Moves have now started towards open-market trading of already licenced spectrum. But what are longer-term consequences of commoditisation for the industry and the players looking to create niche markets for themselves. Simon Tonks, principal consultant Wireless Technology, PA Consulting Group, explains
Anyone who has worked with mobile or wireless telecoms in the last two decades will be familiar with the rapid progress of the technologies involved. Less dramatic, but still noticeable, has been a shift in the regulatory approach in Europe from ‘command and control’ towards a free market. The combination of the wireless technologies now becoming available and the shift in regulatory approach will turn spectrum, not just into an asset, but into a commodity. This will have a far reaching impact once these changes have been fully implemented.
Traditionally a specific frequency assignment was given to a specific user by a central licensing organisation. In many cases a particular technology was also specified. Licence fees were largely based on administrative costs. In the UK moves have now started towards open-market trading of already licenced spectrum, and technology choice looks increasingly likely to be made by the licence holder rather than the regulator.
The highest profile turning point came in 2000 with the 3G licence auctions in the UK and Germany, raising â-88bn between them. This fixed in the minds of users and regulators around the world the idea of spectrum as a valuable asset. Licence auctions for other bands and in other countries followed, albeit with rather less money changing hands.
For spectrum trading to become established, it must be feasible to reallocate spectrum in terms of both the radio engineering and the licencing conditions. As the RF parts of transceivers achieve wider tuning ranges, the equipment’s capability becomes less of a restriction. With wideband or multiband equipment an operator can add a few MHz here and there as required without needing to roll out new user equipment. The parallel changes in regulatory approach will largely remove the licencing restrictions, and a marketplace for spectrum will appear.
So how will this combination of technology and regulatory changes affect the network operators and end users? Several effects can be foreseen based on experience of other related markets, and matching new opportunities with market forces.
The key effect is that spectrum will become a commodity. At the consumer level, bandwidth will become a user requirement, or a selling point for an operator, as has already happened with fixed-line broadband. There is a per-unit price for bandwidth that decreases as the quantity is increased. A range of packages from low priced connection only to higher priced deals with higher bandwidth and enhanced features will emerge. The mobility aspect will still attract a price premium over a similar fixed line service.
The air interface technology used will be independent of the application in the same way as a broadband internet connection is to a PC. To an extent this is already happening with mobile internet access and VPNs, where the same service can be accessed over LAN, fixed line telecoms or mobile. VoIP is also showing that even straightforward telephony is ultimately just one more application. And much of the publicity surrounding WiMAX has been about wireless broadband connection, with little mention of the user’s application.
This will create a market price per MHz. Of course some frequencies propagate better than others and some geographic areas have more potential users than others. So the price will vary considerably according to which frequency band and location are involved. Expect to see some interesting, if rather complex, business cases taking advantage of this.
Frequency and location are not the only axes here, time is also important and this will lead to spectrum rental. Short-term rental of various forms of radio equipment is well established. The dealers currently hold licences for the equipment and the cost is effectively included in the equipment rental cost.
A logical extension is to rent out the spectrum alone to short term users who already have their own equipment. Want to use your two-way radios in Monaco? No problem, sir. On the Grand Prix weekend? Ah, better visit the casino first.
Maximising income
Any free market in a resource such as this naturally favours the most efficient use of that resource, which in this case means spectral efficiency. Maximising income for minimum cost is a pressure on any business, and the RF bandwidth will determine the cost of the licence whereas the user data rate will set the selling price of the service. The spectral efficiency (i.e. the user data rate for a given RF bandwidth) of an air interface technology will determine its success.
Currently some licencees have a Universal Service Obligation. This will be difficult to interpret as service provision becomes increasingly fragmented. Does the USO move with the spectrum licence? If no operator wishes to buy the licence to provide a given service in a sparsely populated area, who does the regulator go after?
So is the commoditisation of spectrum good or bad news? As usual, it depends on your personal situation. If you’re looking to set up as a niche service operator it is likely to be good news as odd bits of currently unutilised specrum are likely to come up for sale. Pick the right niche and you could have a good business case.
On the other hand, non-commercial users such as scientific researchers, radio amateurs and particularly the military are likely to come under increasing pressure to justify why they should have their prime chunks of spectrum for next to nothing when their neighbours are paying huge sums. But general experience of the free market shows that, with one or two appropriate safeguards for those with the need but not the cash, the benefits far outweigh the costs.
