The Wireless World
There’s a growing wireless world out there which is dependant on spectrum, be it TV, radio, satellite, mobile,wireless broadband or short range devices in the commercial sector, defence, emergency services, scientific research and the like in the public sector. It's estimated that the market for commercial wireless services is worth € 200 Bn (and growing) with demand for spectrum forecast to outstrip supply in the prime frequency bands in the next decade. Spectrum is becoming increasingly valuable as a result and, as a national asset, governments need to consider how best to exploit it.
In Europe, the European Commission wants to create a highly fluid, liberalised spectrum market which will free operators from licence restrictions on usage and enable them to trade their rights with other operators or third party band managers. It has developed specific policies in relation spectrum used to provide electronic communication services (referred to as "WAPECS") which it is now starting to implement. It has also used the recent review of the EU regulatory regime for electronic communications (the EU Framework Review) to embed its policies into the new regulatory regime and ensure the necessary powers and measures exist to enable the implementation of its policies going forward.
Spectrum management is complicated though- it involves technical, regulatory, economic, public policy, industrial policy and even sovereignty issues. There are also a lot of vested interests. Some proposals, in particular in relation to the potentially lucrative "digital dividend" spectrum are highly contentious with broadcasters, mobile operators, broadband providers and equipment manufacturers all jostling to achieve varying regulatory outcomes, creating a challenging environment for the Commission and the national regulators. This article considers the development of EU spectrum policy to date, including the WAPECS approach, explores how this is being applied to the regulatory treatment of the digital dividend and looks at some of the implications of these policies for the market.
Spectrum is needed for a wide range of uses both in the commercial world, be it broadcasting, mobile, satellite, navigation systems, short range devices and the public sector for defence, scientific research and emergency services and so on.
UK breakdown taken from Ofcom Spectrum Framework Review 2004
The total value of wireless communication services in the EU which depend on spectrum in the EU is estimated to be more than EUR 200 Bn and is growing. The market is experiencing a massive increase in the number of devices with inbuilt connectivity, not just phones and laptops but also cameras, gaming devices and MP3 players. Devices are also getting more advanced, with more mega pixels, higher processing power and increasingly complex algorithms, all at affordable consumer prices. New advanced mobile and wireless technologies are going to dramatically increase demand for bandwidth, for example rich voice services ( such VOIP, video telephony ), mobile (internet, TV, commerce), TV( local televisions, HDTV) multimedia messaging, car navigation systems, machine-tomachine (sensor modes in home appliances). Delivering the full potential of these services requires more spectrum. In fact, studies on spectrum show demand is likely to outstrip supply for many frequency bands below 15GHz in the next eight years.
In the face of growing demand, there is increasing pressure for all spectrum, including that used by governmental agencies, to be used more efficiently: this may mean using new technologies to get more out of the spectrum, allowing existing spectrum to be used for more advanced services, releasing any unused spectrum or allowing spectrum to be shared.
Although its use is coordinated at the global level, spectrum is a national asset and governments all over the world are looking at how to best manage and exploit it with the result that spectrum reform is happening in different countries, in different ways and to different timeframes.
The problem is that in the wireless world, size matters for cheaper manufacturing costs and the ability of users to use devices across countries. It is for this reason that the EU has increasingly been focusing on how best to address the future demand for spectrum while seeking to create an EU-wide market for wireless services.
Spectrum Management Models
The different models
Historically, spectrum management has been based on “command and control” or the Administrative Model. Essentially, spectrum is a government asset and the government decides how, when, where and who will use it and for what. Apart from a few ad hoc harmonisation measures in the past (such as the very successful GSM and the rather less successful ERMES), this model has been implemented at the national level.
However, while the administrative model may recognise the economic value of spectrum through licence fees, it does not promote spectrum efficiency. If you take the example of the 3G operators in the UK in 2000 who paid over £4Bn each for their licences: they had to buy the spectrum when it was auctioned, rather then when they wanted it; they had to roll out their services in accordance with government decree, rather than in accordance with demand; they had to use the technology specified in their licence, not the best technology that developments could offer; they couldn’t sell or lease out any spectrum that they didn't need; and at the end of the term, they will have to give it back. It is this kind of inefficiency that can create a bottleneck.
There are, however, different recognised alternatives to the administrative model. In particular the:
- “Collective Use" model: which essentially allows free access to spectrum under some technical limitations. Several local users can jointly use a spectrum band but there is no guarantee of interference-free operation. This management model is already used, for example, for cordless phones and WiFi in the UK.
- "Market based" approach: which provides spectrum holders a tradable right so that they can decide if they want to sell, lease or share their spectrum.
The EU has over the last couple of years established the principles of its spectrum policy, namely to use a mix of these approaches. The way in which it is considering doing this is explored below.
The concept of Collective Use not only covers licence-exempt but also light licensing (e.g. registration or notification), underlay (such as Ultra Wide Band) and overlay (using cognitive radio techniques) and other future types of spectrum sharing (private commons).
The main applications to date of the collective use model have been low cost, short range devices (SRDs) such as cordless phones, WLANs, wireless doorbells etc., which are typically intended to operate over distances of 100 metres or less.
Collective Use licensed applications are becoming increasingly important market - each category of application is growing exponentially and they are estimated to reach a collective value of €24 Bn in the next couple of years.
The collective use model is most attractive for low cost equipment where the administrative overhead associated with licensing would be disproportionately high, and also where a high degree of international mobility is involved, since it is then impractical to obtain a licence in each country visited. Obviously, though, collective use can only be successful if issues of interference are resolved or interference can be tolerated.
The Commission is at the stage where it looking to understand what the benefits and implications are of increasing the use of the Collective Use model in Europe. Issues it will be keen to address are:
- speeding up and simplifying access to collective use spectrum: by removing unnecessary restrictions from existing allocations and making sure that information about conditions of use are simplified;
- making more spectrum available for collective use: by setting a presumption that collective use is used (rather than individual licences) unless there is a risk of harmful interference;
- harmonising more collective use allocations: while the EU has already introduced harmonised collective use measures for RLAN (radio local area networks), RFID (radio frequency identification) and SRDs (short range devices), as well as UWB, more needs to be done.
The Commission has already proposed a list of applications/devices for which it thinks the model might be suitable and it is trying to get a better understanding of interference models. It is intending to issue a Communication on Collective Use at the end of this year, so 2008 is likely to provide a clearer picture on Collective Use policy in Europe.
Market Based approach
In a market based approach, holders of spectrum rights can trade them (instead of the use it or lose it approach) and, in this way, the market decides how spectrum is to be used. The expectation is that by creating a highly fluid spectrum market, both the direct and indirect costs of access to spectrum can be reduced and innovation and competition can be increased.
The Commission is proposing to gradually move towards a market-based approach, away from the administrative model, by phasing in spectrum trading across Europe over the next few years. It is estimated that the net gains of introducing spectrum trading across the EU will be in the region €8-9 billion per year.
The Commission has recognised that certain spectrum bands are not suitable for trading, such as spectrum used for public interest purposes (e.g. defence and scientific services), or spectrum that is managed at the global level (such as aviation and satellites). It has, however, identified that trading should be introduced for spectrum used for terrestrial mobile, fixed wireless and TV and radio broadcast services.
Trading would allow rights holders to sell, share or lease their spectrum to third parties as they see fit- whether all or part of the spectrum band, the whole or part of the geographic coverage, temporarily or permanently. The rights might be sold to other operators or to third party "band managers" who it is envisaged may emerge to manage spectrum rights but not use them themselves. Some restrictions would apply however. Spectrum authorities will reserve the right to block trades where they are anti-competitive (for example, to prevent hoarding) and would also retain the power to take back bands from users where justified by specific general interest objectives, such as the introduction of a pan-European service (in which case, a fair compensation would be payable).
The Commission is very aware that, by introducing spectrum trading, there is a concern that existing right holders are not penalised. An example of this issue has been in the UK, in relation to the 3G expansion band auction proposed for next year. The existing mobile operators objected to the 3G expansion bands being auctioned with tradability rights without Ofcom proposing to give them equivalent rights under their licences, since they would potentially be competing in the same market as any new licensee and this would be discriminatory. Ofcom has now proposed giving tradability rights in their licences. The challenge for the Commission and the national regulatory authorities is, therefore, going to be in the implementation of the new policy.
In the context of this new approach to spectrum management, the Commission is adopting measures specifically in relation to spectrum rights used to provide wireless electronic communication servicesreferred to as the Wireless Access Policy for Electronic Communication Services or "WAPECS".
To date, spectrum has been licensed subject to conditions which require the licensee to use specific technologies (such as 2G) and offer specific services (such as mobile services). In a converged world and with the new technological developments, these restrictions create a bottleneck preventing spectrum from being put to other uses, such as 2G spectrum being used for 3G or WiMax for example.
The Commission recognised that there was a need to free rights holders from these restrictions and enable the market to decide what the spectrum should be used for. The basis of the Commission's WAPECS policy is, therefore, a presumption of technology neutrality (a freedom to use the spectrum using any technology) and service neutrality (freedom to use the spectrum to provide any service) i.e. spectrum licences should be issued without restrictions on use or technology.
There is, however, only a "presumption" of technology and service neutrality. It is recognised that there will be circumstances in which a technology or service neutral approach will not be suitable. The Commission has gone some way to defining what these are (for example avoiding harmful interference) but it includes exceptions based on "a limited number of legitimate general interest objectives". This has the potential to be interpreted in different ways by different member states and the Commission intends to ensure that a coordinated approach to exceptions is taken across the EU.
The Commission has identified a number of spectrum bands which would be suitable for applying the technology and service neutrality principles to in the first instance. These are: 470-862 MHz (UHF bands), 900 MHz and1800 MHz bands (2G bands), 2GHz bands (3G band), 2.6 GHz (3G expansion band), 3.4-3.8 GHz (L band). In addition to any minimum common technical requirements which need to be established for these bands in order to introduce technology neutrality, the Commission is also working on establishing some common conditions of use, including requiring spectrum trading, competitive selection procedures and long licence durations.
There will be substantial transitional issues to tackle for the WAPECS approach is capable of being implemented in practice. There are, for example, constraints at the ITU and EU level, border coordination issues and existing licence holders have long licences, so waiting for these to expire before introducing the change of policy will not be an attractive solution. As a result, the Commission is also working at adopting common criteria to solve legacy issues, including the issue of spectrum refarming (in particular allowing spectrum licensed to provide 2G services to be used to provide 3G services) and compensation mechanisms.
The UK has, in fact, gone some way already to implementing WAPECS on a national level. It has come across significant resistance from different sectors with major concerns in relation to interference under the new approach which were, for example, instrumental in delaying the 3G expansion band auction until next year. Equally problematic are the vested interests of the different players in the market. The 2G/3G re-farming issue is likely to become bogged down in the UK by the threat of litigation in a market where you have four 2G/3G operators who would benefit from re-farming, but one 3G operator who would not. So technical and legacy issues are not to be underestimated.
The spectrum reforms set out in the EU Framework Review serve to provide measures to assist in implementing the WAPECS approach by providing for more detailed processes for the use and harmonisation of spectrum.
Most controversial of the EU Framework Review proposals though (and the subject of many a headline recently) is the proposal to create a new pan-European regulator, the Electronic Communications Market Authority (ECMA). Among other things, it is proposed the ECMA would take responsibility for the licensing of pan- European wireless services. While, in theory, pan–European licences for pan- European services would benefit operators, it is not clear how many pan-European services there will be in practice. In any event, the proposal to create the ECMA is going to be subject to heavy negotiation and it is not clear when, if ever, it will ever get through.
Alongside the EU Framework Review, the Commission also published its latest thinking on the application of the WAPECS approach to the spectrum bands known as the "Digital Dividend", the most highlyprized spectrum to be released in Europe for years.
The digital dividend is generally understood as the spectrum made available over and above that required to accommodate the existing analogue television services in a digital form. It includes the VHF (band III: 174-230 MHz) and UHF bands (bands IV and V: 470-862 MHz). It will only become fully available throughout Europe after complete switch off analogue television, set for 2012. although in some countries, switch off has already happened (such as the Netherlands and Sweden).
The allocation and use of the digital dividend is very contentious because it’s the largest amount of premium spectrum to be released for decades in the EU. Broadcasters want to use it for higher number of programmes, increased coverage, local television or high definition television. They argue that they have a public service remit which justifies their holding onto the spectrum. Other users want it for mobile telephony, broadband access (particularly to remote areas), low power devices, private mobile radio, military use, as well as public protection and disaster relief.
There are differing views across the EU. Some want to enhance the broadcasting service while others want to keep choice open. In the UK, Ofcom has taken view that the digital dividend should be offered to the market by auction.
At the EU level, the view is that Member States must take the WAPECS approach into account and that any deviation from the principles of WAPECs will need to be justified. The Commission also wants to see clarification at the EU level on the justification for broadcasting to be a justified "public interest" exception to the WAPECS approach.
Aside from public interest issues, there are also significant technical issues which make it difficult to stick to the principles of technology and service neutrality. There are, for example, technical boundaries which involve protecting existing or planned in-country DTT (digital terrestrial television) services from interference from other services and there are differing uses of the same frequencies across individual Member States. It is understood that Germany's digital dividend could be minimal when issues such as these are taken into account.
The Commission, in its recent Communication on the Digital Dividend, called for a coordinated response to the digital dividend across Europe. It made clear that a sub-band of the Digital Dividend should be subject to EU "harmonisation measures". This could mean any released frequencies in this sub-band will not be able to be reserved for broadcasting use, but would be assigned in a competitive fashion. This wouldn't prevent broadcasters bidding for extra spectrum, but in any auction they would have to compete against the economic might of the mobile and IT industries. Broadcasters are naturally opposed to this proposal and many EU member states are likely to resist it.
The planned spectrum reforms in Europe will give potential for wider and easier access to more spectrum BUT that's only if the technical and legacy issues can be dealt with and the way in which they are dealt with will affect the extent and the timing of any impact on the market. Where these issues are dealt with, then potentially:
- Short range autonomous communications providers should benefit from easier and cheaper access to spectrum. More harmonisation measures are likely in relation to existing allocations and new spectrum will become available. It's possible that some UHF spectrum from the digital dividend might be made available on an unlicensed basis for inhome multimedia services.
- Broadcasters are fighting hard for access to the digital dividend. They do not want to have to pay for it and argue that if they do, it may hamper the introduction of HDTV (high definition television) by the public broadcasters. Increased flexibility across bands may also provide benefits, but may also provide increased competition, if the UMTS band could potentially be used for some broadcasting services.
- Mobile operators are clearly very attracted to re-farming, both as a means of improving rural coverage and in-door use as well as reducing network costs. But if they have to exchange some of their existing spectrum for increased flexibility (as is proposed in the UK), it might be less attractive. Any spectrum given back will also mean more competition. The 3G expansion band auction may mean more competition for them (particularly as WiMax has recently been ratified as IMT 2000). The digital dividend spectrum, on the other hand, could be very valuable with many potential uses including mobile TV.
- Broadband operators require additional spectrum for expansion of existing and new services. Most of the candidate bands are suitable for wireless broadband and their availability should be a boost, for example, for WiMax.
Trading will affect all sectors. It is not clear when there will be a thriving market for spectrum or whether intermediaries (i.e. band managers) will emerge to buy, sell, lease, but not use, spectrum. The auctioning of the digital dividend will be the most likely to draw interest. In the UK, private equity and venture capital groups are already eyeing it, raising government hopes of a multi-billion pound auction in the future. This would pose new competition for the UK broadcasters and mobile operators hoping to get their hands on the spectrum.
In the meantime, one thing that will benefit all operators is increased visibility as to what spectrum is available, for what purposes and whether it is tradable. The EU is working on an EU information portal. The aim is to have this up and running from 2008 and complete by 2010.
The Future of Spectrum
There are important economic imperatives for getting spectrum management right and substantial vested interests in the market. The principles of the EU's proposals on spectrum reform are established. The challenge for the EU now comes in the implementation- technical conditions and interference issues are significant, there are wide differences in spectrum policies across countries in the EU and there are substantial legacy issues resulting from existing spectrum holdings. If the UK experience is anything to go by, the next few years are likely to be testing for regulators, tense for existing rights users and full of interesting opportunities for new entrants. No stone is to be left unturned- next up for review is public sector use of spectrum, so not only operators, but also government agencies, will need to start developing spectrum strategies in response to the reforms if they want to get the best regulatory outcome for their operations.