Alan C. Andrews

Last week the FCC voted 5:0 to allow the use of whitespace for wireless Internet access. Whitespace is the unused part of the RF spectrum between TV channels. It was originally intended to prevent interference between analog TV signals. Now that TV is going digital, there’s no reason for the whitespace to remain unused.

This could be big for rural and small town residents.  I don’t expect to see it much in urban environments because of the already crowded RF environment.   Wireless devices that use the whitespace frequencies will have to check for incumbent broadcasters before they will operate.  

(overly optimistic) Estimates say devices using whitespace frequencies could be rolled out in as little as a year. I wouldn’t hold my breath for wireless Internet nirvana just yet though.  As popular as  WiFI is now, it took over a decade for it to go from an interesting toy to ubiquitous add-on.  Also these whitespace frequencies are down in the UHF band, which carries farther than the microwave signals WiFi uses.  The potential for interference will be higher which means devices will have to use lower power or be spread farther apart. Either way, it means less crowded areas of the country will be better suited for using whitespace radios for Internet access while Cities will probably stick with wired access solutions like fiber, DSL and cable.

Cox says it’s building a 3G network.

I question the business case of COX competing in the cell phone service business, especially after the disastrous experience of Helio.

One might argue that Helio was an MVNO and that’s true, but then so is COX right now.

I remain unconvinced that it is possible to compete, and succeed, against Verizon and AT&T in the US unless you can offer nationwide coverage on your own network.

An MVNO isn’t a competitor, it’s a reseller.

I want to put to rest the idea that producing more oil in the US won’t lower the price of oil. Increasing the amount of oil produced WILL result in a price of oil lower than it would have been without the additional production. To argue otherwise is just economically ignorant. It is also true that other market forces might cause the price of oil to increase despite an increase in production.

I think it’s disingenuous to argue that drilling and producing more oil won’t decrease the price without also admitting that the price would be even higher without the additional production.

Elementary Economics Alert!

There is a “Law of Supply” and a “Law of Demand”. They are two separate things.

The law of supply says that (all other things being equal) as the price of a good increases, the quantity of that good offered by suppliers increases. (The “all other things being equal” part is important.)

The law of demand says that (all other things being equal) as the price of a good increases, demand for that good decreases. (Again, the “all other things being equal” part is important.)

These two laws affect each other, creating self correcting feedback loops. As the price of “A” increases more “A” is produced, but at the same time demand for “A” decreases. When demand for “A” decreases, the price of “A” drops, which causes a decrease in supply. As the price of “A” drops, demand increases again, causing the price to go up and an increase in the supply of “A”. And it goes on in a never ending, very confusing cycle.

Now, lets look at oil.

The price of oil has increased. According to the law of supply we should see suppliers increasing output. According to the law of demand consumers should be using less oil. We HAVE seen consumers decreasing their demand for oil. People are driving less and buying more fuel efficient cars. Also, oil production has increased worldwide by a few percent.

So why is the price of oil still going up?

Here’s where that part about all other things being equal comes in.

One thing that isn’t equal is the value of the Dollar. According to the Federal Reserve, the US Dollar has lost 30% of it’s value in the last six years. The price of oil in Dollars would have increased just because the Dollar is worth less than it used to be.

There’s also a lot of money chasing oil futures. In fact, what we are seeing is an oil price bubble similar to the housing bubble and the .com bubble. The oil bubble will pop and oil prices will fall.

Current estimates of the post bubble oil price are around $50 – $70 per barrel. Just like the 70’s and the 80’s, the current high oil prices will drop and the press will be whining about the oil glut just like they did then. The more insane oil prices get, the sooner the bubble will burst.

Imagine you run an oil company. You know all the economic facts and you know what your production capacities are. You know the current prices are an aberration and in a short time the price will fall.

Do you want to spend a lot of money opening up new oil fields so they’ll come on line just in time for an oil glut?

Neither would I.

That said, I think the laws that restrict oil production in places like ANWR and off the coasts of Florida and California are stupid. The time to develop oil fields isn’t at the peak of a bubble, but during a glut before the next oil shock. The environmental fears are groundless and the fact is that someday those fields WILL be developed for oil production. It’s just a matter of time.

Cross Posted at SnarkyBytes

I bought an Amazon Kindle last week. Although it’s a great ebook reader (by great I mean sucks less than the others.) the really interesting story about the Kindle isn’t the ebook aspect, it’s the EVDO radio built into it and the business model behind it.

Amazon doesn’t charge anything extra for the Kindle’s access to Whispernet, the MVNO that Amazon operates off Sprint’s cellular network. Every Kindle that’s tied to an Amazon account gets wireless access to the Internet at no additional charge.

Think about that for a minute. The Kindle has wireless Internet access that’s not billed, it’s just there. Did you feel the earth move? There are two big ideas here, first: what a great business model! Amazon sells an expensive device that gives you a direct pipeline into their store from wherever you are, no computer necessary. I paid Amazon $400 for the privilege of buying even more stuff from them. And I’m happy about it! (And you thought it was just an ebook reader. ) Eventually they’ll be giving these things away with the cost totally subsidized by purchases. It’s a business model the cell carriers have been dying to make work and Amazon just snuck it in under their noses.

The second big idea is that Amazon is doing all this WITHOUT ADS! The device is subsidized by my purchase of books from Amazon. They’re betting that the expense of my use of the wireless feature will be more than offset by my purchases. That’s another great business model that Internet companies should be paying attention to. I hear a lot about how ads are the future of everything on the Internet. Amazon’s Kindle is a great example of how to do it without ads.

The big wireless news today is Sprint and Clearwire forming a new company to be called Clearwire. It sounds to me like Sprint is bailing on WiMAX and handing off that division to someone who thinks WiMAX still has a future.

WiFi was successful because it was incredibly cheap. It was cheap because it used commodity hardware and unlicensed spectrum. WiMAX, at least in the US uses expensive licensed spectrum and despite Intel’s huge investment in chips, it’s still not cheap.

I’ve been peripherally involved in some of the WiMAX demos in the US, and the base station hardware is expensive and complicated. It reminds me of MMDS more than anything else, and we know how well that turned out.

I don’t think WiMAX can achieve the economies of scale to become a low cost alternative to cellular data, cable or DSL. It might “compete” in rural areas where cable and DSL don’t exist, but the money is in density and I just don’t see WiMAX working out in metropolitan areas.

I think Sprint is divesting itself of under performing divisions and like the Nextel division, the WiMAX group just isn’t making the cut.

I’ve always heard that the reason Apple didn’t make the iPhone 3G from the start is because 3G is a battery hog. I’m not sure that’s true in either case.

Apple is all about the user experience. What would have happened if Apple had released the iPhone with HSDPA support last year with AT&T’s incomplete 3G network? There would have been much wailing and gnashing of teeth on teh Interwebz.

In my experience even EDGE isn’t available everywhere it’s supposed to be and a 3G iPhone right off the bat would have been a disaster.

But what about battery life? My previous phone was an HTC6700 (3G) and the battery life on it was comparable to what I get on the iPhone now. The problem with EDGE is that everything takes longer to download so the radio is on longer. I suspect that for equivalent data transfers the battery drain would be pretty close if not the same for EDGE and HSDPA. Of course with HSDPA you might be transferring more data because you can, so the battery life might be shorter, but I don’t think that’s a fair comparison.

Yesterday rumors surfaced that claimed Apple had ordered 10 million 3G iPhones for a summer release.

AT&T has had the last year to expand it’s 3G network and the time may be right to release a 3G iPhone. On the other hand, Europe has always been further along with it’s 3G roll out than the US. It may be that Apple has more than the US market in mind for the next generation iPhone.

“You were right.”

Previously I predicted that AT&T would buy the A of B block to go with the 12MHz they bought from Aloha. It looks like they made a good deal. $2.5 billion for 12 MHz and they just won another 12 MHz (the B block) in the 700 MHz band but had to pay $6.6 billion for it.

I bet Aloha wishes they’d held out for a little more.

The FCC has ended the 700MHz auction.

There were no serious bids for the D block which required part of it’s spectrum to be set aside for public safety. I think this reinforces my theory that the 700 MHZ space will be used by cell companies to enhance the existing cellular system and will not be used for WiMAX.

Glen Reynolds asks, if VoIP is as reliable as land lines. The answer is, of course, it depends.

My wife uses Vonage at the house, (I’m cell phone only, although I’ve been known to use Skype for conference calls) and she hasn’t had any complaints. Of course that may be because I have a dedicated T1 for Internet access at the house.

The T1 is the reason VoIP works for her, yet other people may have problems. The quality of VoIP depends on the quality of the Internet connection it’s traveling on. If you’re on a busy shared system you’ll probably have unreliable VoIP service. VoIP also doesn’t deal well with jitter and high latency so it sometimes has problems operating over a wireless connection.

If you’re using a POTS line at your house or business, when you make a call it’s converted to digital packets by the phone company. The phone companies converted to VoIP for long distance years ago, so if you make a call on your dedicated phone line there’s a good chance it’s converted to VoIP at some point along the route.

The phone companies think VoIP is reliable enough to use it on their networks so the answer is yes, VoIP is reliable if your Internet connection is good enough.

With the price of oil flirting with $100 a barrel, there is a lot of interest in alternatives to gasoline produced from oil.

One of the alternatives to gasoline is ethanol. And one of the complaints levied against ethanol is that it takes more energy to produce than you get from burning it. This may be true (I’m not a chemical engineer) and for the sake of argument, let’s assume it is true that ethanol takes more energy to produce than you get from using it.

So what?

If the cost of producing the ethanol is less than the cost of producing gasoline from oil, then, all other things being equal, it doesn’t matter how energy inefficient the process is.

Ricardo’s comparative advantage tells us that it’s opportunity cost that matters, not efficiency. Although comparative advantage is usually talked about in terms of particular goods produced by different countries, it also applies to competing goods. If it is cheaper to produce ethanol than gasoline, then, all other things being equal, ethanol has a lower opportunity cost than gasoline. We would say that ethanol has a comparative advantage over gasoline. It doesn’t matter that the process that produces ethanol is less efficient, all that matters is that it’s cheaper.

On the other hand, if ethanol costs more to produce than gasoline, then gasoline would have the comparative advantage. It still doesn’t matter which is produced more efficiently.

Unfortunately, because the government subsidizes corn and ethanol production we don’t have a clear idea, through price signaling, which product is actually cheaper to produce. (Although the fact that ethanol is subsidized gives us a clue that it’s not cheaper.)

Like ethanol, it is argued that making hydrogen takes more energy than you get when burning it. Also, as in ethanol, that inefficiency doesn’t matter if the cost of producing hydrogen is cheaper than the cost of producing gasoline.

The same reasoning can be applied to any fuel alternative to gasoline, If it’s cheaper to produce, all other things being equal, it has a comparative advantage and in a free market would be cheaper than gasoline.

If the cost of oil continues to climb, gasoline’s comparative advantage over other fuels will continue to decline and we’ll see alternative fuels enter the market. The neat thing is that it will happen automatically, without the need for government programs or subsidies.