How indefinite spectrum licences will encourage innovation and investment

hammer-719068_1920Back in November 2000, Ofcom held a spectrum auction of 28 GHz Broadband Fixed Wireless Access (BFWA) licences, which were sold on a 15-year fixed-term basis. During the first few years of these licence terms, some operators invested heavily into 28 GHz hardware and networks, leading to higher levels of innovation by both manufacturers and operators in this band. But operator’s investment levels have a tendency to drop when the licences get closer to the end of their term. This is due to the operator’s business plan (related to the spectrum asset) no longer yielding the required margins and return on investment (ROI).

In a more recent Ofcom spectrum auction in February 2008, 10 GHz, more 28 GHz, 32 GHz and 40 GHz spectrum access licences were auctioned on an “indefinite term”. Following this auction, the majority of licences auctioned in November 2000 have been varied to “indefinite term” too, subject to payment of fees from January 2016. In December this year, the licences awarded in November 2000 will come to the end of their initial term and Ofcom has announced proposals that will allow operators to hold spectrum indefinitely, subject to the payment of fees. This is proposed to be calculated using comparable licence costs of fixed-link in similar frequency bands. The proposal of indefinite licences based on fees will go a long way, allowing operators to sweat deployed infrastructure based on their 28 GHz licence and means that they don’t have to stop operating or replace their 28 GHz infrastructure with costly alternatives. Especially smaller operators, where a substantial amount of revenue is based on their 28 GHz infrastructure, have peace of mind that their investment is not tied to a single fixed period and will continue to grow their RoI. As a result of indefinite licensing, the spectrum value does not decrease over time in the same way as before. In contrary, more recently, the 28 GHz bands gained much more global attention as it is seen as a potential contender to be included in harmonised 5G spectrum. This would have major impact on the value of 28 GHz spectrum and support the growth of the ecosystem.

Ofcom has been aware of how important it is to keep investment levels high in spectrum related infrastructure and therefore the change to “indefinite term” should help to stimulate the industry. Further to the above, Ofcom introduced permitted spectrum trading in 2004 as a way of promoting innovation and competition in the supply of wireless services. But it is also as a way to enable entities with demand to acquire a licence from those in the market either not using, or planning to stop using the spectrum or looking to dispose of their licence and therefore ensures the spectrum is actively being used.

A recent high profile and high value spectrum trade is Qualcomm’s sale of the 1.4 GHz band, which it had acquired in 2008 for £8.3m, to both Vodafone (1452-1472MHz) and Three (1472-1492MHz). This sale was rumoured to have cost the MNOs almost £100m due to growing demand for data and the increasingly sparse quantity of sub-6 GHz spectrum available.

We have even seen many more spectrum trades as a result. I actually orchestrated the very first post-auction spectrum trade between companies in the UK in January 2009 between Broadnet UK Ltd and Luminet (formerly Urban Wimax), where I was CTO at the time. We acquired a 28 GHz Fixed Wireless Access licence (2 x 128 MHz) which contributed considerably to Luminet’s revenue stream since 2009 where we used 28 GHz Point-to-Multipoint kit to provide connectivity to businesses in London.

The introduction of indefinite licences means this will be an interesting time for network operators, a situation that many will be watching closely. It remains to be seen just how much these Ofcom licence fee proposals will impact the value of spectrum licences, but I for one am glad to see these new changes come into effect.

Will cognitive radio, dynamic spectrum access come of age in 5G?

Around 10 years ago, the Defense Advanced Research Projects Agency (DARPA)’s Next Generation Communications program constructed a prototype cognitive radio system, which utilized dynamic spectrum access for its communications. By identifying unused sections of spectrum in the area it was operating, it was hoped up to 10-times more spectrum would be available for transmissions. This highlighted a growing interest in the defense community in dynamic spectrum access techniques which had been developed with the challenges of battle-space spectrum in mind, but also apparently had applicability in commercial environments in terms of making more efficient use of valuable spectrum resources and potentially leading the way to spectrum trading. The XG program was one of the largest cognitive radio projects at the time but interest in Cognitive radio was by no means limited to the U.S.

Martin Cave’s audit of public sector bands in 2005, which highlighted just how much more efficiently U.K. defense spectrum could be utilized, provoked interest in the topic in the U.K. This was produced alongside Ofcom’s Spectrum Framework Review, which set out ambitious targets for a general move from the traditional “command and control” approach to spectrum licensing to a more dynamic approach based on “market mechanisms” with the overall ambition of realizing better value from spectrum for the U.K.

With the switchover to digital television and release of TV white space, a debate was ignited over whether DSA could be applied to these civilian bands too. The obvious example of this has been the activity around TV white space, although the Federal Communications Commission discussion on 3.5 GHz is also significant.

However, the digital TV switchover was six years ago and the commercial roll out of white space devices is still fairly limited due to the complications of deploying these devices in practice. Concerns over the so-called “hidden node” issue (interference provoked by the failure of one device to detect the presence of all other devices) and how devices with different spectral views would liaise with each other have meant that the regulation of these white space devices has taken some time to agree.

In attempting to overcome these limitations, regulators gradually shied away from a pure spectrum sensing approach, towards the introduction of beacon signals to identify usage, before settling on the use of a centralized database of white spaces in each location that is used in addition to spectrum sensing.

But even then, the practical use of TV white spaces has continued to be fairly limited. Vendors and operators have struggled to find an application that suits the availability of white spaces, as well as handling the lack of guaranteed spectrum.

This same philosophy is being proposed for 3.5 GHz in the U.S., where some locations have other users (e.g. marine radar), but the combination of database and sensing could allow this band to be used. This is especially important as 3.5 GHz is one of the few LTE bands that is supported globally, so there is a clear commercial imperative.

Enter 5G

At the recent 5G Huddle, rethinking how existing technologies make use of spectrum was a key topic of discussion, with spectrum sharing a major part of this.

There are some strong arguments for why this would be sensible:

  • We’re starting to reach the limits of what we can achieve through higher order modulation schemes, with any gains insufficient to keep pace with demand.
  • We may still be making some gains with regards to multiple-input, multiple-output and CoMP, but again, not at the same rate that demand is increasing.
  • Small cells, which are increasing in usage, and network densification, levels of which are also increasing, both lend themselves well to spectrum sharing.
  • –he last variable available to us in our attempts to increase capacity is spectrum, and (at least in theory), DSA maximizes availability and efficiency of spectrum across all operators

On that last point, this is of course only if it is deployed correctly, with polite protocols for communications.

However introducing dynamic spectrum sharing to “5G” would surely result in 5G just suffering from the same technical issues that cognitive radio has encountered before.

After all, one of the key differentiators of cellular over many other wireless technologies, such as Wi-Fi, is the guaranteed quality of service. Indeed, we have previously examined how exclusively licensed spectrum loses value as the sharing arrangements increase uncertainty for operators.

Wouldn’t 5G lose this edge if spectrum access became dynamic and without guarantees?

At present, you would be correct, but it is unlikely anyone would be satisfied introducing such a glaring problem into 5G. Rather the key difference between earlier cognitive radios and 5G is that, as demonstrated with the discussions at the 5G huddle, major commercial vendors and operators are putting significant research time and investment behind the technology.

Perhaps this time around, with the full weight of the industry behind it, and with an appropriate understanding of what operators need from spectrum sharing conditions to offer high-quality services, cognitive radio and DSA can really come of age.

This blog post originally appeared as part of RCR Wireless’s Analyst Angle, where the industry’s leading analysts discuss the hot topics in the wireless industry.

Real Wireless joins UK Spectrum Policy Forum as funding partner

Wireless experts’ contribution reflects the importance of spectrum policy to the UK economy and telecoms industry 

Real Wireless has joined the UK Spectrum Policy Forum as a funding partner. Acting as a sounding board for the Government and Ofcom, The Forum is at the centre of UK Spectrum Policy and closely aligned with the work Real Wireless carries out for many of its clients.

Professor Simon Saunders, Real Wireless co-founder and Director of Technology, has been working with the Forum since its inception last year, where he examines spectrum applications and demand as chair of Cluster 1.

Launched in September 2013 by Ed Vaizey, Minister for Culture, Communications and Creative Industries, the UK Spectrum Policy Forum is chaired by Professor Jim Norton. With the involvement of a full range of spectrum-using companies and organisations, the UK Spectrum Policy Forum is the industry sounding board to the Government and Ofcom on future spectrum management and regulatory policy, with a view to maximising the benefits of spectrum in the UK.

“Spectrum is a scarce resource but it’s also one that is valued at £52 Billion per year to the UK economy. Therefore it’s an area that needs to be properly managed and supported,” said Prof. Saunders. “The work of the Spectrum Policy Forum is essential if the UK is to get the most of this valuable asset and it’s an initiative that Real Wireless is perfectly placed to support.”

“Simon’s work with us over the last nine months has been invaluable and we’re delighted that Real Wireless has now become a funding partner of the Forum through Steering Board membership,” said Professor Jim Norton, Chair of the UK Spectrum Policy Forum. “Real Wireless has an incredible wealth of expertise and experience in spectrum policy and management and this makes them an excellent partner.”

The hidden secrets of the UK’s 4G Auction

The UK’s 4G auction was completed in February and Ofcom published detailed information on the bids made in the auction soon after. I thought it would be interesting to sift through this information in order to bring out the story of what happened in the auction and see if there were any indications of the mobile operators’ wider strategy.

So I put my deerstalker on and went through the data looking for clues. I was lucky with the auction design which let operators switch between a number of different types of spectrum ‘lot’. I’ll explain below how each time an operator jumped between different lot types, they left vital clues behind to unravel the secrets of the auction. However, this is still a work of deduction (though not detective fiction I hasten to add) and although the conclusions might not stand up in a court of law, I hope they make interesting reading.

A brief description of the auction design (skip if you’re already familiar)

Ofcom issued hundreds of pages of documentation about the auction, but I thought it would be useful to condense it into a few points. Ofcom auctioned two basic types of spectrum:

  • low frequency spectrum in the 800MHz band, better for penetrating walls and providing good quality reception inside buildings (important because a lot of mobile broadband use takes place in the home or office) but a substantially lower amount of spectrum – 2x30MHz – on offer.
  • higher frequency spectrum in the 800MHz band, less good at providing good quality reception inside buildings, but the larger amounts on offer – 2x70MHz  and 1x50MHz – means faster download speeds can be provided than with 800MHz.

The 800MHz band was split into two categories. One category had a coverage obligation – to cover 98% of the population by the end of 2017. The other category was free of any coverage obligation. The 2.6GHz band was split into 4 categories including paired spectrum and unpaired spectrum.

In the auction, participants bid for combinations of spectrum “lots” in the different categories and specified how much in each they wanted. Most of the bidders had caps on how much they could buy in total and in specific bands. This was done to ensure that market would be competitive after the auction.

Bidders could switch between lots of different types, at a fixed rate that stayed the same during the auction.  For example, the one 800MHz lot with the coverage obligation had twice as much spectrum (2x10MHz) as the four 800MHz lots without the obligation (2x5MHz each) and bidders were able to switch from the former to the latter at a rate of 2:1.

At the beginning of the auction, bidders specified how much spectrum they would initially bid on at the reserve price, and this set their eligibility – how much spectrum they could bid on in the next round. Bidders could reduce the amount of spectrum they bid for as the auction progressed (thus reducing their eligibility as the auction progressed). However, bidders were not allowed to increase they amount of spectrum bid on, i.e. bid more than their eligibility.

There were a number of phases to the auction and I focus on the primary bid rounds and the supplementary bids round, which are the most important for determining the winners and giving clues as to their wider strategies.

In the primary rounds, prices increased round by round (and demand fell in response) until the total demand for the spectrum equalled the amount available – there were 52 primary rounds. The supplementary bids round is a single round that follows the primary bid rounds. It gives bidders greater flexibility to express how much they are willing to pay for spectrum, consistent with how they bid in the primary bid rounds.

The overall progression of prices and demand in the auction

Before looking into the detail, I’ve put together some charts to give an overview of how the bidding ran in the primary rounds. The first chart shows how the prices changed round by round for 800MHz and 2.6GHz and the second chart shows the total number of lots demanded in each category.

Evolution of lot prices in the primary rounds

Evolution of total demand for lots in selected classes in the primary rounds

 

The competition for 800MHz spectrum

In round 16, Everything Everywhere, the UK’s largest operator, becomes the first operator to reduce its demand for the more valuable and strategically significant 800MHz. It then stops bidding entirely on 800MHz spectrum in round 24.

At this stage in the auction EE risks missing out on 800MHz spectrum if the price were to keep rising substantially. However it may be a smart move if it brings the bidding on 800MHz to an end more quickly (and more significantly at a lower price). EE will be able to modify how much it bids in the supplementary bids round, though its room for manoeuvre will be limited. . Moreover, EE has a substantial amount of 1800MHz spectrum, which it is already using to offer 4G services, and it may see this as a good back up if 800MHz becomes too expensive.

H3G is the second major operator to drop out of bidding for 800MHz in round 30. H3G knows it is very likely to win at least one block of 800MHz spectrum, because of Ofcom’s competition rules which limit the amount of 800MHz spectrum that O2 and Vodafone could win to 2x10MHz and because it is better placed than EE which dropped out of the bidding for 800MHz earlier.

The final burst of activity in the two 800MHz categories determines which out of O2 and Vodafone is likely to get the spectrum with the coverage obligation.

Interestingly, before the auction started, O2 argued that the price per MHz in the two 800MHz categories should be the same, whereas Vodafone argued that there should be a discount on the price of the lot with the coverage obligation. If the value of 800MHz spectrum were similar for Vodafone and O2 we should expect O2 to be willing to pay more for the lot with the coverage obligation than Vodafone.

As I said before, bidders could switch between 800MHz lots with and without the coverage obligation at a rate of 2:1. Now, if the extra cost due to the coverage obligation were minimal (e.g. if an operator would have met the coverage targets with or without the obligation) the coverage obligation would be worth twice as much as the lot without – reflecting difference in spectrum between the two lots.

However, the ratio of the starting (reserve) prices is significantly lower at 1.11 because Ofcom was cautious about the cost of the coverage obligation when setting the starting point.

So, excess demand is much greater for the coverage obligation lot early on in the primary rounds because it is relatively cheap compared to the other 800MHz lot. This causes the relative price of the coverage obligation lot to rise and it reaches 2 in round 40. At this point, Vodafone switches to the lot without the obligation and supply equals demand in both 800MHz categories as a result.

The case of the 2.6GHz lots

The bidding on 2.6GHz spectrum is seemingly straightforward, but there’s a twist at the end which any writer of detective fiction would be proud of (OK perhaps I’m exaggerating a little here). Up to round 27, the available 2.6GHz spectrum is more than three times oversubscribed and there is little change in the bids of the major operators. Then, Vodafone cuts its bid for paired 2.6GHz spectrum in half to 2x20MHz, and marginally increases its bid for unpaired spectrum (to 45MHz).

H3G makes a similar move to Vodafone, in round 30, reducing its bid on paired 2.6GHz spectrum by more than half to 2x20MHz and increasing its bid for unpaired spectrum marginally. H3G also drops out of the bidding for 800MHz at this point, suggesting that prices could be nearing its underlying values or that H3G may be close to a budget limit –H3G had bid just under £1.5 billion, though it bid nearly £1.7 billion in the supplementary bids round.

In the next round, 31, it’s O2’s turn to reduce significantly the amount of 2.6GHz spectrum it bid for (both paired and unpaired). This still leaves substantial excess demand for the 2x70MHz of paired 2.6GHz spectrum available – H3G, Niche (BT), O2 and Vodafone are each bidding for 2x20MHz and EE for 2x40MHz.

Similarly there’s also substantial excess demand for the 45MHz of unpaired 2.6GHz spectrum – H3G, Hong Kong Telekom, Niche (BT) and Vodafone each bidding for 45MHz and O2 for 15MHz.

Things move steadily on until EE makes a dramatic grab for the unpaired 2.6GHz spectrum (and stops bidding on the paired spectrum) in round 38. EE is the only one left bidding for the unpaired 2.6GHz spectrum at the end of the primary bid rounds and Vodafone, O2 and Niche are the only bidders remaining for the paired 2.6GHz spectrum.

But, just one more thing, as Columbo might say. I’ve forgotten the supplementary bids stage. The final twist is that the positions at the end of the primary bid rounds are overturned in the supplementary bids round. So the final result is that Niche and Vodafone win the unpaired 2.6GHz spectrum instead of EE, while Vodafone Niche and EE win the paired 2.6GHz spectrum.

Conclusions

Ofcom should be satisfied with how the auction ran. Bidders did respond as economic theory predicts to changes in the relative prices of the different lots in the auction and it showed the importance of having a supplementary round to extract more information about what bidders were willing to pay. There is no clear evidence to suggest that bidders were trying to ‘game’ the auction, i.e. put in spurious bids to trick their competitors (although there are some bids that are more difficult to explain in the two minor categories I haven’t talked about).

The competition proposals did probably affect behaviour in the bidding for 800MHz, although there was still a reasonable amount of bidding activity and the overall amount of money raised, when corrected for population, was similar to other European 800MHz auctions.

A measurement device in your pocket

The recent news item that a US university had used mobiles to track the movement of thousands of individuals generated a lot of interest in the press. The study, reported in Nature, took anonymised data from a cellular operator as to the movements of their users and concluded from this that humans are creatures of habit, travelling the same routes to the same locations most of the time. This may not come as a great surprise to anyone who commutes to work each day and might not seem to be a significant advance for science but it does potentially give some indication of what more may be to come.

 

Nokia Eco-sensor concept

A Nokia Eco-Sensor Concept Phone (more)

 

Gathering data of most sorts – for example on the air quality throughout a country – can be very expensive. But costs can be much reduced, and the volume of data massively increased, by harnessing the daily movements of millions of mobile phones carried everywhere by most of us as part of our daily travels. The mobile is unique in being a device that either knows its own location, or which the network can locate, and which can input, process and transmit data. With our example of air quality measurements we could imagine clipping a small sensor onto the bottom of the mobile phones of volunteers. This might periodically sample the air quality and then the mobile might send a short data message back to the network. The network would then add the cell location to the message and pass this onto the agency conducting the trial. For very little cost, detailed information which was frequently being updated could be generated.

 

The list of possibilities is likely to be extensive. Ofcom is using around 50 mobile phones with Wi-Fi capabilities to test the Wi-Fi data rates available throughout London. Phones with microphones could test noise levels, deduce what TV programme their owner was watching to derive audience research data and much more. Phones docked in cars with vibration sensors could send back information on road quality and traffic speeds could be estimated from their position. The position of entrants out on a course for a cycling or running event could be tracked by the organisers to help them run the event smoothly. It seems likely that many specialists would like measurements of some sort in their specific areas of interest and many hobbies would benefit from more information.

 

This sort of application might raise privacy concerns and in some cases might require additional hardware or software to be added to the phone. But many users might be willing to agree to help if they thought that the information would benefit them – perhaps by leading to a better environment. In the near future you might leave your phone on for more reasons that just to receive incoming calls.

Ofcom Spectrum Advisory Board

I’m delighted to announce that I have just been appointed to the Ofcom Spectrum Advisory Board (www.osab.org.uk). OSAB provides independent advice to Ofcom (www.ofcom.org.uk) on strategic spectrum management issues. It provides input directly to Ofcom’s main board. This gives me a great opportunity to gain deeper knowledge of (and potentially to influence) Ofcom’s future direction on spectrum matters. I also get to interact with some very interesting people, namely:

  • Sir David Brown – Chairman of Motorola Limited
  • Dr David Cleevely – Founder of Analysys and previous Chairman of Analysys Limited
  • Professor Leela Damodaran – leads the Information, Technology and Society Research Group at Loughborough University
  • Professor Barry Evans -  Director of the Centre for Communication Systems Research (CCSR) and Pro-Vice Chancellor (Research & Enterprise) at University of Surrey
  • Debbie Gillatt – Director, Communications Networks at the Department of Trade and Industry
  • Phillipa Marks – Director of Indepen Consulting
  • Andrew Sleigh – Managing Director, Knowledge and Information Systems Division for QinetiQ
  • Professor Will Stewart – Previously the Chief Scientist at Marconi
  • Stephen Temple CBE – Previously Director of Strategic Projects, Vodafone and Managing Director of the Networks Division of ntl
  • Dr Walter Tuttlebee – Chief Executive of the Virtual Centre of Excellence in Mobile & Personal Communications – Mobile VCE
  • Robert Pepper – Senior Managing Director, Global Advanced Technology Policy, Cisco Systems Inc and previously Bureau Chief at the FCC
  • Professor Tommaso Valletti – Professor of Economics at Imperial College London and at the University of Rome