Standardization on White
Spaces
Conference on Smart Radios and Smart
Markets and Policy
David J. Salant
CITI and CWRC
April, 2007
Introduction
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Efficient utilization of spectrum necessarily includes maximizing
value, and not just utilization, of all spectrum, including what
would otherwise be “white space.”
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Informal definition of white space is all parts of spectrum not utilized.
White space often refers to areas, both geographic and radio
frequency, around licensed transmission sources, such as television
stations
This presentation compares market models and managed models
for reducing unused white space.
z Analysis of competitive dynamics in standard-setting process is
essential component of analysis.
z New technologies can greatly expand potential use of spectrum,
but coordination is required to limit interference.
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Approaches to Managing Spectrum
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Spectrum commons – unlicensed spectrum.
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Government (e.g., FCC, NTIA) managed
Spectrum licenses
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Examples include CB radio, WiFi, many other low power uses.
Typically, government agency of standard setting organization will
regulate technology, apparatus and/or use.
Network and/or apparatus licenses
Service restricted/specific
Spectrum manager
Concession
Property rights model requires definition of interference
standards,
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What are tolerable interference standards vary across technologies
and applications.
Definition of property rights model is inherently not technology
neutral.
What White Space is There?
z In
the UHF/VHF television bands a great
deal of white space may be available –
one estimate of perhaps 90 MHz of
spectrum is available for 50% of US
POPs.*
z Many other bands have lots of white
space – SMR/PMR/PAMR, DOD bands.
z Even CMRS bands have unused
capacity in urban areas.
*Robyn and Jackson (2007)
Voice and low bandwidth data in
CMRS bands
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To maintain quality of service for voice traffic, including target blocking probability,
not all capacity on GSM and CDMA networks can be in use at all times.
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Voice networks are designed to achieve a target “blocking probability”.
Ensuring target blocking probability is achieved requires extra capacity most of the
time
Unused capacity can be used for low band width data on a best effort basis.
Up to some level, data traffic won’t interfere with voice
GSM networks not optimized for data, and CDMA networks are making better use
of “white space” over time.
Voice – data tradeoff
text
voice
Spectrum Sharing Approaches
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For TV white space
For intermittent and geographically disperse
use
For multiple technologies sharing same
spectrum
Open use spectrum subject to technical
limitations
Spectrum management policies should
accommodate differences across bands and
technologies.
Low Power v. High Power
Applications
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For low power in-building and on-campus applications,
e.g., WiFi, cordless phones, baby monitors, risk of
interfering with other users is limited.
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Users can determine need to control interference with most
applications with no need for regulation.
Apparatus licensing or labeling is beneficial
High power applications require regulation to avoid
congestion
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Even cognitive and adaptive systems require standards and
protocols to avoid interference
Spectrum managers/licensees can regulate use of licensed
bands.
Government can directly regulate bands.
Spectrum Sharing Options (1) TV
White Space
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For TV white space
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Auctioning of white space donuts – which, due to need for
geographic and spectrum buffers, leaves “wasted” spectrum.
Spectrum manager concessions – with or without relocating
incumbents. The concessions can be provided to incumbents
or auctioned.
Unlicensed used – standards and possibility cognitive
systems might be needed.
Widening scope of TV license or auctions of donuts
around licensed donut holes can create windfall gains
for incumbents
- Incumbents are likely to win an overlay auction at a price equal
to a fraction of the unencumbered value.
Spectrum Sharing Options (2) Overlay
on Intermittent and Disperse Uses
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Many spectrum uses are intermittent and/or
geographically disperse (TV is geographically
disperse).
Spectrum manager model has been used to facilitate
re-farming of point-to-point microwave with other
applications, such as point-to-multipoint, (LMDS) and
other services.
Absent spectrum managers, cognitive systems
required to avoid interference.
This model assumes overlay system only needs to be
adapted to avoid interference with limited set
incumbent uses and technologies.
Spectrum Sharing Options (3)
Interleaving and Interstices
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For some sets of applications, the gaps
required for one technology and service can
be used by another and vice versa.
An example is text/data and voice on 2G and
3G networks.
Shared use in these cases can require access
to common elements in network, such as base
station controller.
Shared use by independent parties can
require unbundling of network elements.
Shared Spectrum Options (4)
Spectrum Commons
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In open commons, some coordination is required.
Absent coordination, interference across users,
degrading service, is likely if not inevitable.
Those using commons can have economic incentives
to control use, and limit use of economic rivals.
Government or private spectrum manager is likely
necessary to coordinate use.
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Least intrusive government regulation can be in form of
apparatus licensing.
Government regulation requires definition of standard.
Decision about standard, and use, can be delegated to
standard setting organization.
Market vs. Mandated Standards
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Benefits of mandated
standards
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Government mandate of
standard or standard
setting process can solve
coordination problem.
Network effects suggest
consumers prefer uniform
standard, limiting risk of
orphan technologies.
Network effect tends to
push market toward one
standard.
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Benefits of market
standards.
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Government or process
can pick wrong standard.
Mandated standards can
limit competition, variety,
and retard innovation.
Firms will have persistent
incentive to invest in
incompatible and
propriety upgrades or
next generation
standards.
Some Related Literature
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Arthur’s (1989) – tipping effect of network externalities.
Economides, Matutes and Regibeau on compatibility.
Church and Gandal, on variety of complementary
components with network effects.
Farrell & Saloner, Katz and Shapiro, Budd, Harris &
Vickers and Cabral & Riordan on competitive
dynamics and network effects.
David & Greenstein survey types of standard setting
processes.
Farrell on converters.
Dynamic Factors
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When the market, and not regulatory mandate,
determines standards, early adoption
decisions can have a tipping effect
For wireless networks, interconnection means
that compatibility is not essential
Two or more standards can be viable, and
tipping effect is less persistent
When there are different firms deciding on
standards in different regions, the choice in
one region can affect optimal choice of
standards by all firms in another region
A Simple Duopoly Model
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Infinite horizon, discrete time duopoly model.
Each firm starts with a technology at a base level, 0, and can make R&D
investments to improve its technology to an advanced level, 1.
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Let ПS(j) = each firm’s profit with a common standard in state j = 0, 1.
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In an initial stage, before investment, firms can choose to make their
technologies compatible.
If the two firms agree on compatibility, then they will, through a bargaining
game, split the surplus, if any, from standardization
In the second stage, the firms make R&D investments.
The probability of successful R&D in one period when investment is ρ = ½ ρ2
With standardization, one firm’s successful R&D means both firms benefit.
With standardization, there are only two states 0 and 1.
Let ПD(j,k) = profit for a firm with technology j when its rival has
technology k and they invest in different standards.
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As one or both firms can succeed, there are four states (0,0), (1,0), (0,1) and
(1,1).
Assumptions
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Assume
ПS(j) > ПD(j,j), j =0,1 and
b.2 ПS(1) > ПD(0,1) + ПD(1,0)
These assumptions mean that at every possible
state, product market industry profits are higher with
standardization than without.
a.
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We also assume that at state (1,0) or (0,1),
bargaining is costless and perfectly efficient,
so that industry profits are the same as at
(1,1).
Value Functions
z Our
assumptions imply that once state
(1,1) is reached, firms will agree on a
common standard, as bargaining is
assumed to be efficient and product
market profits are maximized with a
common standard.
z Therefore, firm payoffs at state (1,1) are
V(1,1) = 1/(1-δ) ПS(1)
where δ is a discount factor.
Value Functions Continued
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Now consider state (1,0).
Our assumptions imply that the firms will again
choose standardization once (1,0) (or (0,1)) is
reached.
Thus,
V(1,0) + V(0,1) = 2V(1,1)
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The split of 2V(1,1) depends on the outside
options, that is, the optimal decision for the
firm at state 0, given its rival is at state 1.
We show that V(1,0) > V(1,1) > V(0,1).
Incentives to Disagree
Proposition 1:
If ПS(0) - ПD(0,0) is sufficiently small, then
standardization occurs in all states other except
(0,0).
z In other words, firms have incentives to
deviate from any single proposed standard.
z Result does not require differentiation or
inefficient bargaining.
Welfare Effects
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We consider a spatial duopoly where each firm
is at one of end of a linear model, and
consumer are uniformly distributed.
Let k0,c0 and k1,c1 denote fixed and marginal
costs of the sellers, with and without
standardization.
Assume k0 > k1 and c0 > c1, which is
consistent with our assumption that profits are
greater under standardization.
Profits and Welfare
z Equilibrium
profits are Π = 1/2 t – kj (j =1,
2), and
z Consumer surplus is CS = v – t – cj (j
=1,2), where t = “transportation” cost.
Proposition 2: If (k1 – k0)/(c1 - c0) is
sufficiently high, there is no
standardization in state (0,0) and no
standardization is socially optimal.
Conclusions
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Spectrum set asides for common use can over-ride
firm profit making incentives for profits and innovation
and reduce welfare.
Spectrum managers can allocate spectrum for shared
use.
Unlicensed spectrum should be available
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For services and technologies that market may not serve –
e.g., low power use where transaction costs can be much
higher than incremental value that can be provided through
market, or
For meeting specific policy goals, such as reserving spectrum
for new, experimental technologies, or for universal service.