knowledge at Wharton: For the average consumer, the average business, why is this debate so important? How does the outcome of what is decided about spectrum allocation impact the average smartphone owner? Or a business trying to offer a Wi-Fi network? Or other stakeholders who likely don’t even think about it much?

Werbach: It means a few different things. One thing it means is, will there be enough capacity for these devices? Will you be able to get good quality at affordable prices? And will service providers be able to continue developing and deploying new kinds of innovations — especially in video and other things that use high amounts of capacity? In addition, there is what is called the Internet of Things — all of these wearable devices and sensor-based devices all throughout the world. It’s a question of whether that’s actually going to work and be available, or whether it is going to run into limits of spectrum.

It is also a question of whether that will be an open space for innovation, or will it really only be limited to the companies that buy the spectrum at auction, and therefore can control it, price it and so forth. Certainly, there is value in companies having that exclusive control. But it needs to be in an environment that allows for open innovation.

It’s not that your iPhone is going to shut off tomorrow. But it’s really a question of whether this space will continue to be a fountain of innovation going forward. And it’s also important, for example, in urban areas and in rural areas, where typically there isn’t access to the same broadband capacity. Some of these spectrum sharing mechanisms are really well-suited to reaching those areas because, again, they don’t depend on a company paying billions of dollars at an auction and then being able to monetize the service.

Knowledge at Wharton: In the case of urban areas, I can see how the capacity issues would be that there are a lot of people. Tell me what the issue is with rural areas. You’ve mentioned that a couple times, that this is one group that could potentially benefit from this.

Werbach: The issue in rural areas is that it’s not necessarily economical for companies to serve them. They don’t have the same level of broadband capacity because they don’t have the density, and it’s expensive to build these traditional networks. But there is lots of open capacity. For example, this white space technology that, again, works in between television channels, works really well in rural areas, because there are not that many TV stations. Those are the areas, again, where there is potentially great demand, because they’re not served by the existing networks.

Knowledge at Wharton: For people who are interested in this issue, what are some of the big moves coming up to watch for, or what are the steps that need to happen in order for more sharing to occur? It sounds like what you’re advocating is a system where we’re doing some sharing, but there’s also some exclusivity.

Werbach: The government has a series of decisions to make. The Federal Communications Commission is moving forward with this process, the so-called “incentive auction.” They just recently did a status report. The auction is supposed to happen in 2015. But there is a series of steps that the FCC will be announcing along that process. And then the FCC, as well as what’s called NTIA, which is a technology group within the U.S. Commerce Department, are managing most of this process of repurposing federal spectrum.

So, again, it’s a set of decisions. Congress is following along and potentially helping, or potentially pushing in the other direction. I think it is something where members of Congress are going to be speaking out and introducing legislation. Again, there is a real danger of this being pushed in a direction that squeezes out the sharing, just because people don’t appreciate the value that it brings.