Permissionless innovation in space seems like a concept unlikely to take flight. After all, few fields are more heavily regulated, and innovators hoping to ask for forgiveness rather than getting formal regulatory permission up front are likely setting themselves up for big trouble.

That is what makes the actions of a little-known California startup called Swarm Technologies so interesting. Swarm hopes to offer US and foreign consumers low-cost Internet connectivity and expanded internet access, especially to places currently without it. The company is counting on its microsatellite prototype, called the SpaceBee, to make it happen. According to Swarm CEO Sara Spangelo, the SpaceBee is the world’s smallest two-way communications satellite. It’s small (not much larger than the average smartphone) and lightweight. That means low launch fees. It also means much lower costs for customers.

SpaceBees help connect remote and mobile sensors from anywhere on Earth to the Internet of Things (IoT), a burgeoning communications network of devices that collect and share data over the internet. With a handful of competitors, including SpaceX’s Starlink, attempting to cover the globe in high-speed broadband through big, expensive projects that may take years to deploy, Swarm wants to use its microsatellites to transmit small packets of data more cheaply than ever before. According to Spangelo, “We think of it sort of like tweets. You can send thousands of 250-byte tweets per day… But it will be everywhere, and anyone on the planet can afford it.”

Once aloft, the SpaceBees work in conjunction with a network of gateways and ground stations back on Earth. Gateways aggregate data from nearby devices via WiFi, Bluetooth, or long-range radio and then send that information up to the SpaceBees using very high-frequency radio (VHF). That information is beamed down to ground stations, where it is then relayed to the internet. This means that one day SpaceBees could enable a farmer in the Midwest to produce more food with the help of precision monitors embedded in his or her crops. They could grease the wheels of international trade through more accurate tracking of shipping containers and the goods within them. They could even help provide access to clean drinking water with hand water pump sensors in Africa.

In January 2018, Swarm was able to get four SpaceBees onto a rocket operated by the Indian government. Once in orbit, the SpaceBees were to begin communicating with two US-based ground stations as a practice run before a full-scale rollout. The launch was a success, the satellites are in orbit, and now the company wants to send up a fleet of 100 more SpaceBees to begin transmitting data on behalf of consumers around the world.

Enter the Regulators

There’s just one problem: Swarm never received the blessing of regulators at the Federal Communications Commission (FCC). The company applied for an experimental authorization back in April 2017 and the FCC denied that request in December of the same year because of the risk to spacecraft and other satellites. The denial cited concerns that the small footprint of the SpaceBees would be too difficult for the military-run US Space Surveillance Network to track, even after Swarm equipped the little satellites with radar reflectors to make them easier to spot. However, Daniel Ceperley said that his commercial satellite monitoring company, LeoLabs, picked up the satellites almost immediately and has been keeping tabs on them ever since.

In early January 2018, Swarm reapplied. A few days later on January 12th, despite no further action from the FCC, it went ahead with the launch. This appears to be the first time that an American company has launched a commercial communications satellite without having ever received approval from the US government.

In the spring of 2018, the FCC conducted an inquiry and issued an advisory document emphasizing “enforcement action” for failing to comply with FCC requirements regarding the launch of commercial communications satellites. It is still unclear what the agency’s action against Swarm will be.

But Swarm’s satellites are now in the sky and the company’s CEO is begging for forgiveness in the hope of getting service underway. “I am definitely regretful and I view it as a mistake,” Spangelo said in an interview. “I feel terrible for the confusion and the additional regulation that we may see come. It’s a very difficult situation, and we’ve done everything we can to resolve the issues to move forward positively.”

Born Captive vs. Born Free

The problem for Spangelo and Swarm is that space technologies are “born in captivity” and not “born free.” Some entrepreneurs are lucky to be innovating in “born free” sectors in which no preexisting laws or agencies exist. That is the case for 3D printing, virtual reality, and general-purpose robotics and artificial intelligence technologies. But space entrepreneurs are firmly in the “born in captivity” camp of technologies that are bound by a slew of old technocratic regulations and agencies. Preemptive permission slips must be obtained before most meaningful forms of innovation can move forward in such sectors.

Article VI of the United Nation’s 1967 Outer Space Treaty gave each country that ratified the document the responsibility to regulate the space activities of its non-governmental players. Whether the Outer Space Treaty necessarily obligates the US government to oversee any and all space activity of its nationals is debatable, according to a recent Mercatus white paper by Laura Montgomery. Nevertheless, Congress did authorize a handful of agencies, including the FCC, to regulate certain space activities. After more than half a century, space entrepreneurialism in the US is heavily regulated by dozens of different laws and fraught with uncertainty.

For example, the FCC issues licenses for wireless communications and media services, while the Federal Aviation Administration (FAA) oversees launches and reentry. The State Department has authority over the launch vehicles themselves under the US Munitions List, but other space-related equipment falls under the purview of the Department of Commerce, as outlined in the Commerce Control List. Not to mention the requirements of individual launch sites, such as those in Florida and Texas. Then there’s NASA and the Department of Defense, both of which are heavily involved in space activity, but their primary functions are not necessarily regulatory.

There are also non-binding guidelines and recommendations to be considered, such as those developed by the United Nations Office of Space Affairs and World Telecommunications Union. It seems that knowing how to comport with existing regulations is almost as important as technical know-how and ingenuity.

Is Regulatory Entrepreneurialism Worth the Risk?

Why, then, would Swarm take such risks and play the permissionless innovation card? Perhaps it is because other “evasive entrepreneurs” have had some success here on the ground. Uber and Airbnb, for example, have employed a “permissionless” approach in their respective sectors to shake up the transportation and hospitality sectors. They did so by giving the public a taste of what more choice and competition could be like, and consumers loved it. In essence, they became “regulatory entrepreneurs” that actively sought to change public policy by strategically using permissionless innovation to generate a base of consumers who would also later act as citizen-lobbyists on their behalf. This gave Uber and Airbnb bargaining power when political negotiations heated up and made it harder for local regulators to shut down those services altogether. In this way, these sharing economy innovators were able to break out of regulatory captivity to some extent and start offering new choices in transportation and hotel markets, respectively.

But Swarm is different in that it has not yet been able to deliver any new service to the public, so it is unclear whether the same strategy will work for them. FCC regulators are notoriously risk-averse and inflexible when it comes to green-lighting new services, and the agency might seek to make an example out of Swarm by continuing to refuse the firm’s pleas for greater operational freedom. In recent years, however, the FCC has been more open to the idea of expanding communications competition. That might be Swarm’s best hope.

Is “Global Innovation Arbitrage” Possible for Swarm?

Innovation arbitrage refers to the idea that in our increasingly integrated global economy, innovators can more easily move to jurisdictions that provide a more hospitable legal and regulatory environment for entrepreneurial activities. Of course, this is easier to do with software, electronic commerce, and digital technologies than with those technologies that require physical infrastructure. Yet, innovation arbitrage is also becoming easier for tangible innovations, like drones, driverless cars, and now apparently even rockets.

Arbitrage has become possible in this industry thanks to a number of countries having developed spacefaring capabilities, which should make the market for vehicle launches more competitive. Yet Swarm played the arbitrage card once by getting launch rights in India, and the move could jeopardize future arbitrage opportunities, at least in India. The Indian space agency, which is potentially on the hook for whatever damage the SpaceBees may cause, indicated in a statement that it “has requested its US clients to cross-check with FCC for compliance of regulations before exporting future satellites to India.” And that’s just about getting rockets off the ground, not providing service within certain countries, which, like the US, may require additional licenses.

Despite backlash from the US and Indian governments, there’s still reason to be optimistic about innovation arbitrage. If the FCC clamped down on Swarm, what’s to stop them from setting up shop in a country with a more favorable regulatory environment? While there are a dozen or so countries with satellite launching capabilities, there are many more countries that have already signed off on and launched (either domestically or with the help of other countries) their own nanosatellites. Swarm could be valuable to any number of these nations. After all, a network of SpaceBees racing overhead and providing overlapping coverage to users around the world would conceivably offer no inordinate advantage to consumers in any one country. If the FCC denied Swarm the ability to serve US customers, then the company could relocate and still provide cheap and reliable internet data services to non-US customers around the world.

This is unfamiliar territory for the FCC, and it would be wise to exercise some policy restraint and patience in this case. The disciplinary measures it employs could be a pivotal signal to entrepreneurs going forward. In the fast-moving, globally-integrated modern world, the Swarm case study highlights the need for more flexible, speedy, and reasonable regulatory review framework at the FCC and other agencies. Creating a smart innovation culture can facilitate the rollout of new technologies that make life better, enhance economic growth, and boost competitive advantage of the US relative to other countries with whom we compete.

Soft Law in Space

The best policy approach here will involve “soft law”—informal governance tools like multi-stakeholder processes, industry best practices, and agency guidance and consultation. Such mechanisms are becoming the new norm in many other high-tech sectors. While there will always be plenty of traditional “hard laws” on the books that make many practices flatly illegal without prior regulatory permissions, even most regulators understand that heavy-handed approaches discourage beneficial forms of innovation that could boost competition and consumer welfare.

The FCC could, for example, work with Swarm and other space innovators to develop sensible best practices for regulating commercial communications satellites. The desire for IoT connectivity will grow exponentially in the coming years, with some projecting upwards of 55 billion IoT-connected devices by 2025. The industry is already shifting over to smaller, lighter satellites to meet growing demand, not just Swarm. SpaceX, Facebook, and Japanese multinational SoftBank each have projects underway to deploy their own constellations of small satellites. This shift will pose a problem for the agency. The FCC requires satellites be at least 10 centimeters by 10 centimeters by 10 centimeters in size, the smallest size for which the Space Surveillance Network considers detection routine. You could stack four Spacebees on top of each other to achieve roughly those dimensions. Swarm, however, supposedly equipped its satellites with signature-enhancing reflectors to make them easier to track than a typical satellite the size of a 10 centimeter cube. The FCC still denied their application. Unless it considers revising its standards through consultation with a changing industry, the FCC’s regulatory framework won’t encourage competitive, welfare-enhancing entrepreneurship in space.

Swarm made an important first step in providing affordable, space-based IoT connectivity for devices that don’t already have reliable access to the internet. Rather than punish the company, the FCC could embrace the experimental process. Space entrepreneurs present the agency with crucial learning opportunities, chances to gain new useful information that can help inform practical oversight and rulemaking. To make this work, it must take on a more collaborative and flexible role.

There is evidence that the FCC may adopt aspects of this approach. For instance, after months of silence, the agency finally granted Swarm special permission to communicate with its satellites in August 2018. (It only authorized the transmitting of orbital and tracking data, however, and didn’t give Swarm a chance to test out its new IoT technology). A more encouraging sign came about a month later when it gave Swarm temporary permission to launch more satellites until late March 2019. Furthermore, FCC Chairman Ajit Pai declared November “Space Month” at the Commission, where it may soon sign off on various satellite constellations (although Swarm was not mentioned) as well as take a closer look at its position on orbital debris.

To build on these positive steps, the FCC should also assess the risks of these microsatellites as they are, not based on the worst possible outcome. The SpaceBees most likely won’t threaten crucial spacecraft like the International Space Station (ISS) or China’s orbital laboratory Tiangong-2 because they have different orbits and operate at different altitudes. (They could, however, pose some risk to similarly low-orbiting satellites with the same inclination, namely spy satellites). The added risk that the SpaceBees pose to other satellites and spacecraft is marginal, thanks to the fact that we can track them. This should help mitigate much of the risk with satellites and spacecraft that have some form of propulsion (and many of them do). And whatever risk they do pose won’t be indefinite, because orbital decay which will bring them back down to Earth or cause them to burn up while reentering the atmosphere within about eight years.

It’s important for the US to maintain a competitive edge in a growing market. The FCC, as well as other federal regulatory agencies, should adopt a framework that emphasizes flexibility and forbearance in light of growing demand, realistic assessment of risk, and bottom-up experimentation. Such a regulatory approach would help advance the FCC’s long-term interests of realizing faster internet speeds and providing better access and more choices for Americans while also bolstering space entrepreneurialism such that innovators won’t have to navigate a constellation of red tape.

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