Wireless Communication

Chapter: Business and Regulatory Aspects

The Market Value of Spectrum

It appears desirable to assign some fee for spectrum occupancy, to encourage fairer and more efficient use of scarce resources, especially by avoiding extended "free parking" by inactive holders of frequency assignments. Even in the absence of competition, an incumbent holder of frequencies should be given sufficient incentive to vacate or share them for alternative use when not exploiting them fully. Evidently this fee should reflect the economic interest in spectrum resources and must be in line with the business plan of operators, in particular with investments and operational costs and the income that operators can generate from their services.


Start page of video
from Short Course by BMRC

Video from Wireless Communications Networks Short Course

"If I can give you one megahertz of spectrum for a period of one year and you're allowed to do with it whatever you want. Let's ignore for a moment the technological, standardization and investment issues, and only consider operational aspects. If you can decide whether you put up a commercial radio station, a commercial television system or a cellular radio system, what would be the most lucrative thing to operate? . ... ."

Embedded QuickTime Video

 

Negroponte Switch

In 1949, the FCC allocated the spectrum between 470 and 890 MHz to television broadcasting and turned down requests to set apart spectrum for radio telephony. In the last decades the opposition against the substantial use of spectrum by television was growing.

Nicholas Negroponte argues that because of the growing demand for spectrum resources, these will eventually only be used for services that cannot be tethered, particularly personal communications and mobile computing. Television broadcasting, which currently occupies about half the radio resources below 1 GHz, could better be provided through cable networks.

Additional Services Carried by Broadcasters

On the other hand, broadcasters argue that new developments allow sufficiently efficient use of the spectrum. Moreover, broadcast facilities increasingly offer personal communication services. Examples of such broadcast-related systems are

Is spectrum really scarce?

 

Cooper's Law

 
 

The effeciency of spectrum usage has tremendously increased since 1896. In fact the growth is exponential, similar to the famous Moore's Law for computer performance. On average, the "capacity", expressed as the number of telephone calls that can be conducted simultaneously in all available spectrum, has double every 30 months. since 1901, it has increased by a factor of 1 trillion (1,000,000,000,000).

Since 1950 the spectrum efficency improved 1,000,000 times:

  • About 15 time because technology for higher spectrum bands became available.
  • Modulation methods in itself resulted in a modest improvement
  • The ability to reuse spectrum in a cellular fashoin resulted in an improvement factor of 1,000 to 10,000. This was indirectly made possible by using better modulation methods.
 
     

 

 

Fair Frequency Assignments

It is not yet evident on which basis equitable access by competitors to scarce frequency and number resources can best be granted.

Experiences in the United States

In the US, the FCC has experimented by replacing cumbersome administrative hearings by simple lotteries of frequency assignments. This resulted in rapid taking of 'windfall profits' by fortunate winners, who simply sold their successful lots immediately after award. In one case a license won with a few hundred dollars was sold to an interested network operator for 40 Million dollar. This proves that frequencies have a substantial market value.

Where the Public Purse wishes to enjoy the profit of this, the government designed an auction system and the defined associated property rights very carefully to avoid being outsmarted by collusions of bidders.

US PCS licensees have already (1995) spent some $ 7.7 billion to buy 99 franchises in the 1900 MHz band in auctions organised by the FCC in early 1995. They now have to choose among the three available standards, the GSM-like PCS-1900 and IS-54 (TDMA), or IS-95 (CDMA).

Randy Katz discusses allocation policy issues addressed in Washington.

Experiences in The Netherlands

In a country of 15 Million inhabitants, the Ministry of Traffic, Public Works and Telecommunications administers 91,000 licenses to operate radio transmitters, out of which Radio communication in its broadest scope provides 1 percent (about 4 Billion USD) of the gross national product.

Cellular in Holland

The license for a second GSM operator was based on studying 'bid books' of four potential operators in great detail. However, differences between their proposals appeared to be marginal. While the costs for evaluating the proposals exceeded 1.5 Million U.S. Dollar, the license was eventually granted on minor details.

In 1997, frequency bands for a DCS 1800 cellular telephone operator and four FM broadcast frequencies will be auctioned.

Experiences in New Zealand

In New Zealand, 'one-shot' auctions lead to wildly varying winning bids for different allocations.

Exercise

Governments, broadcasters, cellular operators all have difficulty in assessing the exact value of spectrum. Would you be able to estimate it, or at least approximate the order of magnitude? Try to estimate investment and operational costs of the operations and estimate possible revenues. Try to find out the value of radio spectrum (per MHz, hour, square kilometer) for Include in your investigation also frequency planning margins needed to allow proper frequency reuse. Which is the most profitable use?



Wireless Communication Jean-Paul M.G. Linnartz, 1993, 1995.