The Economic Significance of Licence- Exempt Spectrum to the Future of the Internet Richard Thanki June 2012 About the Author Richard Thanki was the lead author of the 2009 Perspective Associates study ‘The economic value generated by current and future allocations of unlicensed spectrum’ He is currently the economic advisor at Real Wireless and is completing a PhD at the Institute for Complex Systems Simulation at the University of Southampton. Previously he was a senior consultant at Perspective Associates and acted as the deputy for Kip Meek, the UKʹs government-appointed Independent Spectrum Broker. Richard was a Senior Associate economist at Ofcom, the UK telecommunications regulator, where he specialised in economic modelling, spectrum valuation and competition issues across the sector. Acknowledgements I would like to thank Paul Garnett, Pierre de Vries, Steve Song, William Webb, Bill Kisch, Charles Barr and Rakel Fredriksen for their help in completing this study. This study was supported by funding from Microsoft but the views expressed are entirely those of the author. [email protected] 2 Contents 1 Introduction and Overview ........................................................................................................ 6 1.1 Connecting all the people ................................................................................................... 7 1.2 Connecting all the things .................................................................................................. 10 1.3 Building resilient and flexible networks ......................................................................... 12 1.4 Implications for policy ....................................................................................................... 13 2 A brief introduction to the radio spectrum and its management ....................................... 16 2.1 The nature of radio communications .............................................................................. 16 2.2 The methods of spectrum management ......................................................................... 18 3 Connecting all the people ......................................................................................................... 23 3.1 The reach and economic significance of the internet .................................................... 23 3.2 Costly existing delivery methods and the underserved billions ................................. 26 3.3 Licence-exempt technologies decrease the costs of delivering broadband and increase the quality of the product .............................................................................................. 31 3.4 Future changes concerning licence-exempt technologies ............................................ 44 3.5 The evolving model of broadband delivery ................................................................... 47 4 Connecting everything else ...................................................................................................... 49 4.1 What is the internet of things? ......................................................................................... 49 4.2 The applications and economic potential of the internet of things ............................. 56 4.3 The role being played by licence-exempt spectrum ...................................................... 59 4.4 The role that could be played by new licence-exempt technologies........................... 64 4.5 The economic repercussions of spectrum unavailability – the example of Europe’s smart grid ........................................................................................................................................ 65 5 Creating robust and adaptable networks – the benefits of user configurable wireless spectrum .............................................................................................................................................. 74 5.1 The importance of robustness and flexibility in our global communications systems 74 5.2 The robustness of individual licence-exempt links ....................................................... 75 5.3 The robustness and adaptability of networks built with licence exempt links ......... 80 5.4 The role of upcoming licence-exempt technologies ...................................................... 87 6 Policy implications and directions for further work ............................................................. 89 3 6.1 The overwhelming case for licence-exempt access to TV white spaces ..................... 89 6.2 Finding an efficient balance of new licensed and licence-exempt allocations to meet the world’s growing demand for data ........................................................................................ 90 6.3 Building economic theory around a better understanding of ‘spectrum’.................. 91 References ........................................................................................................................................... 95 Annex 1 – Broadband affordability data by continent and country ......................................... 101 Annex 2 – Value of Wi-Fi to fixed broadband by country .......................................................... 107 Annex 3 – Value of Wi-Fi to mobile operators ............................................................................. 112 4 Table of figures Figure 1 - Fixed broadband unaffordability by country ................................................................................. 7 Figure 2 - Traffic carried by different channels for different types of device (PB per month) .................. 8 Figure 3 – The traffic generated by UK smartphones on an average weekday split between Wi-Fi and 3G data .................................................................................................................................................................. 8 Figure 4 – The allocation of spectrum in the USA ......................................................................................... 17 Figure 5 – The differing propagation of radio signals in high and low frequency spectrum ................. 18 Figure 6 – The utilisation of spectrum over a 24-hour period in Brno, Czech Republic .......................... 19 Figure 7 – The ISM bands available in ITU Region 2 .................................................................................... 21 Figure 8 – Take up of key communications technologies since 1900 .......................................................... 24 Figure 9 – internet usage frequency in the developed and developing world .......................................... 26 Figure 10 – The proportion of people who would find fixed broadband unaffordable by country ...... 28 Figure 11 - Traffic carried by different channels for different types of device (PB per month) .............. 34 Figure 12 – Comparing the capacity of the Wi-Fi and cellular networks in selected countries .............. 35 Figure 13 – Economic value generated by Wi-Fi through fixed broadband value enhancement ........... 36 Figure 14 – Balance of cellular data traffic and Wi-Fi for selected countries ............................................. 37 Figure 15 - Total weekday smartphone traffic split by means of transport and time of day. ................. 37 Figure 16 - Extra cell sites required in the absence of Wi-Fi by continent ................................................. 38 Figure 17 – Cell sites required globally in the presence and in the absence of Wi-Fi ............................... 39 Figure 18 – The TV white spaces, exiting licence-exempt bands and global mobile allocations ............ 44 Figure 19 – The increase in Wi-Fi speed over time ........................................................................................ 46 Figure 20 – Sales of internet capable devices since 1990 .............................................................................. 50 Figure 21 - Sales of microcontrollers over time ............................................................................................. 52 Figure 22- Devices containing microcontrollers ............................................................................................ 53 Figure 23 - Machine terminals on the internet of things .............................................................................. 54 Figure 24 – Comparison of projections for the size and scale of possibilities of the internet of things . 57 Figure 25 – An illustration of human and machine interactions over the internet ................................... 58 Figure 26 – The varied attributes of licence-exempt technologies suitable for machine to machine connections ......................................................................................................................................................... 61 Figure 27 – The transition to the smart grid ................................................................................................... 66 Figure 28 – The links between the components and benefits of the Smart Grid ....................................... 68 Figure 29 – The balance of technologies used in smart meter shipments in Q1 2011 .............................. 69 Figure 30 – The organisation of a mesh network for smart metering ........................................................ 70 Figure 31 - Advantages and disadvantages of PLC and cellular systems in smart metering application .............................................................................................................................................................................