Markets in spectrum licenses

I have an abiding interest in cooperative spectrum sharing. One form of this sharing is license trading, though the volume of spectrum trades are quite impressive (see this paper). But the FCC Universal Licensing System does not contain the dollar value of spectrum transactions, which makes this article all the more interesting. According to the article,

The company is selling up to 40 megahertz of spectrum per market, a slice of its wireless capacity, one person said. A value of 20 cents to 40 cents per megahertz of spectrum per U.S. resident would reach the $2.5 billion to $5 billion price tag, Jennifer Fritzsche, an analyst at Wells Fargo Securities LLC in Chicago, said in a research note today.

The lower end of that range would be in line with sales of similar spectrum in Europe, she said. The company has an average of 120 megahertz of spectrum in each market, she said.

This is precisely the kind of outcome I expect in an unregulated market: companies that have more spectrum than they need should sell it to those that need more. What is clearly missing is public pricing information!

Demand for spectrum

In the end, what may end up driving the development of dynamic spectrum access (DSA) technologies (such as cognitive radio) is the demand for spectrum driven by mobile uses. GigaOm has this item that lays out the case as succinctly as I have seen (thought he doesn't mention DSA). DSA can allow carriers to tap into idle spectrum to address temporary over-capacity problems.

Report on WiFi Hotspot Usage

This report from In-Stat is interesting but not surprising: WiFi hotspot usage is increasingly shifting from laptops to hand held devices:

As a percentage of total connects, handhelds increased from 20% in 2008 to 35% in 2009. By 2011 handhelds are anticipated to account for half of hotspot connects ...

I wonder if we can anticipate a model where handheld devices automatically test WiFi hot spots for data service either in conjunction with or instead of carrier-based services. Using this in conjunction with carrier services would require inverse multiplexing capabilities in the phone and in the service provider, which is more complex and requires more coordination than an either/or type of service. The capability to augment carrier-based services could ease the pressure on spectrum that some carriers are reporting due to the increasing popularity of smart phones.

Importance of framing

No, I'm not talking about Time Division Multiplexing. This NOI from the FCC came to my attention (via this item in Ars Technica). I have addressed the importance of the "framing" of a topic in regulatory reform before (see this item), and I believe that this may be a similar example. Here, it seems as though the FCC is framing the debate about spectrum reform as a matter of broadband policy, which, of course, is related if wireless access is a key component of broad policy. Maybe Tom Hazlett's ideas are gaining traction after all?

First "white spaces" deployment

In this article, Ars Technica reports on what they claim is the first use of "white spaces" in the television band. As I stated in my iConference paper, I believe that the white spaces ruling will be of greatest benefit to rural communities.

Quoting the article:

The nation's first wireless broadband network operating in unused TV channel "white spaces" is now live in an unlikely spot—Claudville, Virginia.

Claudville is a small place—only 20,000 people live in the entire county, and only 900 in Claudville proper—and its Blue Ridge Mountain terrain has made Internet access hard to come by. Combine that with a countywide per capita income of $15,574 and its not hard to see why the big ISPs haven't rushed to Claudville.

In this case, the white spaces provided "backhaul" for WLANs that were deployed in town. I don't know whose equipment was used, though it appears to be a database-driven radio rather than a sensor-driven cognitive radio.

Microsoft study places value on white spaces

I found this article interesting.

The study, by consultant Richard Thanki of Perspective Associates, suggests that by augmenting current unlicensed wireless networks, such as Wi-Fi hot spots, the white spaces could generate between $3.9 billion and $7.3 billion in value annually over 15 years. That would be the result of increased use of consumer electronics and other factors, according to the study.

In his study, Thanki writes that white spaces spectrum offers a broader range than a typical Wi-Fi connection. A single Wi-Fi access point enhanced by the white spaces could "fully cover a large building and the neighboring grounds and areas," he writes.

In addition, use of the white spaces could lower the cost of providing Internet access in rural areas, Thanki writes.

While chips used to power white spaces devices would initially cost roughly $10 more than existing technologies in 2012, the difference should steadily decline at a rate of about 30% annually from that point on, according to the study.

I would love to get a copy of that study ...



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Wireless carriers and applications

This article from GigaOm is interesting. Basically, the article explains that carriers are benefiting from consumer interest in social networking, which has migrated to wireless platforms. Interestingly, this was not an application carriers had in mind when they made investments in 3G infrastructure. How will carriers justify their upcoming investments in 4G?

The nature of telecommunications is that large investments must be made before revenues can be realized. The telecom network has to be largely built out before it becomes valuable to consumers. As a result, investments have traditionally been conservative and tied to applications. The telephone network was tied to voice communications and associated services, etc. A significant exception was the Internet, which was built with no particular application in mind, but then it was also built with government funding. It wasn't privatized until a commercially interesting application set emerged (email and the web).

The phenomenon that this article describes indicates that unexpected applications (social networking) are a significant new revenue source for carriers. Will this change their investment model? The other thing that is addressed, though not explicitly, is that these applications require collective action from independent entities whose interests are partly common and partly at odds. Applications need broadband and want it to be cheap. Social networking works better with smart phones, which are more costly than "regular" ones. So manufacturers need joint marketing agreements with carriers, yet they want the ability for users to control applications and configuration.

If high-revenue end user applications can no longer be predicted or managed by telecom carriers, how will their investments be justified? It seems that carriers need a strategy and a set of tools for managing investment risk. Physical commodities have futures markets for this purpose.

One of the reasons why I am interested in markets for capacity (most recently spectrum) is that derivatives (such as futures) are possible, which allow for industry restructuring. In the absence of explicit risk management, carriers will integrate applications with carriage, which leads to "network neutrality" concerns.

We should have seen this coming ...

It seems that many FCC decisions are challenged in Appeals Court, so this one, challenging the "white spaces" decision, shouldn't come as a surprise. This could turn into an entertaining "food fight", though, pitting the powerful National Association of Broadcasters (NAB) against the well connected White Spaces Coalition.

On a related note, you might find this editorial by Tom Hazlett interesting. Hazlett writes:

The new Obama Administration got Congress to fast-track an 11th-hour delay, pushing back the mandatory analog switch-off until June 12, 2009.

But many TV stations wanted to cut their analog broadcasts anyway. In truth, they believe that over-the-air transmissions are a waste, not worth the electricity it takes to send them. Hence, some 420 TV stations pulled the plug last week, joining another 200 analog stations that had already signed off.

Later in the article, he writes:

One hundred million households now pay $600 or so per year to avoid [over the air broadcasting], subscribing to cable or satellite. Well over 90 per cent of TV viewing takes place in households opting out of broadcast delivery. And for a very small additional investment – no more than $3bn – every last rabbit-eared home in America could join them.

Yet, the US is subsidizing off-air receivers; $1.5bn has been allotted for digital set-top converters (two $40 vouchers per family), and the Obama “stimulus” pumps in $650m more. This is not merely money down the drain. In extending life-support to DTV signals that hog hugely valuable frequencies, consumers lose hundreds of billions worth of wireless service. The bandwidth available to iPhones, Blackberrys and GPhones and other emerging technologies would double were TV air waves to accommodate mobile apps as requested in 1985.

Why don’t all broadcasters – digital and analog – just unplug? First, their licenses mandate that they broadcast TV signals, and they cannot legally sell the air waves used for more valuable services. And second, because their signals continue to reach one key target audience: Congress. Those appreciative entertainment fans reward stations with “must carry” rights forcing cable and satellite operators to provide their subscribers all local channels. The off-air transmission is a side show; gaining free cable carriage the main event.

If you agree with Hazlett's viewpoint, the NAB's challenge to the white spaces decision is consistent with a "do whatever it takes" strategy to preserve the existing business model, regardless of whether they are viable in the long term.

New spectrum license fee in the US?

Spectrum license fees are one way to encourage spectrum users to use spectrum efficiently. The trick is to set the fees properly; if they are set too high, then spectrum will be underutilized with respect to their social benefit, and set too low and it doesn't accomplish efficient utilization. On page 126 of his recent budget proposal, the President is proposing increasing revenues from spectrum licenses to US$550M to US$50M over four years, 1000% increase.

There is little but speculation about which spectrum will be taxed, since the Office of the President is apparently saying little about this. The PFF has remarked that, if applied to mobile carriers (which have already paid for licenses through auctions), the tax is quite regressive. According to this item, this fee may just apply to broadcasters. If this is the case, it will help motivate broadcasters to refocus on being programming producers (and possibly aggregators) since it will cost them ever more to transmit their product to an ever-diminishing audience at even higher costs than before. Michael Marcus just posted this related item.

A couple of telecom-related URLs

I need to break the "radio silence" ... I've been pretty busy with administrative projects and travel, so blogging has taken a back seat.

I have been working on dynamic spectrum access (DSA) for a number of years now. A paper on one of my projects, together with Arnon Tonmukayakul, is coming out in Netnomics shortly. In addition, I presented a paper on DSA and the FCC White Spaces decision at the recent iConference. Hopefully, the papers will be made available soon.

So, given this, I found this site to be of interest. You can use it to find the TV white spaces at a particular address.

If you go back through this blog, you'll find that I have been interested in (OK, critical of) comparative studies of broadband penetration. So, I found this site interesting, which looks at broadband from the point of view of connectivity rather than penetration. From this perspective, rankings (for what they're worth) look quite different.

Spectrum trading

Spectrum trading is one of my areas of interest. So, it should come as no surprise that this article caught my attention. How is this different from the current broker-based approaches to "spectrum trading"?

Miscellaneous topics ...

I had a few items that I wanted to blog about over the past couple of weeks. So, in an effort to clear out my backlog, let me summarize them here.

• The US GAO published this report, which is fairly critical of the US FCC and other agencies with regard to the upcoming conversion to digital television. The "switch off" is just over one year away, and consumer education has been basically non-existent.
  

  Update (2008-01-03): The FCC published their Third Periodic Review of the digital TV transition. No mention of the GAO report that I could find ...



• On a similar note, the UK regulator Ofcom issued this report that examines alternatives for using the "digital dividend", which arises from the sale of the spectrum formerly used by analog television.


• Changing gears a bit ... this article in BusinessWeek gives hope to the fans of Municipal Wireless. The Spanish WiFi operator FON seems poised to enter the void that Earthlink is leaving after it reevaluated its participation in this market. They have a different business model. Will they find more success?


• There are a couple of interesting items on the international front.
  
  
  
  • Take a look at this (from Swivel, one of my favorite sites), which shows the dominance of prepaid wireless in China's market.
  
  
  • Gordon Cook unearthed a fascinating, detailed report on providing wireless to Nepal. See Gordon's post here. I have been unable to locate it on the World Bank's website.
  
  
  • In this article, the possibility of a "natural limit" to Kenya's mobile market is raised. I am always suspicious of these kinds of projections, because they normally assume that the future will be driven by forces similar to those driving the markets today. History has shown us the disruptive power of wireless technology, after all ...
  
  
• Speaking of natural limits, I have been interested in the pending conversion to IPv6, which has been prophesized for several years already but which has not yet happened. This article over at CircleID provides more grist for this mill. Is it different this time, or should we expect more of the same?

Happy New Year, dear readers!

Inside the spectrum auction

This article in Forbes provides an interesting insight into the workings of the upcoming 700 MHz auction. Since Forbes doesn't do permalinks, I will quote from the article more liberally than I prefer to:

If you're a 150-person start-up going up against the likes of AT&T, Verizon and Google in the upcoming auction of wireless spectrum, you look for any advantage possible.

Towerstream, a tiny Middletown, R.I.-based fixed-wireless Internet provider, is hoping telecom lawyer Dee Herman will give it a leg up against the competition. Herman, a principal at Bennet & Bennet, is part of a cottage industry of lawyers, consultants, engineers and economists that companies are hiring to boost their chances in the closely watched Federal Communications Commission auction that could redefine the telecommunications industry.

[snip]

Experts say larger companies are more likely to have in-house teams that assess the value of particular slices of spectrum and come up with different bidding scenarios Those with fewer resources are hiring outside consultants and lawyers, who may, in turn, work with bankers or economists to devise strategies. Even Google, which has set up a war room at its Mountain View, Calif., headquarters, is consulting with auction experts and game theorists to gain an edge over the competition.

Consultants and lawyers usually file the applications on behalf of companies. They also get tapped for a multitude of other tasks, including supervising auction deposits and payments and deymystifying FCC regulations, such as the FCC's anti-collusion rule. Consultants and lawyers also may help craft business plans, determining, for instance, how particular licenses complement a firm's projects or other spectrum holdings, how much a particular slice of spectrum is worth and what an appropriate bidding strategy would be.

These outside consultants describe their role as streamlining a somewhat Byzantine process. "The process of bidding, looking at results and strategizing with our clients to figure out their next move can be constant, consuming and all-encompassing," says Herman, Towerstream's outside legal counsel, who is also representing several other bidders interested in different geographic areas. Some clients, he says, enjoy the frenzy and get intimately involved in the details; others prefer to have updates e-mailed to them.

Experts differ on the advantages of outside help but agree that the real payoff may simply be saving time in what can be a weeks-long process. In spectrum auctions, bidding stays open until no new bids are received, at which point the entire auction ends. That helps ensure no one cuts in and outbids someone at the last minute. It also means serious competitors must keep a close eye on the auction until the end.

Compounding the complexity, FCC auctions tend to begin slowly, with two to three rounds per day, then ramp up to as many as eight to 14 rounds. A smaller spectrum auction held last fall with 168 bidders went 161 rounds over 29 days. The 700 MHz auction is expected to last longer, given thee greater number of participants and the higher perceived value of the spectrum.

Despite the plethora of options, many players will probably go it alone. The FCC says it has taken pains to make the auction process easy to navigate. A Jan. 22 mock auction is scheduled to familiarize participants with the bidding software, which has been fine-tuned over the past two years and includes a section of frequently asked questions. Like the real auction, the mock auction will have anonymous bidding, which means companies will know the amount of the highest bid and whether they submitted it, but not who they're bidding against. Limiting information in this way could help level the playing field, experts say.

While I believe that auctions are the most efficient way to do spectrum assignment, I think this article highlights some of the shortcomings of this mechanism. It seems clear that smaller participants stand at a relative disadvantage. Can you imagine how it might go if governmental agencies (eg., police and fire departments) had to enter this auction for their spectrum needs as well?

World Radio Conference

The ITU-R's World Radio Conference is nearing its end. There has been little reported (that I am aware of) beyond this item. You might find this site useful if you want some more details that you won't find on the official site (at least without paying for it). If you do a search on "WRC-07", you'll find an array of position papers and a few reports beyond this one. I guess it isn't that interesting to the population at large, even though the stakes are enormous.

AT&T's spectrum purchase

Showing that a secondary market does, in fact, exist in spectrum (even if it is "lumpy" and very thinly traded), AT&T purchased spectrum at 700MHz. So, it is interesting to speculate about AT&T might use this spectrum.

GSM-based systems are currently not designed for 700MHz ... so do you think this is for WiMAX? Is AT&T's recent spectrum purchase like an option on a future WiMAX network?

700 MHz auction

Much (virtual) ink has been spilled regarding next years auction of the 700MHz band (much of which took place during my hiatus from blogging earlier this year). At the encouragement of new potential auction participants (like Google), the FCC adopted some new rules. According to this item from Ars Technica (and which has been reported elsewhere), Verizon is now appealing the FCC's decision. This could delay the auctions as the Appeals Court decides on the matter. Stay tuned ...

Apple and the spectrum auctions

There have been numerous rumors that Apple will bid on spectrum in the upcoming auctions (see this, for example). In this article, Brian Caulfield of Forbes argues that this speculation doesn't make sense for Apple.

How would Apple's entry change the dynamics of the wireless industry?

M2Z and 2.1GHz

This article, posted over at Ars Technica, is interesting. It describes a proceeding before the FCC by M2Z networks. What is interesting is that M2Z is proposing that the up-front payment for the spectrum (which is the policy in the US) be substituted by a payment of 5% of gross revenues. In essence, the US becomes an investor in the network, and stakes its return on the success of M2Z's business plan and its management's ability to execute it.

What are the advantages and disadvantages of this for stakeholders (eg. government, M2Z, M2Z's competitors, and US taxpayers)? If this plan is adopted, should the US government have a voting role in M2Z's board? If so, who would do this?

Update (2007-09-10): While this may be old news at this point, CNET reported that this proposal was voted down by the FCC.

Update (2007-09-24): The Washington Post had this article about M2Z's system.

CRS report on spectrum auctions

If you are interested in this subject, you might enjoy reading this report from the Congressional Research Service, courtesy of the OpenCRS project of the Center for Democracy and Technology. Quoting the summary:

The FCC has issued the rules it will set for the upcoming auction of the old TV channels. Issues that have been raised in the discussion over how best to allocate this spectrum include the creation of national licenses with open access for wireless devices, the treatment of designated entities — with references to NextWave, blind bidding, how much spectrum is needed for public safety communications, and proposals to provide spectrum for shared use between public safety and the private sector. In particular, proposals put forth by Cyren Call, Frontline, and Google, Inc. have sparked an ongoing public debate about the “highest and best use” for the spectrum currently designated for auction by the Deficit Reduction Act.

Emerging trend in wireless?

There has been some buzz in the industry around something that some have referred to as "wireless Carterfone", reflecting the 1968 FCC decision that began the deregulation of CPE in the wireline industry. This buzz has now risen to the level of BusinessWeek, in this article. As I blogged earlier, Google has sought the creation of a wireless wholesale market in the upcoming 700MHz auctions, where users have the freedom to attach handsets of their choice. This item points to some of the "pro" and "con" articles (emphasizing the latter, in this case).

Why do carriers build "walled gardens"? Should this be a matter of public policy or private choice? How is this different from people purchasing unlocked GSM devices?