Higher frequencies for
licence exempt applications
Final report
Final Report to Ofcom, February 2007
Contributors
Chris Davis, Helen Lay, Phillipa Marks, Brian Williamson, David Grace and Tim
Tozer
Quotient Associates Limited
Compass House, Vision Park, Chivers Way,
Histon, Cambridge, CB4 9AD, UK
EMAIL Enquiries@QuotientAssociates.com
WEB www.QuotientAssociates.com
Indepen Consulting Limited
Diespeker Wharf, 38 Graham Street,
London, N1 8JX
WEB www.indepen.co.uk
The University of York
Department of Electronics
Heslington, York, YO10 5DD
WEB www.elec.york.ac.uk/comms/
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EXECUTIVE SUMMARY
Above 30 GHz, and particularly above 50 GHz, there are large bands of unused or lightly
used spectrum. On a conservative basis 30 GHz of spectrum between 30 GHz and 100 GHz
can be identified as unused with a further 63 GHz unused in the spectrum up to 200 GHz.
The large bandwidths available, the short transmission ranges resulting from the
propagation characteristics, and the high degree of isolation provided by buildings at
these frequencies mean that very high capacities can be achieved. This spectrum therefore
offers the opportunity to make significant new allocations of licence exempt spectrum with
the consequential prospect of innovative and economically beneficial applications as has
happened with the licence exempt bands at lower frequencies. This project therefore set
out to examine the options for, and implications of, allocating spectrum above 30 GHz for
licence exempt purposes. It also addressed the question: Is there a frequency above which
it would be practical to allocate all spectrum to licence exempt uses?
The investigation was undertaken by envisaging potential future uses of spectrum at these
frequencies, and by examining how these uses might be matched to the available spectrum
taking account of expected developments in wireless technology and likely advances in
licence exempt techniques.
A decision to release significant amounts of new licence exempt spectrum, as would be
possible in the gigahertz bands, requires judgements as to future developments – in
technology, markets and in international harmonisation – and judgements as to how much
spectrum should be released, and when and for what purposes. We therefore also gave
consideration to the regulatory decision making process in such situations. The key
insights obtained through this work are summarised below.
Licence exempt operation is suited to these frequencies and the range of applications
can be expected to expand
Licence exempt operation has typically been applied to low power, short range and often
low density applications. The shorter ranges achievable and particularly the high levels of
attenuation afforded by buildings mean that these traditional licence exempt uses will be
well suited to operation at frequencies above 30 GHz. Wireless technology suited to
professional and consumer applications can be expected to be available at up to ~100 GHz
within a few years, and at up to ~200 GHz within 10 to 15 years though this will be
dependent to some extent on the availability of spectrum.
Perhaps more importantly, future developments in licence exempt technologies can be
expected to encompass both longer range and wide area uses, expanding the range of
applications that can be permitted to operate on a licence exempt basis. These advances
will, in effect, automate the self coordination processes that feature in many current
lightly licensed regimes. This opens the possibility that uses that can operate under a
lightly licensed regime today could be migrated to a licence exempt regime once the
technology is developed.
We note, however, that the interference mitigation measures used in licence exempt
protocols work best between systems operating over similar ranges. Licence exempt uses
will therefore need to be grouped according to the distance over which they operate. Thus
the expansion in the range of applications to which licence exemption can be applied will
also lead to the need for a small number of different classes of licence exempt spectrum.
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Foreseen uses can be accommodated provided some technical and licensing
constraints are applied
There are numerous potential new uses for the bands above 30 GHz. However, with the
capabilities of today’s licence exempt technologies, allowing them all to operate without
restriction under a licence exempt regime within the available spectrum would lead to
congestion and prevent the operation of several uses. Furthermore, a number of other
factors currently limit the extent to which licence exempt operation can be permitted.
The foreseen uses include satellite operations, and these would require international
coordination;
Some of the foreseen uses will operate at high radiated powers from high antenna
locations giving rise to the possibility of interference to sensitive services in
neighbouring countries. Below 100 GHz it may be necessary in some cases to restrict
radiated powers along the south coast of the UK and along the border between the
Republic of Ireland and Northern Ireland1. In such cases registration of users under a
light licensing regime may be necessary;
To be commercially viable, some uses will need to operate to higher quality of service
levels than can be guaranteed with today’s licence exempt technologies. In these cases
a light licensing regime can secure the necessary quality of service and provide
investor’s with the confidence to proceed;
A number of frequency bands, predominantly between 100 and 200 GHz, are allocated
to passive services in the ITU-R Radio Regulations and protected by Footnote 5.340.
This prohibits all transmissions in these bands. Estimates suggest that even low power
licence exempt uses can cause interference to sensitive passive services.
Estimates of the spectrum requirements were therefore made for each use operating under
an appropriate licensing regime; licence exempt, lightly licensed or licensed. Taking the
lightest touch regime considered practical in each case, we find that all foreseen uses can
be accommodated within the available spectrum. The split between the different regimes,
in terms of the amount of spectrum required, is 40% licence exempt, 50% lightly licensed,
and 10% licensed.
Real options analysis can help with regulatory decision making
At the present time there are no practical mechanisms that would allow the market to
determine the amount and timing of the release of spectrum for licence exempt uses. And
the same is largely true of lightly licensed allocations. Regulators are therefore faced with
the challenge of deciding on the optimal allocation of spectrum for licence exempt and
lightly licensed uses. In doing this they are faced with uncertainty over the costs and
benefits of different options and with a degree of irreversibility to their decisions2.
However, regulators also have the option to wait and learn more about future technologies
and uses, and the benefits they offer, before making commitments.
Real options analysis can provide a framework for decision making in such circumstances.
In particular it demonstrates that:
1
2
This analysis is approximate and conservative. Further detailed study would be required to provide more concrete results.
Licence exempt allocations are sometimes said to be irreversible because of the difficulty of terminating the activities of a
potentially large number of unknown users. It should be noted that even if a technical solution were in place (say an automatic
self switch off procedure built into equipment) there would still be a need for credible regulatory commitment (and therefore a
degree of irreversibility) to provide investors with the confidence to commit their resources to the development of appropriate
equipment and services.
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Where there are large uncertainties in the benefits to be had or to be forgone, it can be
economically advantageous to wait. Non-use of a band can be the highest value use at
a particular time.
When demand is uncertain and decisions are irreversible, the optimal allocation at a
point in time is likely to be smaller than a conventional net present value calculation
would suggest. Hence, smaller more frequent releases of spectrum may be more
appropriate than a single large release.
Whilst the application of real options analysis to policy problems like the release of
spectrum has yet to be fully worked out in the academic literature, the key factors
indicating a positive release decision are a high net present value for the proposed use
(and low forgone benefits) and those indicating a negative decision are uncertainty in the
costs and benefits, and the degree of irreversibility.
We also addressed the question: Should all spectrum above a certain minimum frequency
be made licence exempt? If it were, there would be a high degree of uncertainty as to its
likely use and real options analysis shows that there can be value in waiting to release
spectrum until more information is known. In addition, we have shown that it is difficult to
be confident that congestion would not occur in such a situation (given that over the next
10 to 15 years the usable spectrum is likely to be limited to frequencies below ~200 GHz).
Taken together these points lead to the conclusion that allocating all spectrum above a
selected minimum frequency would not be the optimum strategy.
Overall conclusion
Over the coming decade wireless technology and licence exempt techniques will advance
with the result that there are likely to be growing opportunities for the beneficial
allocation of spectrum above 30 GHz to licence exempt and lightly licensed uses. Although
there is expected to be adequate spectrum to accommodate the growth in usage (provided
that the uses are operated under an appropriate licensing regime) there is nevertheless
value in delaying the allocation of spectrum when the uncertainties in the benefits from
doing so are large. Making allocations today (and not at a future time) is most likely to be
optimal only when the expected benefits are large and the associated uncertainties are
low.
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Contents
1 Introduction 1
1.1
1.2
1.3
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
3
3.1
3.2
3.3
3.4
4
4.1
4.2
4.3
4.4
4.5
4.6
5
5.1
Licence exemption above 30 GHz 2
Methodology 2
Other licence exempt studies 3
Licensing regimes 4
Licence exempt regimes 4
Lightly licensed regimes 5
Licensed regimes 6
Spectrum Commons 6
When is licence exemption appropriate? 6
How should congestion be understood? 7
Letting the market decide 8
Regulatory allocation of licence exempt spectrum 9
Potential uses above 30 GHz 11
Market developments 11
Current users 11
Identifying potential new uses 13
The potential new uses 16
The available spectrum 18
The ITU-R Radio Regulations 18
European Commission Decisions 20
ERC/ECC Decisions 21
Current Ofcom proposals 22
Current licence exempt spectrum 22
The available spectrum 22
Licence exempt techniques 25
Polite protocols 26
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5.2
5.3
5.4
6
6.1
6.2
6.3
6.4
6.5
7
7.1
7.2
7.3
7.4
8
8.1
8.2
8.3
9
9.1
9.2
9.3
Likely developments in polite protocols and licence exempt techniques 27
Implications for licence exempt operation above 30 GHz 28
The relevance of light licensing 29
Matching potential uses to available spectrum 30
Selecting the licensing regime 30
Underlying assumptions 33
Estimation of spectrum requirements 34
Matching uses to the available spectrum 36
Intermediate conclusions 38
Economics can help 42
The policy problem 42
Standard versus expanded NPV rule 44
Implications of real options analysis 49
Ways forward 50
Is there a critical frequency? 51
Estimating the critical range 51
Estimating the critical frequency 52
Sensitivities 54
Implications and conclusions 57
Summary of knowledge gained 57
Comparison of policy choices 58
Other implications 60
10 Annex 1 – Applying the methodology 61
10.1 Licensing decisions for identified uses 61
10.2 Example for fixed wireless access 68
11 Annex 2 – Comparison with parallel Ofcom studies 70
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1 INTRODUCTION
Ofcom’s underlying philosophy towards spectrum management is to let the market make
decisions on both the allocation and assignment of spectrum to as great an extent as
possible3. Spectrum liberalisation, the freeing up of spectrum from constraints on the
technology and services that can be used in a particular band, and trading to enable
spectrum users to buy and sell spectrum to meet their requirements, are the essential
pillars of this approach. The same philosophy also requires that Ofcom generally release
unused spectrum into the market so that the market can decide on its best use. To
maximise the likelihood that released spectrum is used in the economically most efficient
manner, Ofcom generally favours the use of auctions which, if appropriately designed, will
tend to ensure that spectrum goes to those who value it most.
Licence exempt use also provides a means of allowing users to decide on the use of
spectrum, and economic theory suggests that this is the appropriate approach where
congestion is not expected to occur. Ofcom’s preference would be to use market
mechanisms to decide how much spectrum should be allocated for licence exempt use.
However, at present it appears unlikely that enough licence exempt users would
coordinate to purchase spectrum released through auction, and the business case for a
spectrum manager to purchase spectrum and operate it as a private Spectrum Commons is
far from clear. Ofcom’s approach has therefore been to consider how much spectrum is
likely to be needed for licence exempt applications, and to consider the designation of
spectrum for licence exempt use on a block by block basis.
A guiding principle in Ofcom’s approach to spectrum management is that spectrum should
be allocated so as to maximise the total economic benefit obtained from its use. If a block
of spectrum is allocated for licence exempt use and if, as a result of the number of users
accessing the spectrum and the nature of their transmissions, interference levels rise to
the point where the spectrum becomes unusable, the economic benefits of licence
exemption could be largely negated. Thus congestion can be said to occur when the
economic benefits accruing from the use of licence exempt spectrum are materially
reduced or reduced below that of an alternative use. The situations in which congestion is
unlikely to occur are:
Where users are restricted to short range, low power applications so that the area over
which interference occurs will be small. Clearly, this relies on the local density of users
not becoming too large;
Where users or their usage are naturally dispersed in time or space so that the
likelihood of conflicting transmissions is small;
Where the applications using the licence exempt spectrum are able to continue to work
effectively in the presence of transmissions from other users. Such applications will
typically not be reliant on a high quality of service, although “politeness” protocols
can assist by making the sharing process more efficient;
Other rules, such as defining the uses to which a particular licence exempt band can be
put, can also help to avoid congestion by separating applications that would otherwise
conflict with each other into different bands;
3
Where this is not possible or appropriate, Ofcom’s policy is to introduce incentives, such as Administrative Incentive Pricing, that
will encourage those using or managing spectrum to make more effective use of it.
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Where spectrum is heavily used in some geographic areas but not others (for example
metropolitan versus rural usage) it may be beneficial to permit licence exempt
operation in those areas where congestion is not a concern.
Although licence exempt applications, such as WiFi, make use of politeness protocols to
reduce the impact of congestion, current licence exempt operation is largely based on the
use of low transmit powers and short range operation.
1.1 Licence exemption above 30 GHz
The spectrum between 30 and 100 GHz is lightly used in the UK, and above 100 GHz there
is almost no use at all. Furthermore, at these frequencies transmission ranges are
naturally short and likely applications will be point to point (usually using directional
antenna). As a result congestion is unlikely and these higher frequencies could therefore
be good candidates for licence exemption.
This argument needs to be used carefully as it could lead to a sub-optimal allocation of
spectrum particularly where current demand is low. For example if, subsequent to licence
exemption, a more beneficial but licensed application were to be developed, it could turn
out to be costly to refarm the spectrum because of the difficulty of identifying the current
licence exempt users. Furthermore, allocating more licence exempt spectrum than is
actually required will result in unused spectrum and the question is then: Is it more
beneficial to make the spectrum licence exempt or to retain it until a future date when the
alternatives and their benefits are better understood? Based on the assumption that short
range applications will continue to dominate licence exempt use, Ofcom has estimated
that a total of 800 MHz of licence exempt spectrum would satisfy the likely demand4. With
some 600 MHz already available, only a tiny fraction of the unused bandwidth above 30
GHz would be required to meet this need. On the other hand opening some of this
spectrum to licence exempt use could stimulate innovation and lead to new licence exempt
applications and valuable economic benefits.
The objective of the work reported here and undertaken on behalf of Ofcom is therefore to
analyse the options and implications of allocating frequencies above 30 GHz for licence
exempt use, and to determine whether or not all spectrum above a certain frequency
should be licensed in this way.
1.2 Methodology
The methodology we adopted was to first of all envisage what future uses might arise at
frequencies above 30 GHz taking account of expected advances in technology and licence
exempt techniques. Of particular interest is the possibility of extending the scope of
licence exempt applications beyond the traditional short range, low power uses.
Recognising that predictions become increasingly uncertain as the time line is extended,
we restricted our considerations to the next 10 to 15 years.
In the second step we mirrored the approach that a regulator, such as Ofcom, might take
following a policy of light touch regulation. The steps were:
Determination of the licensing regime appropriate to the proposed use, with licence
exemption being the first choice wherever practical;
Estimation of the amount of spectrum required;
4
Spectrum Review Statement, Ofcom, 28 June 2005, p4.
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Matching of the demand to the available spectrum, to determine whether or not
congestion would be an issue;
Resolution of any conflicts between alternative uses of the same spectrum based on the
most economically beneficial alternative.
Following this process through provided a sound insight into the opportunities for, and
implications of, allocating licence exempt spectrum in the bands above 30 GHz. It also
brought into sharp focus the challenges that face a regulator deciding on licence exempt
allocations. We therefore went on to examine what economic principles could provide
useful guidance to the regulatory decision making process.
1.3 Other licence exempt studies
This study was one of a number commissioned by Ofcom in 2006. The relationship between
the uses considered in this work with those in some of the other projects is summarised in
the Annex 2 at the end of this report.
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2 LICENSING REGIMES
Our primary interest is in licence exempt regimes. With the developments that we may
expect in licence exempt techniques over the next 10 to 15 years, however, it is possible
that uses that today would not be practical could become so in the future. We therefore
consider licensing regimes that could be applied in the near future and migrated to a
licence exempt status later as the technology permitted. We use the term “lightly licensed”
for such regimes. Below we define licence exempt and lightly licensed regimes, and go on
to consider the circumstances under which the different regimes are appropriate.
2.1 Licence exempt regimes
Under a licence exempt regime anyone may operate a wireless device within a specified
frequency range without individual authorisation, without registration and without
coordination with other users. The devices and their operation are, nevertheless, subject
to some rules. These rules are determined by the regulator (Ofcom in the UK) making
statutory regulations which specifically set out the conditions for making the exemption.
In accordance with the European framework, these conditions are normally set out in more
detail in “interface regulations (IRs)” which are made under the Radio and
Telecommunications Terminal Equipment Directive. This Directive is intended to promote
free circulation of equipment but IRs can be made to specify the standards, frequencies
and limits under which apparatus can be manufactured, sold, installed and used. In the UK
the exemption regulations usually cite which IRs apply to a particular type of wireless use
and the spectrum bands in which they are used. Furthermore Ofcom is required to publish
a frequency authorisation plan, and this plan specifies which bands can be used for both
licensed and licence exempt apparatus.
In their simplest and most common form the rules limit the maximum power that may be
radiated. This restricts the range over which the transmissions can interfere with other
wireless devices, and provides a means of ensuring that many devices can share the same
spectrum with a reasonable likelihood of interference free operation5. Additional rules can
and are used to enable more effective sharing of the spectrum. Such rules include limiting
use to specific geographic areas or to indoor operation, or to a restricted set of
applications. In some situations more complex rules or specific technologies and
standards may be specified. For example, within Europe the band 1880 to 1900 MHz is
open only to licence exempt devices which comply with the DECT standard.
It is possible for licence exempt usage to co-exist with other licensed users but this is
dependent upon the specific licence exempt rules and the characteristics of the licensed
usage.
Licence exempt operation is usually on a no interference, no protection basis. No
protection is afforded since there is no restriction on where and when the licence exempt
devices may operate within the spectrum provided their wireless devices conform to the
rules specified. No interference means that should any licence exempt device cause
interference to a legitimate licensed user, the regulatory authority has the power to cause
the licence exempt user to cease transmissions (although this may not always be possible
in practice). In the future, however, if licence exempt operation becomes a major part of
telecommunication networks it may be appropriate to allocate some bands exclusively to
5
There is of course a trade off between the maximum permitted power and the density of active devices that can share the same
spectrum within a given area.
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licence exempt devices. This would give the users and potential users greater certainty
that they would have continued access to the spectrum for their chosen activities.
It is important to note that licence exemption here does not include devices such as
mobile handsets which, although exempt from individual licensing, operate under the
control of a system which is operated by an entity which itself is licensed to operate in the
spectrum.
The key advantages of licence exempt regimes are:
Where the supply of spectrum exceeds the demand, licence exemption avoids the costs
inherent in licensing and trading spectrum;
Where the number of devices involved is very large, licence exemption avoids the
administrative burden of licensing which may outweigh the benefits accruing from
their use;
Particularly where the rules have only a limited impact on the uses to which the
spectrum may be put, licence exemption can provide the opportunity for innovation
and the development of new services and technologies.
2.2 Lightly licensed regimes
Compared to licence exempt regimes, a lightly licensed regime brings in the key new
requirement that all devices have to be registered (usually in a central, publicly accessible
database) and be covered by licences individually issued by the regulator which specify the
terms , conditions and limitations under which installation (where appropriate) and use
may be made. Anyone licensed may operate wireless devices within the specified frequency
range and, as with licence exemption, other rules may also apply. The rules are usually
simple and limited in scope but could be complex and extensive6. A small statutory fee is
often charged by the regulator to cover the costs of registration. The key advantages of
this regime are:
Since all users are known it is easier to make changes or refarm the spectrum at a later
date should it be advantageous or necessary to do so;
It permits coordination both between licence exempt users and between the licence
exempt users and other licensed users of the band. It therefore allows a licence exempt
like regime to be applied to a greater range of uses and permits sharing with a greater
range of licensed uses;
It permits the tracking of individual devices in those cases where this is necessary to
ensure that the rules are adhered to, that international obligations on cross border
emissions are met, or to enable sources of interference to be traced;
Where the rules allow flexibility of use, light licensing can also provide the opportunity
for innovation.
Where a light licensing regime is operated in order to facilitate coordination between
users, it is possible that future technologies will enable this function to be done
automatically by the equipment, removing the need for a register of devices. Thus a light
licensing regime could be an important step towards greater use of licence exemption.
6
Of course if the rules are too complex and extensive the term lightly licensed becomes inappropriate.
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Clearly, a light licensing regime is unlikely to be practical in those cases where a very
large, changing or moving population of devices is involved. To date, its use has been very
largely confined to point to point use in conjunction with a fairly simple set of rules7.
2.3 Licensed regimes
The majority of spectrum use takes place under licensed regimes. A licence not only gives
the licensee the statutory right to transmit within a defined band of spectrum but may also
be planned to take account of other users and thus ensure compatible usage that is
consequently free from interference. The rights of installation and use conferred by a
licence, in conjunction with trading and market methods for releasing spectrum into the
market place, are key to the functioning of a market in spectrum. Where a spectrum market
is inappropriate or impractical, licences are the means by which the regulator defines the
rights and obligations of spectrum users. From the licensees perspective they provide
clarity as to the use that they can make of the spectrum and to the performance and
quality that can be achieved.
A licensed regime is clearly appropriate for those parts of the spectrum where the demand
exceeds the supply. It is also appropriate in those cases where access to the spectrum
needs to be coordinated with users in neighbouring countries or on an international basis.
A limited number of users, in particular the military, may operate without licences in their
own spectrum bands. Where their use is in shared bands, it is agreed and coordinated with
Ofcom. For uses, such as radio astronomy, which involve the reception but not the
transmission of radio signals, Recognised Spectrum Access8 (RSA) is proposed as the
means of providing such users with appropriate spectrum rights. For the purposes of this
project we can regard such regimes as licensed.
2.4 Spectrum Commons
Spectrum within which licence exempt devices are permitted to operate is also referred to
as Spectrum Commons and two classes of commons can be discerned.
Public Spectrum Commons refers to spectrum to which all have a right of access as
described above. The term is sometimes applied to all such spectrum, and sometimes to
such spectrum only when the only restrictions on usage are limits on radiated power
levels.
Private Spectrum Commons refers to spectrum which is licensed to a particular user but
which the licensee then makes available on a licence exempt basis. At the present time
there does not appear to be any commercial interest in this class of spectrum, but we
discuss its use as a market mechanism for deciding on the allocation of licence exempt
spectrum in Section 2.7.
2.5 When is licence exemption appropriate?
The fundamental objective of allocating parts of the spectrum for licence exempt use is the
same as for licensed spectrum, namely to facilitate maximisation of the economic benefit
7
We note that in March 2005, the FCC opened 50 MHz of spectrum at 3.650 GHz for broadband wireless services under a light
licensing regime which places no limit on the number of licensees but does require that they coordinate with each other and that
contention based protocols be used to minimise interference. At present, it is too early to identify the success or otherwise of this
move.
8
See, for example, the Ofcom consultation on Recognised Spectrum Access for radio astronomy, November 2006.
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derived from its use. Given this objective, there are two basic situations in which the
allocation of spectrum for licence exempt use is justified and one key caveat.
Firstly, where the economic benefit is greater with licence exemption than it would be
with (all) alternative licensed uses;
ƒ This can be estimated in those cases where the potential uses are reasonably well
known (the proposed 60 GHz licence exempt band might fall into this category).
However, estimating the value of, by definition, unknown future innovations is
difficult as is estimating the opportunity cost of potentially preventing unknown
future licensed usage;
ƒ Note that the potential difficulty in refarming licence exempt spectrum9 should a
more beneficial use arise later means that there is a cost (the cost of potentially
foregone future benefits) to be accounted for here.
Secondly, where the supply of spectrum is greater than the demand there is no need for
rationing and in this case licence exemption avoids the costs inherent in licensing and
trading;
ƒ It should be noted that licence exemption is not cost free. The rules that may be
applied to make licence exemption practical, such as the low power restrictions
applied today, can decrease the benefit achievable with certain applications
potentially reducing it to less than that achievable under a licensed regime. Thus,
even in this situation, a cost / benefit comparison of alternative licensed and licence
exempt regimes is, in principle, required.
Caveat: once a band is opened up for licence exempt operation usage would be
expected to grow and, with low costs of entry and minimal restrictions on the type of
use, it is possible that usage will grow to the point at which interference between users
negates the benefit originally obtained through use of the band. Thus, before a
determination is made to allocate a band for licence exempt operation, it is necessary
to check that congestion will not occur in the future.
The last, apparently obvious, statement concerning congestion is worthy of some
clarification and is discussed next.
2.6 How should congestion be understood?
Since the objective is to maximise the economic benefit derived from the use of the
spectrum, congestion in this context occurs when the level and/or manner of usage is such
that the economic utility is materially degraded.
This can be different for different uses and applications:
For traditional IP based applications which can tolerate a variable quality of service
(QoS) as the level of usage goes up and down, interference between users and
therefore high levels of usage can be acceptable;
For applications such as TV entertainment, which require a guaranteed quality of
service in order to be of value, the level of interference has to be low. In the absence of
other methods of control, this means that only low levels of usage can be tolerated;
For uses which require a significant investment and on which the investor expects to
make a return through the provision of services to others, the investor will require
9
Since licence exempt users are unknown it can be problematic to clear a licence exempt band for an alternative, incompatible use.
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assurance that interference will not degrade the services to the extent that the services
become commercially non-viable. An example would be the provision of broadband
fixed wireless access in licence exempt spectrum10.
In considering the impact of congestion in these different circumstances it is also
pertinent to consider how users are likely react to congestion and what could be done to
reduce either congestion or its impact.
In those situations in which performance degrades gracefully with increasing
congestion, and in which use at a particular time or location is not critical at least to
the majority of users, users are likely to react to congestion by delaying their use or by
moving to an alternative location. Where an alternative means of achieving the same
function exists they may well make use of it if their particular use justifies the
additional cost. In this case, congestion becomes self limiting with the usage level
settling at the point where the majority of users consider the service to be just
adequate. A WiFi hot spot would be expected to behave in this way11. In such situations
the reduction in economic benefit need not be very large as a proportion of the total
benefit achieved.
Usage will often be greatest at particular times of the day and in particular locations.
At other times and in other locations congestion may seldom be a problem so that
again the reduction in the economic benefit may amount to only a small proportion of
the overall benefit achieved.
The probability of congestion may be reducible through the application of some rules.
To date, limits on the maximum radiated power have typically been used but other rules
can be envisaged.
Congestion is likely to occur over time as more users make use of the spectrum but
future congestion could be alleviated by future developments in technology (such as
higher levels of video compression) or by making additional allocations of suitable
licence exempt spectrum.
In our spectrum estimations (Chapter 6) we take account of whether a particular use can
tolerate more or less congestion in line with the above arguments.
2.7 Letting the market decide
Ofcom’s preference would be to allow market mechanisms to decide both the amount of
licence exempt spectrum and the uses to which it was put. However, it is difficult for
licence exempt users to combine to purchase spectrum either through an auction or
through trading. An alternative is for a band manager to purchase the spectrum and
operate it as a private Spectrum Commons but the business case today is far from clear and
there is no obvious interest from potential band managers12. Ofcom’s current approach is
therefore to adopt a more interventionist method, monitoring current licence exempt
10
Note, for some years Atlantic Telecom successfully ran a wireless local loop telephony service in the 2.4 GHz licence exempt band.
A hot spot operator might also limit the number of customers accessing the access point at any one time. However, other nearby
users of the spectrum (such as another hot spot operator or a group of Bluetooth users) could introduce additional uncontrollable
congestion.
12
An earlier study by Quotient and Indepen examined commercial interest in spectrum at 10, 28, 32 and 40 GHz but found no
interest from potential band managers, “The award of spectrum at 10, 28, 32 and 40 GHz”, Ofcom study, February 2006.
11
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usage and undertaking an economic study of the benefits of allocating more licence
exempt spectrum when future congestion looks likely13.
A similar situation holds in the case of lightly licensed spectrum. Again, it may be difficult
for potential users to come together and, although the business case for a band manager
may be more attractive, the level of interest so far has been minimal. To date Ofcom has
released spectrum under lightly licensed regimes through regulatory fiat.
2.8 Regulatory allocation of licence exempt spectrum
Where market mechanisms are insufficiently developed to provide an adequate means of
deciding on spectrum allocations, regulatory intervention may be necessary. Cave and
Webb have considered what might be an appropriate process for deciding on the allocation
of licence exempt spectrum14. The process they suggest is identified in the figure below.
Consultation and identification
of possible uses
Evaluate demand and
likelihood of congestion
Estimate economic value of
each possible use
Select preferred use
No
Determine if use can
be licence exempt
Auction the spectrum
Yes
Identify regulatory restrictions
necessary to minimise
congestion – open the
spectrum
Figure 2.1: The regulatory process to decide if a band of spectrum should be allocated
for licence exempt use.
As Webb and Cave acknowledge, estimates of future demand and economic value can be no
more than approximate, and the regulator therefore has to take account of as many inputs
as possible before coming to a judgement as to the best course of action. This process is
similar to that followed in the command and control model of spectrum allocation, and
suffers from the same disadvantage of having to second guess the market. Nevertheless, it
is the best that we have at present, and we have mirrored it in the methodology adopted
for this study. We also consider how the economic theory of real options can assist the
regulator in making such decisions (see Chapter 7).
13
“Spectrum framework review statement”, Ofcom, June 2005.
“Spectrum licensing and spectrum commons – where to draw the line”, W. Webb and M. Cave, Warwick Business School,
September 2003.
14
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Essentially the same process is applicable to decisions to release spectrum under a lightly
licensed regime.
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3 POTENTIAL USES ABOVE 30 GHZ
The objective of this part of the work is to identify the likely uses of spectrum above 30 GHz
over the coming 10 to 15 years. To this end we have considered both existing users and
their future use of spectrum, and potential new uses possible within the constraints of the
technology and propagation characteristics at these frequencies.
First, though, it is helpful to briefly summarise our basic assumptions as to the key
relevant market developments which have guided our thinking.
3.1 Market developments
There are three key developments that will drive the use of spectrum above 30 GHz.
Convergence
We expect a continuing convergence of the services offered by the different industry
sectors with broadcasting, telecommunications and internet services increasingly being
provided over all types of local access media (fibre, cable, copper and wireless). To support
these services with an adequate grade of service will require high bandwidth broadband
access networks. Thus there will be an opportunity for broadband wireless access
networks, operating above 30 GHz where gigahertz bandwidths are potentially available,
to serve part of this market.
Expansion of fixed and mobile wireless networks
The mobile and fixed wireless access networks operating typically between 1 and 3 GHz are
expected to continue to expand and increase in number, with a resulting increase in the
required backhaul capacity. Although some of this demand may be met at frequencies
below 30 GHz (for example in the 10 and 28 GHz bands) we expect it to continue to be a
significant driver of demand for fixed link spectrum above 30 GHz.
WLANs and WPANs
We expect the success of WLANs and WPANs to continue with a greater range of uses and
applications using wireless connectivity in the home and work place. Thus we foresee a
growing demand for very short range, high bandwidth wireless links.
3.2 Current users
The three largest current uses (in terms of megahertz of assigned spectrum) above 30 GHz
are terrestrial fixed links, military applications and radio astronomy but spectrum is also
assigned for programme making and special events (PMSE), to the public safety services,
and to amateurs. Table 3.1 lists the amount of spectrum assigned to each of these uses
between 30 and 200 GHz.
Use
Terrestrial fixed links
Assigned spectrum
(MHz)
Number of
bands
9,320
6
Note
Includes the CCTV band at
31 GHz & the lightly
licensed band 64 – 66
GHz.
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Use
Assigned spectrum
(MHz)
Number of
bands
Exclusive to MOD
7,600
5
These are all below 50
GHz.
MOD shared with Ofcom
18,000
6
These are all above 50 GHz
Amateur
2,200
2
A further 1000 MHz is
available on a shared
basis.
PMSE
400
1
Very little current use.
Public safety
400
1
The public safety
requirement is currently
under review.
7,600
5
Bands protected by
Footnote 5.340 or
expected to come under
RSA1.
Radio astronomy
Note
Table 3.1: Summary of the amount of spectrum allocated to different uses between 30 and 200 GHz.
Note 1: RSA is Recognised Spectrum Access (see Section 2.3).
In addition, four bands have been designated for licence exempt applications. However,
they are currently very little used (if at all). The bands are discussed in the chapter on
available spectrum (see Section 4.5).
Our review of the uses listed in Table 3.1 suggested that growth over the next 10 to 15
years is likely to be small in all cases other than terrestrial fixed links15. The likely demand
for terrestrial fixed links was therefore considered in more detail.
The major demand for fixed links above 30 GHz is expected to come from the backhaul
requirements of present and future mobile networks. We therefore assumed that growth in
the spectrum requirements of these networks would provide a reasonable proxy for the
growth in the demand for fixed links. Forecasts for the growth in mobile network
requirements were taken from the Independent Audit of Spectrum Holdings undertaken by
Professor Martin Cave16. Knowing the current number of fixed links deployed above 30 GHz
(all in the 38 GHz band) the number of future links and the corresponding spectrum
requirement were derived. The results are compared with the current fixed link allocations
in Figure 3.1 from which it can be seen that the mean forecast in both 2015 and 2020 is
less than the available spectrum. For the purposes of this study it is reasonable, therefore,
to assume that no additional spectrum will be required for terrestrial fixed links before
2020.
15
16
Very little information on military use was available to the project so this conclusion is more speculative in this case.
“Spectrum demand for non-government services 2005 – 2006”, Ofcom report by Analysys Mason, September 2005.
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Forecast demand for fixed link spectrum above
30 GHz
Upper
Mean
Available spectrum
10.0
8.0
6.0
4.0
2.0
0.0
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
Spectrum requirement
(GHz)
Lower
Figure 3.1: The forecast demand for fixed link spectrum above 30 GHz is compared with
the spectrum available in the 32, 38, 52 and 54 GHz bands17. Note that the forecasts
were made for 2015 and 2020 with a straight line extrapolation used for the
intervening periods.
Should the demand exceed the supply as suggested by the upper forecast, extra capacity
could be available in the 10 or 28 GHz bands, or possibly in the licence exempt fixed link
band at 57 GHz18.
3.3 Identifying potential new uses
Our objective is to develop a realistic scenario of potential new uses which can then be
used to identify the possibilities for, and implications of, allocating licence exempt
spectrum above 30 GHz. In doing so it is clearly important that due account is taken of the
limitations that are imposed by propagation and the capabilities of technology at these
frequencies, and both are considered below.
Our starting point for possible new uses was provided by two earlier Ofcom studies19 into
radio systems at high gigahertz frequencies. Additional research was undertaken to
further develop the list using the following sources of information:
Current work and initiatives within the European Commission, ETSI, CEPT and other
standards development organisations elsewhere in the world such as the IEEE:
ƒ This included the eSafety initiative and the impetus that this is giving to the
development of different aspects of intelligent transport systems;
Research activities undertaken by universities and research laboratories (where
published) including projects undertaken under the auspices of the 5th and 6th
17
The 32 GHz band is likely to be released into the market through an auction. However, an earlier Ofcom study on the 10, 28, 32
and 40 GHz bands by Quotient and Indepen identified that it is likely to be purchased for the purposes of providing mobile
backhaul. We have therefore included it in this calculation.
18
The new bands being opened at 70 and 80 GHz could also provide additional capacity but, for the purposes of this project, we
have treated these bands as new spectrum available for new uses.
19
“Theoretical appraisal of the highest usable frequencies”, Rutherford Appleton Laboratory, May 2003, and “Radio systems at 60
GHz and above”, Rutherford Appleton Laboratory, OciusB2 & the University of Durham, February 2006.
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Framework Programmes funded by the European Commission and under the auspices of
the DTI:
ƒ For example, research on high capacity WLANs (HIPERSPOT), future broadband access
media (BroadWAN), high altitude platforms (CAPANINA), and the DTI funded project
ROFMOD (on wireless cameras);
Regulatory developments elsewhere in the world that have the potential to influence
industry and standards development organisations:
ƒ For example, the allocation of several gigahertz of spectrum around 60 GHz for
licence exempt use in the USA and Japan;
Relevant product and technology announcements by industry:
ƒ Such as those on multimedia wireless systems by BluWan, 60 GHz chipsets by IBM,
and the formation of a special interest group, WirelessHD, to develop a wireless
standard for high definition audio video streaming;
Discussion with industry figures with an interest in these frequencies and/or licence
exemption;
The licence exempt uses identified by parallel Ofcom projects on licence exemption;
An internal project brainstorm.
3.3.1 Propagation constraints
At frequencies above 30 GHz refracted signals are generally small or insignificant.
Practical wireless systems are, as a result, typically restricted to line of sight operation and
propagation can be approximated as free space. However, the signals are subject to
further attenuation due to gaseous absorption. As illustrated in Figure 3.2, the additional
attenuation increases with frequency with additional peaks in the absorption bands.
Gaseous attenuation at sea level
Attenuation (dB/km)
100.00
Water vapour
Oxygen
Total attenuation
10.00
1.00
0.10
0.01
0
50
100
150
200
250
300
350
Frequency (GHz)
Figure 3.2: The attenuation per kilometre resulting from absorption by oxygen and water
vapour in the atmosphere is shown as a function of frequency20.
20
All the gaseous attenuation curves used in this work are based on an approximate model described by Mike Willis of Rutherford
Appleton Laboratory (see www.mike-willis.com/Tutorial/gases.htm) and implemented and kindly provided to us by BAE Systems,
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Attenuation due to rain is also significant, increasing by three orders of magnitude
between 10 and 100 GHz to levels similar to that caused by gaseous absorption. For
outdoor applications rain is therefore an important factor and, where high availabilities
are required, large margins have to be included in the link budget in order to avoid system
degradation.
3.3.2 The technology
At frequencies of up to 100 GHz wireless technology is reasonably mature. Solid state
transmitters and receivers suitable for professional applications are readily available and
commercial point to point systems are available at frequencies up to 86 GHz. Vacuum
electron devices are also available at these and higher frequencies and can yield powers of
the order of kilowatts. They are, however, large and expensive, and have limited lifetimes.
There are no fundamental barriers to the development of devices at higher frequencies and
solid state transmitters and receivers at up to 200 GHz could be commercially available
within 10 years depending upon the market demand21. Furthermore, as illustrated in
Figure 3.3, integrated transceiver devices operating at 60 GHz and targeted at large scale
consumer applications are also being developed22.
Figure 3.3: The complete 60 GHz transceiver module
demonstrated by IBM23.
We understand that commercial integrated circuit technologies are expected to achieve
120 GHz within a few years, and that more advanced SiGe technologies targeted at
frequencies up to 200 GHz are under development. Our assessment is, therefore, that
consumer applications will be possible at up to 100/120 GHz within the next 5 years, and
at frequencies up to 200 GHz within the next 10 to 15 years. We therefore considered
potential new uses that might be expected within 10 to 15 years at up to 200 GHz.
Advanced Technology Centre, Chelmsford. Note that the curves are only approximate, more precise values can be found in ITU-R
Recommendation P.676.
21
See “Radio systems at 60 GHz and above”, Rutherford Appleton Laboratory, OciusB2 & the University of Durham, February 2006.
22
“IBM scientists demonstrate chipset boost to wireless communications”, IBM press release, 6th February 2006.
23
This figure was taken from the IBM website, http://domino.research.ibm.com/comm/research_projects.nsf/pages/
mmwave.apps.html.
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3.4 The potential new uses
The list of potential new uses was reviewed in the light of the propagation constraints and
the limitations of the technology. Those considered practical were taken forward into the
next stage of the analysis. Table 3.2 summarises the new uses selected in this way.
Final list of potential new uses above 30 GHz
Broadband fixed
wireless access
(BFWA)
Broadband access for residential and small business customers
providing significantly higher throughputs than lower frequency
systems. Capable of offering multiple TV programmes, interactive TV
and VoD along with telephony and broadband internet connection.
Point to point
broadband fixed
wireless systems
Short range, high capacity (gigabits/s) links for last mile access.
Carrying corporate telecommunication, intranet and internet traffic
for business enterprises and multi-tenant commercial buildings.
Indoor Gigabit WLAN
WLAN with very high throughput rates for home and office. Capable
of supporting high quality video transmission, including HDTV and
gaming applications.
Outdoor Gigabit WLAN
Extension of Indoor Gigabit WLAN to larger spaces such as
exhibition halls, conference centres and sports stadiums.
Intelligent transport
systems (ITS)
Vehicle to vehicle and vehicle to roadside infrastructure links to
support multiple road safety and transport efficiency applications.
Short range repeaters
A series of high capacity wireless links providing an alternative to
optical fibre. Potential uses include access for business and retail
premises, and backhaul for BFWA, ITS and mobile networks.
Automotive anticollision radar
Vehicle mounted radars to give proximity warnings to drivers and
prevent collisions. This includes both short and long range radars
required as part of future intelligent transport systems.
Direct broadcasting
satellite
Providing up 100 HDTV channels across the UK.
Aircraft to satellite
communications
Providing in-flight high speed internet and intranet access, and
telephony including video telephony, for business and leisure
travellers.
High altitude
platforms (HAPs) for
broadcasting
An alternative means of broadcasting up to 100 HDTV channels.
Short range
surveillance radar
High accuracy radar for security applications. Initially for
professional users with potential for consumer use in the longer
term.
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Final list of potential new uses above 30 GHz
HDTV wireless cameras
Wireless cameras for studio based HDTV programme making.
Mobile broadband
systems
The provision of temporary broadband communication links at
incidents for the public safety services (based on HAPs).
SuperBUS
Very high capacity, short range device to device communications,
similar to UWB but offering higher throughputs.
Table 3.2: The final list of potential new uses.
It should be noted that some of these uses are fairly speculative and it is unlikely that all
would come to fruition. Conversely, new uses not considered here may develop.
As discussed earlier the longer range uses are confined to operation in the lower
frequencies. Figure 3.4 shows the range of frequencies over which the different uses could
be deployed.
1000.0
Attenuation (dB/km)
Gigabit WLAN, Automotive radar, SuperBUS
PTP, BFWA, ITS, Repeaters, Aircraft - Satellite
100.0
HAPS (marginal above 53 GHz)
10.0
Satellite links
1.0
0.1
0
50
100
150
200
250
300
350
Frequency (GHz)
Figure 3.4: Illustration of the frequency range over which some of the potential new uses could
operate. (The red line is the atmospheric attenuation due to gaseous absorption as in Figure 3.2.)
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4 THE AVAILABLE SPECTRUM
The objective of this part of the work is to identify what spectrum could be made available
for the potential new uses identified in Chapter 3.
The use to which spectrum can be put in the UK is affected by the obligation to comply with
the ITU-R Radio Regulations, with relevant European Commission Decisions, and with any
ERC/ECC Decisions which the UK has committed to implement. In this chapter we
summarise the potential impact of these obligations. In addition, we identify the existing
licence exempt allocations in the UK and examine Ofcom’s own plans for spectrum above
30 GHz. We conclude the chapter with a map of potentially available spectrum between 30
and 200 GHz.
4.1 The ITU-R Radio Regulations
The ITU-R Radio Regulations identify which services may be assigned within which
frequency bands, but they also permit an administration to use any part of the spectrum
within their own territory for any purpose provided such use does not cause harmful
interference to other legitimate users operating in accord with the Radio Regulations.
Above 30 GHz, this can constrain the use of spectrum within the UK in two ways:
Firstly, certain bands are allocated to passive services on an international basis and
given special protection which can severely restrict the use of the same frequencies for
any other service;
Secondly, any service operating within the UK but outside of the Radio Regulations
would have to do so on a no interference, no protection basis with respect to legitimate
services operating at the same frequencies in neighbouring countries. To avoid harmful
cross border interference can require limits to radiated power levels, potentially
diminishing the value of the UK service.
Passive services
Above 30 GHz there are a number of bands allocated to Earth Exploration-Satellite
(passive) and Space Research (passive) services. All are protected by the Radio
Regulations Footnote 5.340 which prohibits all transmissions in the bands.
Bands (GHz) protected by Footnote 5.340
31.3 – 31.5
114.25 – 116.0
50.2 – 50.4
148.5 – 151.5
52.6 – 54.25
164.0 – 167.0
86.0 – 92.0
182.0 – 185.0
100.0 – 102.0
190.0 – 191.8
109.5 – 111.8
200.0 – 209.0
Table 4.1: Bands between 30 and 200 GHz which are protected by Footnote 5.340
of the Radio Regulations.
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Examination of ERC Report 4524 shows that even at very low densities, low power devices
will interfere with such systems. A simple extrapolation taking account of the increase in
gaseous absorption at higher frequencies indicates that this remains true even beyond 200
GHz25. Bands protected by Footnote 5.340 and listed in Table 4.1 are therefore unlikely to
be useable for any services other than passive services.
Cross border interference
The level at which signals cause harmful interference varies significantly depending on the
specific pairing of services, the technologies employed, their geographic spacing, and the
nature of the intervening terrain. Nevertheless, for the purposes of this project we have
drawn some general conclusions, recognising that they can only be approximate.
An earlier study on national autonomy in the use of spectrum within the UK26 considered
the interference that could be caused to fixed links on the French channel coast by fixed
links in the UK operating at 32 GHz (see Figure 4.1 taken from that study). The results were
extrapolated to higher frequencies by modelling the effect of frequency on path loss as
free space propagation and allowing for the variation in gaseous absorption. The
susceptibility of services other than fixed links that might be deployed in France was also
considered.
19 – 14 dBW
14 – 9 dBW
9 – 4 dBW
4 – -1 dBW
-1 – -6 dBW
-6 – -11 dBW
-11 – -16 dBW
-16 – -21 dBW
-21 – -26 dBW
< -26 dBW
Figure 4.1: The coloured shading in this plot shows the limits on radiated signal levels required to
avoid harmful interference between fixed links operating in the UK and France at 32 GHz. Note that
these results assume that the antennas of both interfering and victim systems are aligned with one
another and are therefore represent the worst case. As discussed in the text, interference levels in
practical situations will be significantly less.
The general results of this analysis for the case of transmitters with antennas mounted at
20 metres above ground level are:
Protection of terrestrial fixed links in France will limit radiated power levels in the
south east of the UK. At 30 GHz the limits are quite onerous (~7.5mW EIRP in a channel
24
“Sharing between the Fixed and Earth Exploration-Satellite (passive) Services in the band 50.2 – 66 GHz”, ERC Report 45,
January 1997.
25
Attenuation in the centre of the 180 GHz absorption band may provide adequate isolation, see “Atmospheric absorption in the
band 182 – 185 GHz frequency band”, Ofcom report by Rutherford Appleton Laboratory, under contract AY 4254.
26
“National autonomy in the use of spectrum in the UK – Technical options”, Ofcom report by Quotient and ATDI, March 2004.
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bandwidth of 56 MHz) but they rise quite quickly inland from the coast (by around
20dB at ~100km). They also rise with frequency; 1W devices could be freely deployed
above ~105 GHz and 30KW devices above ~165 GHz;
Radiolocation services, including safety of life uses, require about 5dB more protection
than terrestrial fixed links;
Radio astronomy observatories require a level of protection of the order of 50dB
greater than terrestrial fixed links. The frequencies above which 1W and 30KW devices
could be freely deployed without interfering with nearby radio observatories in France
are ~170 GHz and ~240 GHz.
However, for the reasons noted below, the restrictions required in many practical
situations will be less than this:
Allowable radiated power levels rise quite rapidly for lower transmitter heights. For
example, with a transmitter antenna height of 1.5 metres in an urban environment
radiated power levels could be increased by 20dB. In this case 1W devices could be
freely deployed above ~47 GHz;
Where the victim antenna heights are less than 20 metres further similar increases in
radiated powers are possible;
Higher power transmissions from high antenna will often make use of highly
directional antenna which will reduce the likelihood of the emissions reaching a victim
receiver;
The bands used for radio astronomy in neighbouring countries will often be the same as
those in the UK, thus new services deployed in the UK are unlikely to be affected by the
high levels of protection required for this service.
It should also be noted that the above restrictions were derived on the basis that the
interfering service would be licence exempt and untraceable. Where some form of
registration is applied which enables interfering transmitters to be identified, it is likely
that lower levels of protection (up to 15 – 20 dB lower) would be acceptable to our
neighbours.
As noted at the beginning of this discussion, generalisations about cross border
interference can only be approximate and more detailed investigation will be necessary for
any specific proposals. Overall, however, we expect that restrictions to avoid cross border
interference will be unnecessary across much of the UK. Limits on radiated power levels
may be necessary for transmissions from high antennas along the south coast of the UK.
Along the land border between the Republic of Ireland and Northern Ireland, cross border
interference will be more of an issue, and some form of coordination is likely to be
necessary.
4.2 European Commission Decisions
Decision 676/2002/EC (The Radio Spectrum Decision) of the European Parliament and the
Council provides the basis for the development of a Community radio spectrum policy with
the objectives of making use of the spectrum more flexible and efficient and of ensuring
the development of a single European market for relevant equipment and services. In
response the European Commission is developing and implementing relevant policy. The
approach adopted specifically includes the identification of frequencies to be
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harmonised27 and the use of Commission Decisions to mandate implementation. Four such
Decisions have been issued and one, Decision 2004/545/EC, affects frequencies above 30
GHz. This Decision harmonises use of the 77 - 81 GHz band for automotive short range
radar and Ofcom has subsequently exempted such equipment from licensing on a no
interference, no protection basis.
We are not aware of any current Commission plans for further harmonisation in the bands
above 30 GHz. It is worth noting, however, that a recent study28 of the collective use of
spectrum undertaken on behalf of the Commission recommended that the band 40.5 to
42.5 GHz be considered “as an early potential candidate for collective use” and that “in
the longer term consideration should be given to making most of the spectrum above 40
GHz available for collective use”. At present the Commission’s viewpoint on this is not
known but clearly it is possible that over the 10 to 15 year time scale of interest to this
study, further Commission Decisions may affect spectrum use above 30 GHz.
4.3 ERC/ECC Decisions
The European Communications Committee (ECC) of CEPT produces Decisions and
Recommendations on the use spectrum within member countries. Decisions are binding on
those members who agree to implement them, although it is possible to withdraw from
them, whereas Recommendations are entirely discretionary. Three current Decisions relate
to spectrum above 30 GHz and between them designate 3 bands for licence exempt use.
ECC Decision (04)03
This Decision designates the use of the 77 - 81 GHz band for automotive short range radar
applications. Although the UK has not implemented this Decision, it was the basis for the
Commission Decision 2004/545/EC and Ofcom has consequently designated this band for
use by short range radar equipment on a licence exempt basis.
ECC Decision (02)01
This Decision, which the UK has committed to implement, designates bands at 5.795 5.805 GHz (with a possible extension to 5.815 GHz), 63 - 64 GHz and 76 - 77 GHz, on a
non-exclusive basis to RTTT29 systems. The band 63 - 64 GHz is to be used for vehicle-tovehicle or road-to-vehicle systems, and the band 76 - 77 GHz is to be used for vehicular or
infrastructure based automotive radar systems.
ERC Decision (99)15
This Decision, which designated the band 40.5 - 43.5 GHz to multimedia wireless services
in 1999, has been implemented by the UK. However, no systems have been deployed and
we understand that it is likely that the UK will withdraw from the Decision if the ECC does
not abrogate it in the near future.
27
“A forward looking radio spectrum policy for the European Union: Second Annual Report”, Communication from the Commission
to the Council and European Parliament, COM(2005)411.
28
“Study on legal, economic and technical aspects of Collective Use of spectrum in the European Community”, report for the
European Commission by Mott McDonald Limited, Aegis Systems Limited, IDATE, Indepen Limited and Wik Consult, October 2006.
Note that the term “collective spectrum” includes what are here termed licence exempt and lightly licensed regimes.
29
Road transport and traffic telematics – we use the more current term, Intelligent Transport Systems in this report.
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4.4 Current Ofcom proposals
Following a consultation in 2006, Ofcom is planning to open the bands 71.0 – 76.0 GHz
and 81.0 – 86.0 GHz for point to point fixed wireless systems30. The bandwidth proposed
enables very high capacity links with throughputs of the order of 1 to 10 Gbits per second
over distances of 1 to 2 kilometres. Likely applications include high capacity “last mile”
links to commercial buildings, the extension of LAN server backbones between buildings,
and high capacity backhaul for WiFi and WiMAX systems.
The bands are jointly managed31 with the MoD. The MoD has asked that its right to future
use of the spectrum be protected and the band will therefore be subject to a light licensing
regime. In the approach proposed, users will register in an on-line database (on a first
come first served basis) and be responsible for co-ordinating their links with existing
deployments. Spectrum trading will be permitted.
Ofcom’s schedule suggests that the bands could be open in early 2007, and suitable
equipment (made for the same bands in the USA) is already commercially available.
4.5 Current licence exempt spectrum
As summarised in Table 4.2, there are currently four licence exempt bands above 30 GHz.
All have been designated for specific applications – three are the subject of ECC Decisions
(Decisions (04)03 and (02)01 above). In the fourth band, 57.1 to 58.9 GHz, fixed link
equipment is exempt from licensing.
Band (GHz)
Comment
57.1 – 58.9
For point to point fixed links in accord with IR2000
63.0 – 64.0
For RTTT systems (vehicle to vehicle and vehicle to
roadside systems) in accord with ERC T/R 70-03.
76.0 – 77.0
For RTTT systems (vehicular and infrastructure radar)
in accord with T/R 70-03.
77.0 – 81.0
For automotive short range radars in accord with the
Wireless Telegraphy (Automotive short range radar)
(Exception) Regulations 2005.
Table 4.2: The four current licence exempt bands above 30 GHz in the UK.
4.6 The available spectrum
Combining the designations and restrictions identified above with the current uses
identified in Chapter 3 enables us to identify spectrum free for new uses as shown in the
spectrum map given below.
30
“Making spectrum available in the 71 – 76 GHz & 81 – 86 GHz bands”, Ofcom Statement, 8 November 2006.
To be precise, the bands 71.0 – 74.0 GHz and 81.0 – 84.0 GHz are jointly managed. The upper 2 GHz in both bands is managed
solely by Ofcom.
31
Higher frequencies for LE applications | The available spectrum
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100
200
190
90
180
80
170
160
70
150
60
140
50
130
120
40
110
30
100
Figure 4.2: Plot of current frequency use. White denotes free spectrum, the colour coding
for other spectrum uses is given in the text below.
Spectrum was classified as not free for new uses if it is currently in use, designated for a
particular use by Ofcom or the ECC, allocated to the MOD, or its use is restricted by
international agreement. Specifically, the following spectrum was considered as not
available for new uses.
Spectrum allocated (within the ITU-R Radio Regulations) only to passive services (the
majority of this spectrum is protected by Footnote 5.340) – colour black in Figure 4.2;
Spectrum assigned exclusively to existing civil users (amateurs, radio astronomers,
PMSE and the public safety services) – colour yellow in Figure 4.2;
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23
The fixed link bands at 31, 32, 38, 52, 54 and 65 GHz (licensed) – colour blue;
The bands designated for licence exempt operation of fixed links at 57 GHz, ITS
applications at 63 – 64 GHz, and vehicular radar applications at 76 – 77 GHz and 77 –
81 GHz – colour green;
Spectrum managed by the MOD or jointly by the MOD and Ofcom – colour red - with the
exception of:
ƒ 59 – 64 GHz, assumed available for indoor uses;
ƒ 71 – 74 and 81 – 84 GHz, expected to become available for fixed link like
applications;
ƒ These bands are noted as free in the spectrum map.
The amount of free spectrum defined in this way amounts to 30 GHz up to 100 GHz and to
63 GHz between 100 and 200 GHz.
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5 LICENCE EXEMPT TECHNIQUES
The successful use of licence exempt spectrum is today based largely on low power short
range devices in combination with polite protocols which enable a group of devices to
communicate with each other either directly or via an access point32 of some sort. The
short range means that the access points do not normally need to coordinate their use of
spectrum with other access points but only need to share it between the local terminals.
Short range operation also means that the number of terminals per access point is small
enough that congestion is seldom a problem. The polite protocols enable an ad hoc group
of devices to schedule inter-device communication or to share access to an access point.
Current examples include:
The 802.11 protocols share the capacity of an access point between a local group of
terminals on a best effort basis. The throughput available to any one terminal
decreases as the number of terminals trying to send or receive information increases;
Some systems, such as wireless key fobs, simply rely on their short range and low usage
levels to give a very low probability that two will be operated at the same time and
closely enough to cause interference to each other;
The DECT system was designed to support voice calls and therefore, once a call is set up
between a terminal and an access point, the resource assigned to the call is reserved
for that call until it finishes.
As well as sharing capacity between a local group of terminals, access points can have the
ability to select which part of the spectrum to use based on what use is already being made
by other nearby access points, enabling access points to automatically coordinate their
use of the spectrum allocated to their use. Consequently, it is convenient to distinguish
between two levels of spectrum sharing.
Level 1 applies at the system or access point level and shares the total available
spectrum between two or more systems. This sharing may be on the basis of frequency
division with each access point selecting different frequency channels to operate in, or
on time division with one system being given access to the spectrum for a period of
time (which could extend to days or longer).
ƒ For example, the PACS-UB33 system allows an access point to reserve spectrum in its
locality for long periods (although it has to release it if it has not been used for a
period of time). DECT base stations also coordinate their use of spectrum resources.
Level 2 applies to the sharing of spectrum between the individual terminals accessing a
single base station or access point.
32
“Access point” is commonly used in WiFi systems to refer to the central wireless station through which terminals communicate
with each other and connect into a local network. In other systems, such as DECT, base stations perform the same function. Here
we use access points to cover all forms of central wireless station used in licence exempt systems.
33
Personal Access Communications System – Unlicensed Band
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Level 2 protocol between each access
point and associated terminals
Level 1 protocol between access
points sharing the same spectrum
Figure 5.1: Illustration of Level 1 protocols enabling two access points
to share access to spectrum and of Level 2 protocols enabling terminals
to share access to their associated access points.
5.1 Polite protocols
Polite protocols are the protocols used to ensure equitable access to spectrum and can be
applied at Level 1 or 2 (though Level 2 is more common). Most current polite protocols
operate on the principle of “listen before transmit” with additional rules to define what
actions to take when the “channel” is occupied which ensure that all terminals (or
systems) have a fair chance of gaining access to the spectrum.
As illustrated in Figure 5.2 the “listen before transmit” approach works well but suffers
from the hidden terminal problem. This occurs where device A wishes to transmit to device
B, and device A is shielded from another device C. If device C transmits to device D which is
not shielded from device A, device A will not detect device C’s transmissions and will
transmit and be received by, and cause interference to, device D.
B
D
A
C
B
D
A
(a)
C
(b)
Figure 5.2: In (a) device A cannot “hear” the transmissions from device C to
device D and therefore transmits causing interference to device D. In (b) the
receiver beacon at device D transmits a signal which device A can detect, causing
device A to avoid transmission whilst device D is receiving a signal.
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26
The solution is to use “receiver beacons” which are collocated with a receiver and transmit
a signal whenever the associated receiver is actively receiving a signal. In this case, a
device which wishes to transmit can detect the presence of any device with which its
transmissions would interfere (but see next paragraph). Such signals can be as simple as a
busy tone or carry more information to enable the potential interferer to make a better
assessment of the impact of its transmissions on other users of the spectrum.
However, receiver beacons do not work well when the users sharing the spectrum operate
over significantly different distances. In this case the low power, short range devices
would normally hear receiver beacons of the long range system. However, a long range
transmitter could be at a distance from a short range receiver (and its beacon) such that it
would not detect the short range receiver beacon but its transmissions could nevertheless
interfere with the receiver. The implication is that a small number of range specific licence
exempt bands may be required34.
Other means of determining the location of potential victim receivers can be envisaged,
such as disseminating the position and nature of all active receivers via the internet or via
a network of broadcasting stations. However, these are not necessarily compatible with
small, low power, highly portable devices or large scale real time updating.
Although the concept of receiver beacons is well understood, the technique is not widely
used in licence exempt systems deployed today.
5.2 Likely developments in polite protocols and licence exempt techniques
Current research does not indicate that any fundamental breakthrough in licence exempt
techniques should be expected within the next 10 to 15 years. Rather we expect
improvements to come about through:
The implementation of receiver beacons35 with potentially more information inferred
from or carried by the beacon signals;
ƒ This will enable an access point to effectively cover a wider area (since interference
from hidden terminals is substantially reduced);
The wider use of Level 1 protocols so that access points can self coordinate and be
located in closer proximity and make efficient use of the spectrum, and possibly
autonomously form networks;
The inclusion of reservation protocols within polite protocols to enable a device to
request and be granted a link with a guaranteed minimum bandwidth so that
applications, such as video on demand, can have a guaranteed quality of service rather
than just the “best effort” approach of many current protocols.
Evidence that licence exempt techniques are likely to be enhanced to encompass longer
range uses and to enable different technologies to coexist can be seen in the work of the
IEEE 802.16 Licence Exempt Task Group. This group is considering WLAN and WMAN
systems and developing protocols to enable both coordinated and uncoordinated
coexistence between systems. The recent opening of the 3.65 to 3.70 GHz band by the
34
The Path Gain Ratio metric developed during this project provides a useful guide here (details are given in the interim report on
advances in licence exempt techniques). It is also possible that some uses will be incompatible with others giving rise to the need
for further application specific licence exempt bands. This is studied in a parallel Ofcom project, “Licence exempt application
specific bands”.
35
Or through functionally equivalent inter-device communication links.
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FCC36 for use by wide area wireless broadband systems using contention based protocols
adds to the impetus for such developments.
5.3 Implications for licence exempt operation above 30 GHz
In considering the use of licence exemption at frequencies above 30 GHz we need to
consider both the characteristics of radio wave propagation at these frequencies and the
range of potential uses and their differing requirements.
5.3.1 Propagation characteristics
The high levels of signal attenuation, especially by building materials and within the
absorption peaks, mean that fewer devices will be within range of an access point and
other devices (although this could be offset by a proliferation of wireless devices).
Therefore existing short range polite protocols should work well.
The fact that propagation is largely confined to line of sight paths means that more
receivers will be effectively shielded from potential interferers but, at the same time, a
transmitter will have less chance of detecting another transmitter and therefore the
hidden terminal problem can be made worse. Thus the need for receiver beacons, or
equivalent functionality, remains.
5.3.2 Potential uses
The uses considered as potential candidates for operation in bands above 30 GHz include
point to point links and wide area systems as well as short and very short range links. The
implications for the functionality required of licence exempt techniques are summarised
below.
1. Many of the potential uses above 30 GHz will need to support various commercial video
applications including TV and films, and these will require a guaranteed quality of
service. Current “best effort” standards will be inadequate. Therefore polite protocols
at Level 2 will need to incorporate reservation or similar protocols (the protocols
already exist, for example in WiMAX). In some cases it will also be necessary to use
Level 1 protocols to ensure that adequate spectrum is reserved to support the required
quality of service.
2. Some potential systems, for example point to point links, will carry
telecommunications traffic for which a high level of reliability and availability will be
required. Thus Level 1 protocols will be needed to ensure guaranteed access to
spectrum.
3. The potential uses include wide area systems such as BFWA and the operators will need
(or at least prefer) to have a reasonable amount of control over the level of
interference affecting their subscribers. This again implies that Level 1 protocols will
be needed.
4. The range over which potential uses will operate extend from distances as short as 10m
to 4 km. Thus a number of range specific licence exempt bands are likely to be
required37.
36
FCC news release, “FCC opens new spectrum for wireless broadband in the 3650 MHz band”, 10th March, 2005.
We note that, with the development of suitable, widely adopted protocols, the licence exempt spectrum could be divided into
sub-bands and the different systems could, through self coordination, select which and how many sub-bands become, in effect,
37
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Reservation protocols could be implemented quite quickly but we expect it to be several
years before Level 1 protocols are in general use. We therefore conclude that the longer
range and wide area uses considered above will be practical under a licence exempt regime
but only towards the end of the time frame of interest to this project, namely over the next
10 to 15 years.
5.4 The relevance of light licensing
One of the key advantages of a light licensing regime is that it permits users to coordinate
with each other so as to avoid mutual interference and ensure that they can achieve the
necessary availability and quality of service levels. As concluded above, we expect Level 1
protocols to be developed to provide automated self-coordination. Thus, some uses which
today require a light licensing regime to facilitate self-coordination will in future be
practical under a licence exempt regime.
This highlights the important potential of light licensing regimes to enable uses to be
licensed today and migrated to licence exempt operation at a later date once the
technology is developed.
reserved for a particular system or group of systems. Use of sub-bands would additionally provide increased flexibility to operate
a move-if-interfered-with protocol, thereby improving reliability.
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6 MATCHING POTENTIAL USES TO AVAILABLE SPECTRUM
In this chapter we examine how the potential uses identified earlier could be fitted into
the available spectrum, allowing us to draw initial conclusions as to the practicality of
making spectrum licence exempt in the bands above 30 GHz.
The first step is to identify what licensing regime would be appropriate in each case. The
second is to estimate the amount of spectrum each would require over their lifetime, and
the third step is to examine how the uses might be fitted into the available spectrum.
6.1 Selecting the licensing regime
Our approach to this project is to consider how as many uses as possible might be operated
under a licence exempt regime. In considering what licensing regime would be appropriate
for each potential use our first choice is therefore licence exemption. However, this is not
practical in all cases with today’s technology.
Those uses, such as broadband fixed wireless access or point to point broadband fixed
wireless systems, which will operate over longer ranges (greater than a few hundred
metres) may require coordination with other (new) users to ensure access to enough
spectrum to provide the necessary services and associated quality of service. This is not
generally provided by today’s licence exempt technologies but can be achieved through
a lightly licensed regime in which users are required to register their deployments and
to self coordinate with other registered users.
Note that where a business entity offers a commercial wireless based service this level
of coordination may be important to give the investors adequate confidence that
congestion or interference outside their control will not degrade the service offering.
Where higher transmit powers and/or high antennas are used it may be necessary to
maintain a register of transmitters in order to retain the ability to identify sources of
cross border interference.
Where the new use shares spectrum with an incumbent user, it may be necessary to
coordinate new deployments with the existing user. Again a registration and self
coordination process can be adequate. (As it turns out, there is sufficient spectrum for
this not to be a consideration in this study.)
In these cases, a lightly licensed regime was selected38, noting that future developments
in licence exempt techniques may permit some to be changed over to a licence exempt
regime at a later date39. Note that we have assumed that current developments will result
in protocols capable of supporting high quality video streaming over short range systems,
so that Gigabit WLAN will be capable of satisfactory operation under a licence exempt
regime.
Where international coordination would be required, as in the case of satellite based
services, a licensed regime was selected.
The regimes selected using these criteria are listed and justified in Table 6.1.
38
As noted earlier in Section 2.5, a more rigorous approach would consider the costs and benefits of different licensing regimes.
These future developments are expected to automate self coordination. Thus, where a lightly licensed regime is required in order
to maintain a register of transmitters, migration to a licence exempt regime may not be possible.
39
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Potential use
Selected regime
Rationale
Broadband fixed wireless access
Lightly licensed
Needed to enable coordination with other users and provide adequate confidence to investors.
Possibly needed to ensure cross border obligations are met.
Point to point broadband fixed wireless systems
Lightly licensed
Needed to enable coordination with other users and provide adequate confidence to investors.
Possibly needed to ensure cross border obligations are met.
Indoor Gigabit WLAN
Licence exempt
Harmonisation with US and Japanese allocations (57 – 64 GHz and 59 – 66 GHz respectively); short
range indoor use with low probability of causing interference.
Outdoor Gigabit WLAN
Licence exempt
Temporary nature of use in many cases (e.g. exhibition and conference centres), low QoS expected
to be acceptable.
Intelligent transport systems - Safety applications
Intelligent transport systems – Traffic information, etc.
Lightly licensed
Lightly licensed
Systems for safety critical applications need coordination to ensure that the QoS is adequate.
Infrastructure development may require commercial investment.
Short range high capacity repeaters
Lightly licensed
Expected to use lightly licensed band (64-66 GHz). Needed to enable coordination with other users
and provide adequate confidence to investors. Possibly needed to ensure cross border obligations
are met.
Direct broadcasting satellite
Licensed
Requires international coordination.
Aircraft to satellite communication links
Licensed
Requires international coordination.
HAPs for HDTV broadcasting
Lightly licensed
Needed to enable coordination with other users and provide adequate confidence to investors.
Possibly needed to ensure cross border obligations are met.
Short range surveillance radar
Licence exempt
Technology expected to be able to self coordinate (but may require its own application specific
band).
Wireless HDTV cameras
Licence exempt
Well controlled short range indoor use likely to lead to minimal interference.
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Potential use
Selected regime
Rationale
Mobile broadband systems for public safety
Lightly licensed /
Licence exempt
Coordination could be required to ensure adequate QoS at incidents. Alternatively, given the
sporadic nature of public safety use, sharing with a suitable complimentary use on a licence exempt
basis could be possible.
SuperBUS
Licensed exempt
Very short range indoor use makes likelihood of interference small. Numbers of potential devices
would make any form of licensing impractical.
Table 6.1: The selected licensing regimes and the rationale. Vehicular radar systems are not included here as licence exempt bands have already been designated for their operation at 76 – 77
GHz and 77 – 81 GHz.
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6.2 Underlying assumptions
In order to make estimates of the spectrum required to support a given use, several
assumptions with regard to both markets and technologies have to be made. These are
detailed in further project documentation. Here we briefly identify the key underlying
assumptions used in these estimations.
Our fundamental assumption is that over the next 10 years or so there will be a continuing
convergence of the services and that these services will be offered over all types of local
access media (fibre, cable, copper and wireless). The process of convergence has already
started but it is a major shift for the industry and is expected to take 10 years or more to
become widespread40.
We note that there is increasing use of content downloading over the internet and also of
personal video recorders, allowing users to customise their own viewing schedule.
Nevertheless, we expect broadcasting and VOD to remain key services in the home
entertainment market over the next decade or so41. At the same time we foresee a strong
move from standard to high definition TV with the BBC, for example, reported as planning
to move all production to HDTV42.
An important corollary to this is that local access networks will need to support real
time video services with a quality of service significantly better than that which can be
provided over today’s contended broadband connections.
Furthermore, we assume that local access traffic will become largely symmetric for both
residential subscribers and SMEs as both come to generate and share more multimedia
content. We assume that, on a 10 year time scale, typical local access traffic in each
direction for both households and small (1 to 5 person) businesses will be of the order of
25 Mbit/s. This value is taken from projections by the BroadWAN project43, and Figure 6.1
shows that it is inline with historical trends.
Within major city centres we expect that FTTH and FTTP44 alongside cable and xDSL will
satisfy the great majority of the demand for broadband access. In urban areas, however,
we expect cable and ADSL2+ to be the main broadband technologies45. ADSL2+ will
provide throughputs of up to 24 Mbit/s but only for the limited number of subscribers
within ~1 kilometre of the exchange (estimated to be <15%46). Cable can support these
higher rates and passes an average of 45% of premises UK. This leaves a substantial
proportion of potential subscribers without access to higher speed broadband and we
therefore expect the greatest opportunity for broadband wireless access at rates of around
25 Mbit/s to be in urban areas.
40
A survey of telecoms convergence, The Economist, October 14th 2006.
For example, Comcast and Verizon in the USA are investing heavily in their networks in order to provide HDTV and VOD, see
www.ct-magazine.com/archives/ct/0806/0806_vodsnapshots.htm.
42
The supply and demand for spectrum for Programme Making and Special Events in the UK, Ofcom report, Quotient and Spectrum,
December 2006.
43
BroadWAN Deliverable 14, pp 9 & 11.
44
Fibre to the home & fibre to the premise.
45
For BT’s view see DigiWorld 2006: BT rules out FTTH, Telecommunications Online, 16 November 2006.
46
Since the proportion of subscribers within 2 km of an exchange is 17% (The Communications Market, Ofcom, April 2006). The
proportion may be increased through the deployment of fibre to the node.
41
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Figure 6.1: Extrapolation of local access capacity from the historical trends. The lower line
corresponds to a typical residential user and the upper to an “advanced” residential user suggesting
typical total capacities of ~50 Mbit/s by 201547.
6.3 Estimation of spectrum requirements
A straightforward approach to the estimation of required bandwidths was adopted,
commensurate with the level of accuracy appropriate for the purposes of this project,
taking account of the type of traffic carried and the protocols that could reasonably be
expected to be used. The calculations were based on the following steps.
First the relevant traffic was estimated over the area of interest using, for example, the
traffic per household, the density of households, and assumed service take up levels.
Second, the capacity required to support the traffic was determined based on the
services supported and the expected protocols.
ƒ Thus a HDTV service carried over a licence exempt Indoor Gigabit WLAN was assumed
to make use of a reservation like protocol so that the transmission capacity needed
corresponded to an encoded HDTV bit stream48.
ƒ Conversely, the transmission of safety critical ITS data involving the exchange of
many short data packets between multiple vehicles (and roadside infrastructure) was
taken to use a CSMA like protocol with a low loading level to ensure that delays would
be kept short. Thus such an ITS data stream requiring a throughput of, say, 1 Mbit/s
would need a transmission capacity of 10 Mbit/s to keep delays down to the order of
one packet.
47
This figure is taken from “Developments in Broadband Wireless Access”, presented at Broadband Europe, Brugge, Belgium, 8-10
December 2004, (www.telenor.no/broadwan/publ/Tjelta_BBEurope2004_Paper.pdf).
48
An HDTV signal was taken to be encoded using the Advanced Video Coding at 9 Mbit/s (see “DVB-S Ready for lift off”, A Morello &
V Mignone, EBU Technical Review, October 2004.)
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34
Thirdly, the required capacity was converted into a spectrum requirement using
appropriate spectral efficiency factors.
ƒ The spectral efficiency factors were based on the today’s relevant technology but in
most cases improved by a factor of two to account for enhancements that might be
expected over the next 10 to 15 years.
Finally, the total spectrum requirement was determined by taking account of a
frequency re-use factor representative of the supposed deployment.
The resulting estimates are given in Table 6.2.
Potential use
Bandwidth required
Start date
Broadband fixed wireless access
4.2 GHz
2010
Point to point broadband fixed wireless systems
9.1 GHz
2007
Indoor Gigabit WLAN
5.3 GHz
2009
Outdoor Gigabit WLAN
4.95 GHz
2011
Intelligent transport systems - Safety applications
87 MHz
2010
Intelligent transport systems – Traffic information,
etc
1.2 GHz
2010
Short range high capacity repeaters
114 MHz
2010
Direct broadcasting satellite
1.2 GHz
2017
Aircraft to satellite communication links
1.7 GHz
2015
HAPs for HDTV broadcasting
1.2 GHz
2015
Short range surveillance radar
1.0 GHz
2010
Wireless HDTV cameras
3.4 GHz
2011
Mobile broadband systems for public safety
174 MHz
2015
SuperBUS
15 GHz
2015
Terrestrial fixed links (in 2020)
5.7 GHz
n/a
Table 6.2: Estimated spectrum requirements49 for each of the potential new uses and expected
deployment dates. Vehicular radar systems are not included here as they have already been allocated
fixed amounts of licence exempt spectrum.
Note that these estimates are for mature systems as they would be around 10 years after
the start of services.
49
Note, the assumptions as to which uses run on which systems have been made purely for the purposes of estimating likely overall
spectrum requirements. They do not represent the view of Ofcom or the authors as to the likely eventual distribution of usage
between the different systems.
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Note also that these bandwidths include the overheads associated with coding, signalling
and guard bands and are therefore to be compared directly with the amount of free
spectrum.
6.4 Matching uses to the available spectrum
The mapping of bandwidth requirements to the available spectrum was made on the
assumption that new uses should be mapped only to currently free spectrum as defined
earlier in Section 4.6. However, some of the new uses considered are expected to make use
of two bands already designated for specific uses, and these bands have therefore been
considered as free for this exercise. They are:
The licence exempt band for ITS uses at 63 – 64 GHz;
The lightly licensed fixed link band expected to be used for high capacity repeaters at
64 – 66 GHz.
The mapping was carried out following the rules summarised below.
Uses limited by propagation conditions were allocated first.
All satellite uses were restricted to bands allocated to satellite services in the ITU-R Radio
Regulations (but non-satellite use of satellite bands was permitted).
Bands already designated by ECC/CEPT for particular applications were taken as reserved for
that use.
Bands which have been put forward for a particular use and have significant industrial
backing, and/or are allocated for licence exempt use in the USA or Japan, but are not yet
agreed by ECC/CEPT, have been taken as reserved for that use. So the 59 to 66 GHz band which
has been allocated as licence exempt in Japan (57 to 64 GHz in the USA) is taken to be licence
exempt in the UK too.
In the case of the 60 GHz band, the bands already designated for ITS (63 – 64 GHz) and for
point to point links (64 – 66 GHz) overlap with the proposed licence exempt band (59 - 66
GHz). Based on the results of Work Package 4 we have assumed that the indoor licence exempt
applications will be able to co-exist with outdoor ITS and point to point use. Thus Indoor
Gigabit WLAN is assumed to use the 59 to 66 GHz band but Outdoor Gigabit WLAN is allocated
to a different band.
We assume that a particular use can be spread over more than one band (obviously a
contiguous band is easier and cheaper to use).
We find that all but one of the potential uses can be fitted within the current free spectrum
below 105 GHz (for which the technology either exists or is expected to be available within
a few years). One, SuperBUS, is mapped to a higher frequency but advances in technology
are expected to make this practical within timescales similar to those expected for its
deployment. One mapping50 that achieves this is illustrated in Figure 6.2 and given in
detail in Table 6.3.
50
There may well be a more optimum allocation between the different uses. The objective here is primarily to determine if the uses
would fit within the available spectrum.
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Between 30 and 105 GHz
The potential uses require a total of 29.1 GHz out of the total free spectrum of 36 GHz51.
Of the free spectrum, 3.9 GHz remains unallocated52;
Below 55 GHz, to which satellite and HAP systems are constrained, there is only
0.8 GHz of unused free spectrum;
Two uses, broadband fixed wireless access and intelligent transport systems, have been
given non-contiguous allocations. This is non-ideal but could fit with a phased
allocation of spectrum with later earlier allocations dependent on the success of the
earlier ones;
Other bands, amounting to a total of 5.53 GHz, with the potential to be shared with the
existing user on a lightly licensed basis, were not considered here.
Note that this requirement is likely to be the maximum required since it is unlikely that all
of the potential uses will come to fruition. Restricting consideration to only those uses for
which serious activity, in the form of product R&D or regulatory or standardisation work, is
underway today results in a requirement for 24.8 GHz.
The following figure illustrates how usage of these bands might build up over the next 15
years.
Demand for additional spectrum between
30 GHz & 105 GHz
Total LE spectrum
Total LL spectrum
Total licensed spectrum
Spectrum (GHz)
40
30
Amount of free spectrum
20
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Year
Figure 6.2: Estimate of the amount of spectrum required to support all the potential new uses
allocated below 105 GHz. In this figure each use is assumed to grow over 10 years (15 years in the
case of intelligent transport systems) following a conventional “S” curve take up. The start up dates
for each use differ according to the current state of development (see Table 6.2).
Note that, because there is more than enough free spectrum to accommodate all the
potential uses, it is not necessary to consider further which of them could share with
51
Note, where two uses are allocated to the same spectrum the bandwidth is counted only once.
The difference between the two values does not equal the amount noted as unused in the table as uses can be allocated to a band
which is larger than the estimated requirement.
52
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others or which could share with existing licensed usage (note that some sharing was
assumed in the 60 GHz band as detailed in the mapping rules given at beginning of this
chapter).
Given that there remains 3.9 GHz of unused free spectrum, it is reasonable to ask if this
could not be used to expand one of the proposed lightly licensed bands such that there
would be enough spectrum to permit licence exempt operation without risk of congestion
occurring. However, moving from a lightly licensed regime in which users are able to self
coordinate to a licence exempt one in which one relies on random selection53 (of
frequencies and location) to avoid interference requires of the order of ten times as much
spectrum. Thus, the amount of unused spectrum does not permit us to make further
licence exempt allocations without further development of the appropriate protocols.
Between 105 and 200 GHz
There is a substantial amount of unused spectrum between 105 and 200 GHz, and the only
use that has been allocated spectrum here is the speculative SuperBUS. The free spectrum
here is subdivided into several bands by bands reserved for passive services through
Footnote 5.340 and, as a result, the SuperBUS use is allocated two sub-bands. However,
no activity is foreseen at these frequencies in less than 5 years.
6.5 Intermediate conclusions
Although we shall undertake further analysis before drawing final conclusions a number of
intermediate conclusions can be drawn from the results in this chapter.
With the exception of SuperBUS, all the potential future uses identified here, can be
accommodated in currently free spectrum below 105 GHz, and suitable wireless
technology for both professional and consumer applications exists or is expected to be
commercially available within a few years. Thus no congestion is foreseen over this
period.
Over the next 10 to 15 years commercial technology is expected to be developed up to
around 200 GHz. Only one use, SuperBUS, was identified for operation above 105 GHz
occupying 15 GHz of the 60 GHz of free spectrum between 105 and 200 GHz. Thus, even
allowing for further unforeseen uses, congestion over this period is unlikely.
ƒ We note, however, that uses based on HAPs or satellite platforms will often be
constrained to frequencies below 55 GHz. Although the foreseen uses (HAPs and
satellite HDTV broadcasting) can be accommodated within the free spectrum below
55 GHz, should the demand be greater than we have estimated, congestion could
occur between 40 and 55 GHz.
ƒ Nevertheless, the overall lack of congestion suggests that the problem of recovering
licence exempt spectrum should a more beneficial use arise later can be considered
less of an issue. This is so since there is a reasonable probability that other free
spectrum will be available for the new use.
Of the potential future uses of spectrum between 30 and 105 GHz, approximately 40%
(in terms of the estimated spectrum requirement, see Figure 6.2) could operate under a
licence exempt regime with today’s technology, 50% would be suited to a lightly
licensed regime, and the remaining 10% would be licensed. However, with further
53
In the absence of a light licensing regime, the lightly licensed uses considered here (f or example, point to point links & fixed
wireless access) would have to rely on random separation to minimise the likelihood of interference.
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development of licence exempt technology, we expect that a number of these lightly
licensed uses could be migrated to licence exempt regimes suggesting that a very
significant proportion of future uses could eventually be licence exempt.
We also note that for uses utilising high antennas and/or higher radiated power levels
there could be a need to retain a light licensing regime to facilitate monitoring of cross
border interference levels along the south coast of the UK and along the border with
the Republic of Ireland.
The lack of congestion expected suggests that it would be economically beneficial to open
spectrum for the licence exempt and lightly licensed uses identified above. However, it is
important to note that there is a high degree of uncertainty in the demand for the
foreseen uses and in the estimates made here, and these uncertainties would persist in
more detailed studies. This suggests that a degree of caution would be appropriate with
bands only being opened where future use is reasonably certain. The economic analysis in
the following chapter shows this to be the case and provides some guidance as to how
these decisions could be made.
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Potential use
Bandwidth
require
(GHz)
Allocation
(frequencies in
GHz)
Bandwidth
available
(GHz)
Note
Point to point fixed wireless
service
9.12
71 – 76 &
81 – 86
10.0
Light licensing regime assumed to permit self coordination.
Broadband fixed wireless access
4.18
41.7 – 42.5
0.8
Light licensing regime assumed to permit self coordination.
45.5 – 47.0
1.5
Uses the Mobile Satellite band. Split allocation is not ideal.
95.0 – 96.9
1.9
Uses the Mobile Satellite band. Split allocation is not ideal.
Indoor Gigabit WLAN
5.30
59 - 66
7.0
Licence exempt regime assumed. Confined to indoor, low power use to protect ITS
allocation (63 – 64 GHz) and current fixed link allocation (64 – 66 GHz).
Outdoor Gigabit WLAN
4.95
66 - 71
5.0
Licence exempt regime assumed. Assumed incompatible with ITS and fixed link
allocation.
High capacity repeaters
0.114
64 – 66
2.0
Light licensing regime assumed to permit self coordination. (Additional bandwidth
would be needed if used for BFWA backhaul for example.)
ITS communications (safety and
traffic efficiency applications)
1.28
63.0 – 64.0
1.0
Light licensing regime assumed to permit self coordination. 70 MHz of the requirement
is assumed to be satisfied within the allocation sought at 5.8/5.9 GHz.
48.4 – 48.7
0.30
Split allocation is not ideal.
DBS HDTV
1.2
40.5 – 41.7
1.2
Licensed operation is assumed.
Aircraft to satellite
1.69
98 – 100
2.0
Licensed operation is assumed. Spectrum for backhaul is excluded and could be large
(possibly impractical).
HAPs for HDTV broadcasting
1.22
49.04 – 50.2
1.16
Light licensing regime assumed to permit self coordination.
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Potential use
Bandwidth
require
(GHz)
Allocation
(frequencies in
GHz)
Bandwidth
available
(GHz)
Surveillance radar
1.0
102 - 103
1.0
Licence exempt regime assumed. There will be some delay while technology is developed
at this frequency.
HDTV cameras
3.40
59 – 66
7.0
Licence exempt regime assumed. Co-existence with other users of this band considered
likely.
Mobile broadband for public
safety
0.17
48.7 – 48.94
0.24
Exclusive allocation assumed to permit coordination and avoid interference to public
safety uses.
SuperBUS
15.0
122.5 – 134.0
11.5
Licence exempt regime assumed. May be possible to start band at 116 GHz (relying on
attenuation within the 118 GHz absorption band).
136.0 – 139.5
3.5
Not used
47.2 – 48.0
0.8
Not used
96.9 – 98.0
1.1
Not used
103 – 105
2.0
Total below 105 GHz
29.1
36.0
Note
Mobile Satellite band.
Note, the excess spectrum would in principle enable the ITS and PTP allocations (at 63 –
64 & 64 – 66 GHz respectively) to be separated from the proposed licence exempt band
(59 – 66 GHz). The main problem would be administrative and the fact that some
financial commitments have been made wrt to the 63 – 64 GHz band.
Table 6.3: Matching of the spectrum requirements for potential future uses to the currently available spectrum above 30 GHz. Note that the isolation between indoor and outdoor uses is taken
to allow interference free sharing of spectrum between the outdoor uses, High capacity repeaters (64 – 66 GHz) and ITS Communications (63 – 64 GHz), and Indoor Gigabit WLAN (59 – 66
GHz). No other sharing either between new uses or between new uses and existing users is considered.
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7 ECONOMICS CAN HELP
An important outcome of the work so far is the understanding that, with current
technologies, likely uses that can be envisaged today above 30GHz could be
accommodated within the available spectrum under appropriate licensing regimes. Even
though demand for spectrum in aggregate above 30 GHz seems unlikely to exceed supply,
these expectations may turn out to be wrong and furthermore there could still be
competing demands for particular frequency bands (i.e. bands may not be perfect
substitutes because of differences in their technical characteristics or regulation e.g.
international harmonisation). This could mean that allocation decisions made today could
be sub-optimal in the light of future information. Furthermore, to the extent that
allocations made today turn out to be costly or impractical to reverse, any misallocation
could persist for some time.
This chapter sets out how to determine the spectrum allocation that is likely to maximise
economic benefit based on the identified spectrum uses. In particular we focus on ways in
which the standard net present value (NPV) rule used in cost-benefit analysis of policy
decisions54 should be modified to take account of uncertainty, irreversibility and the
ability to delay decisions. This involves the application of real options analysis to
spectrum allocation decisions.
It is important to recognise that incorporating uncertainty into policy design is a relatively
uncharted area of research. In a recent review of the treatment of uncertainty in the
context of environmental policy decisions Pindyck (2006) noted that there are “no easy
formulas or solutions for treating uncertainty… and none exist”55. While there are no easy
formulae for deriving optimum solutions, real options theory does provide an approach
that gives better outcomes than the standard NPV rule. Furthermore, a number of
important qualitative conclusions can be drawn from the available literature and we apply
these to the case of the release of licence exempt spectrum.
7.1 The policy problem
There are a number of factors that need to be taken into account in determining policy
choices in respect of the release of spectrum, namely uncertainty, irreversibility and
flexibility. These are discussed in turn below.
7.1.1 Uncertainty
Future costs and benefits of different uses and their dependence on the licensing regime
are uncertain. Possible sources of uncertainty, some but not all of which will be resolved
over time, include:
Technology: there are uncertainties about the speed and nature of technology
development in wireless and other competing wired systems and applications;
Market: future demand for and costs of services and applications are uncertain;
54
This is part of the analysis used by Ofcom when undertaking regulatory impact analysis of policy decisions.
Robert Pindyck. December 2006. Uncertainty in Environmental Economics. http://www.aeibrookings.org/admin/authorpdfs/page.php?id=1349 .
55
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Regulatory: international harmonisation decisions and spectrum release decisions in
other frequency bands could both affect the future value of licence exempt spectrum
above 30 GHz.
Uncertainty typically increases the longer the time horizon considered56.
7.1.2 Irreversibility and commitment
There is a degree of irreversibility to licensing decisions. There are sunk costs associated
with making the allocation (e.g. administrative licensing costs) and once a band has been
allocated, it cannot easily be re-allocated at a short notice should a higher value use
become available. Although it may be possible to re-allocate licensed spectrum, the scope
to re-allocate licence exempt spectrum is more limited particularly if the application
involves large numbers of users or devices, for the simple reason that they cannot be
identified and their use cannot be easily terminated57. It is important to note that just
because the spectrum is being used, this does not mean that the current use is the highest
value use.
Even if licensing decisions are reversible58, it may not be optimal for the regulator to
exercise this choice. An important aspect of spectrum allocation policy from the investor’s
point of view is regulatory commitment. The need for regulatory commitment arises
because the optimal decision ex post may differ from the optimal decision ex ante59.
Regulatory commitment gives investors confidence to commit to innovation and
investment in technologies that utilise spectrum. If investors thought that spectrum might
be reallocated in future to an alternative use they would be wary of committing their own
capital today.
The fact that regulatory commitment itself has value means that regulators should not
necessarily keep all their options open, in particular the option to reverse a spectrum
allocation. Therefore, decisions about spectrum allocation should, at least to some extent,
be thought of as irreversible even if technically they could be reversed.
7.1.3 Flexibility
Ofcom has flexibility in the timing of spectrum release decisions, as well as in the size of
the allocations. There is the choice to release all, none, or some intermediate amount of
spectrum to different uses; and, provided not all spectrum is allocated initially, further
allocations could be made in future. This flexibility allows Ofcom to determine the scale
and nature of spectrum releases in response to new information about current and future
demand and technology developments (for example, to decide whether to release
spectrum on a localised or a wide area basis depending on the growth in demand for short
range versus wide area applications) as well as to policy decisions on a European level and
around the world.
56
For example, one may be more confident about forecasting the types of spectrum use that might be available next year and their
associated costs and benefits, but be less confident if these forecasts are extended to, say, 20 years’ time.
57
Irreversibility problems may apply to licensed as well as licence exempt use.
58
With more flexible spectrum rights licensees themselves may be able to change allocation decisions, but this will not be the case
for licence exempt use. In addition Ofcom has general powers to revoke licences for “spectrum management reasons”.
59
Laffont and Tirole. 1993. “A theory of incentives in procurement and regulation”. The MIT Press. (Page 99).
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7.2 Standard versus expanded NPV rule
The usual decision rule when deciding how much spectrum to release to a particular use is
to maximise the expected net present value (NPV) from this action after considering all
feasible policy choices, including doing nothing. This involves evaluating net benefits
under different scenarios and allocating the spectrum to the use that has the highest net
present value of benefits, assuming this NPV is greater than zero. We call this the standard
decision rule.
This rule is consistent with maximising total benefits from spectrum use if the values of
benefits and costs for the uses identified are known with certainty. Under uncertainty,
these costs and benefits are characterised by a range of possible values at each and every
point in time. Uncertainty is often incorporated into the standard NPV framework by
applying Monte Carlo simulations60 to the benefits and costs and assessing their impact on
the NPV rule. However, a shortcoming of this approach is that it assumes that all decisions
have to be made today.
The uncertainty over future benefits and the irreversibility of allocation decisions mean
that the standard (or static) net present value rule may not provide the optimal outcome,
i.e. the amount of spectrum released may not maximise the total benefits that could be
realised. An expanded NPV decision rule incorporating “real options” explicitly takes into
account uncertainty, irreversibility and flexibility in the timing of decisions. This approach
has been considered in other contexts by Ofcom. For example, in August 2005 Ofcom
decided in relation to the calculation of allowed returns that “…going forward, its analysis
should take account of the value of real options where appropriate…”61.
7.2.1 The value of waiting
Since many decisions are flexible with respect to their timing, the expected benefits might
be maximised by waiting. This additional flexibility translates into a positive “value of
waiting” which takes into account all the information available today in the decision
making process.
We illustrate this using a simple two-period numerical example where the uncertainty
about the expected benefits at t=0 will be resolved at t=1. We assume that it will cost
£1,600 in year t=0 to release the spectrum required for an identified use, and that there is
no alternative use for the frequency band required. This decision is considered
irreversible, because it would be costly to identify the users and refarm the spectrum
afterwards. There are only two outcomes in year t=1; either a net benefit of £300 or of
£100 per annum, each with equal probability. The expected stream of benefits, before the
outcome is known, is therefore £200 per annum (the average of £100 and £300). The
information can be captured using a standard decision tree as shown below.
0.5
P1=£300
P2=£300
etc
P1=£100
P2=£100
etc
t=1
t=2
t=3
P0=£200
0.5
t=0
…
60
For example, as seen in the “Economic value of licence exempt spectrum” report to Ofcom by Indepen, Aegis and Ovum,
December 2006.
61
“Ofcom’s approach to risk in the assessment of the cost of capital - Final Statement.” , Ofcom, 18 August 2005,
http://www.ofcom.org.uk/consult/condocs/cost_capital2/statement/ .
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We assume that the discount rate is 10 per cent per annum, so the static net present value
is £600.
∞
V = −1600 + ∑
t =0
200
= −1600 + 2200 = £600 62
t
(1 + 10% )
According to the static NPV rule one should proceed since V > 0 .
Suppose we can wait until t=1 and then decide whether to release the spectrum or not,
depending on the market outcome. Releasing the spectrum at t=1 only makes sense if
benefits are £300 per annum since the NPV when benefits are £100 is negative. The NPV
from a t=0 perspective is as follows:
0.5
Release spectrum if V1=£300 at cost I=£1,600
V2=£300
V3=£300
etc
V2=£0
V3=£0
etc
t=2
t=3
t=4
Do nothing
0.5
Do not release if P1=£100, I=0
t=0
t=1
…
⎡ − 1600 ∞
300 ⎤
E = 0.5 ⎢
+∑
= £773
t ⎥
t =1 (1 + 10% ) ⎦
⎣ 1.1
The difference in NPV taking account of the value of waiting is £773 – £600 = £173. This
value takes account of the fact that the cost of investment and the benefits are delayed by
one year. Whereas the standard NPV rule suggests that the decision should be made at t=0,
taking into account flexibility means that the expected value of the spectrum is greater if
we wait until t=1 and release only if it is beneficial.
7.2.2 The expanded NPV rule
We define the expanded NPV as follows:
Expanded (strategic) NPV (E ) = Standard (static) NPV (V ) + option premium63 (OP )
The expanded NPV takes account of the cost of committing resources before new
information arrives at later time periods by including a factor called the option premium.
The option premium is the value of waiting and is always greater than or equal to zero. The
expanded NPV also includes the benefits forgone by waiting (see Table 7.2 below).
Essentially, the expanded NPV weighs up the benefits of releasing the spectrum now
against the potential loss from precluding a future more beneficial use.
In Table 7.1 we summarise the two decision rules for releasing a particular frequency band
where there is a single potential use (or the spectrum can be shared without hindrance) case 1 - and where there are competing uses – case 2.
We define the present value of net benefits as PV (i ) =
T
t =0
∞
62
Note that
t =0
63
1
∑ (1 + r )
t
=
1+ r
r
for
Bt − Ct
∑ (1 + r )
t
where
−1 < r < 1 .
p. 124, Trigeorgis, Lenos. 1996. “Real Options. Managerial flexibility and strategy in resource allocation”, The MIT Press.
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Bt and Ct are the streams of benefits and costs of the identified use i in each year
from now until time T ,
I is the initial sunk cost of releasing the spectrum and
r is the assumed discount rate.
Standard NPV
Expanded NPV
Case 1: No competing use or uses
able to share spectrum effectively
Case 2: Competing uses and no
prospect of sharing between the
uses
Release spectrum for identified use
if PV > I i.e.
Release spectrum for use i if
V i > 0 and
V = PV − I > 0
()
V (i ) > V ( j ) for all i ≠
Release spectrum for identified use
if PV > I + E
Release spectrum for use i if
EV i > 0 and
EV = PV − (I + E ) ≥ 0
j
()
EV (i ) > EV ( j ) for all i ≠
j
Table 7.1: Comparison between standard and expanded NPV rules.
7.2.3 Analogy with financial options
The notion of flexibility in decision making is sometimes referred to as “real options” to
distinguish it from analogous financial options64. With a financial option, an investor pays
a price to buy a “European call option” today. This gives him the right, but not the
obligation, to buy a particular stock at a pre-specified date and price65. The payoff to the
holder at expiration date is either zero (if the stock price is less than the exercise price he
chooses not to exercise the option and loses nothing) or positive (the difference between
the stock and exercise price). On the other hand, once the stock holder has bought the
stock, he bears both the upside as well as the entire downside risk.
Similar principles apply to spectrum allocation. Spectrum allocation can be considered as
allowing a right to provide service, i.e. an option to invest and develop services contingent
on market conditions. Ofcom does not have an obligation to make licensing decisions
today, and if it is uncertain as to what kind of technology will be available to use the
spectrum efficiently, it can delay the decision until further technology development has
occurred.
As with stock prices, there is always uncertainty about the potential benefits of releasing
the spectrum - from a technology, market and regulatory perspective. However, this does
not imply that the regulator should wait forever. The continuous time mathematical
framework that has been developed for financial options can be adapted to evaluate the
benefits from waiting for a more valuable use to come along against the loss from not
realising the benefits from immediate but less valuable uses. This comparison allows one
to determine the threshold at which spectrum should be released.
64
We note that the terminology used in the literature is not consistent and therefore confusing. We adopt the definition used by
Lenos Trigeorgis in “Real Options. Managerial flexibility and strategy in resource allocation”, The MIT Press, 1996.
65
The holder of an American call option can exercise the option at any time up to the expiration date.
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The formula used to calculate the initial price for a European call option is derived for an
underlying stock that moves randomly over time66,
EV = Se − DT N (d1 ) − Ke − rT N (d 2 )
where
S is the current value of the underlying stock.
D is the dividend payout rate. Dividends are paid out only to the holders of the
stocks, so holders of options lose out on these dividends during the life of the option.
Therefore all else being equal, an option written on a stock that pays out dividends will
have a lower price that one that does not.
K is the agreed price that the stock will be bought at, known as the strike price. The
higher the price of the stock relative to the strike price, the higher the option value
because the potential for greater gains is higher.
T is the agreed time when the stock will be bought, also known as the life of the
option in years.
σ 2 is the variance in the returns of the underlying stock price. The greater the
variance, the higher the option value because the likelihood that a stock price will
exceed a particular threshold is greater if the stock is more volatile.
r is the risk free interest rate corresponding to the life of the option.
N (• ) is the cumulative distribution function of a standard Normal distribution with
mean 0 and variance 1.
⎧ ⎛S⎞ ⎛
σ2
⎟ + ⎜⎜ r +
2
⎩ ⎝K⎠ ⎝
d 1 = ⎨ln⎜
⎞ ⎫
⎟⎟T ⎬ σ T and d 2 = d 1 − σ T .
⎠ ⎭
At expiration of the option, the holder has the following payoff
EVT = Max(ST − K ,0 )
Where ST is the stock price at time T.
The option price above can be interpreted as the expanded NPV for a given use in this
context. By comparing the relative magnitudes of the static and expanded NPVs, one can
determine whether or not spectrum should be released for this use based on the decision
rules given in Table 7.167. The factors in the expanded NPV calculation are described in
terms of a spectrum release decision in Table 7.2, along with their impact on the value of
the expanded NPV. An example of the application of the option pricing formula in the
context of releasing spectrum for fixed wireless services is provided in Annex 1.
66
Stock prices evolve continuously over time revealing new information about the price level, but the degree of uncertainty about
future prices remain. This is known as a random walk or a geometric Brownian motion. At any point in time the best forecast of the
future price is the current price – since the odds are 50:50 that it will go up or down.
67
A detailed example of the application of the option pricing formula in the context of releasing spectrum for fixed wireless
services is provided in further project documentation.
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Factor
Impact of
an
increase
in the
factor on
expanded
NPV
Possible data sources
Costs incurred and benefits foregone by
delaying the allocation decision ( D ).
For example, the benefits foregone from
not licensing an existing application
that is already in place elsewhere.
Negative
Economic valuation of existing
applications using the methodology
and Toolkit from the Economic Value
of LE spectrum study, with the
“benefits” interpreted as costs or
benefits foregone.
Economic benefits of future applications
( S ) that would require the bands under
consideration.
Positive
Economic valuation of applications
using methodology and Toolkit from
the Economic Value of LE spectrum
study.
Irreversible sunk costs ( K ) of releasing
the spectrum into the market, for
example releasing the spectrum as
licence exempt may be relatively costless
compared to requiring licensed use.
Negative
Analysis on costs of implementing
different licensing options.
Time period ( T ) over which there is
uncertainty over future use.
Positive
Likely time span over which
technology might develop.
Uncertainty ( σ ) of the economic
benefits of future applications that
would require the bands under
consideration.
Positive
Standard deviation of the annual
growth rates of the forecasts of
economic value.
Risk free interest rate (r).
Positive
Market data, e.g. yield on UK long
term government bond.
2
Table 7.2: Factors which affect the expanded NPV for a spectrum allocation.
The financial option pricing formula provides a lower bound estimate of the expanded NPV.
This is because the regulator has additional flexibilities over that assumed for a simple
European call option (for example a decision can be made at any time as opposed to only
at a pre-specified time). To determine the expanded NPV in this case would require explicit
modelling of the cost and benefit paths because there are no simple closed form solutions.
Nonetheless, the European call option pricing formula provides an initial guidance to the
magnitude of the expanded NPV. We can also qualitatively assess the impact of including
the value of waiting in the decision rule. This can be significant, as is illustrated in Figure
7.1. The left hand figure shows the result of applying the standard NPV calculation and the
right hand figure shows (in stylised form) the results if the expanded NPV rule is applied.
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Net
present
value
Net
present
value
9 Release spectrum
Expanded NPV rule
9 Release spectrum
8 Delay decision
Standard
NPV rule
0
0
8
Uncertainty
Uncertainty
Delay decision
Figure 7.1: Comparison between the standard and expanded NPV rules.
Using the standard NPV rule would result in too much spectrum being released at any point
in time.
7.3 Implications of real options analysis
Whilst we have not found any literature exploring the implications of real options for radio
spectrum policy decisions, there is an emerging literature on the application of real
options to private investment decisions in relation to telecommunications access pricing68
and spectrum use69. Further, analysis of problems in other areas is, in some instances,
illustrative of the reasoning that can be applied to spectrum management decisions. We
have drawn the following implications for spectrum policy from this other literature.
If spectrum is allocated for a particular use, and it remains unused, the allocation may
nevertheless be to the highest value “use”70. Current non-use could be the most valued
option if expanded NPVs are large compared to static NPVs. An analogous example is
the opportunity to develop vacant land, where valuable land can remain unused when
real estate prices and the payoff from alternatives is uncertain71. Use it or lose it
provisions may therefore reduce the social value of spectrum. Similarly, current licence
exempt allocations (or indeed licensed allocations) that are not being used do not
necessarily imply that the spectrum is not valued by potential investors and
manufacturers.
Expanded NPVs are increasing in the amount of flexibility, in particular, the number of
years a decision can be deferred. Fixed capital build out commitments or timing
constraints with respect to usage in relation to spectrum allocations may therefore
reduce the social value of spectrum72.
The optimal amount of capacity, when investments in capacity are irreversible and
demand is uncertain, may be smaller when account is taken of real options. Pindyck
(1988) considers the optimal amount of capacity when demand is uncertain and
increments to capacity are irreversible, and finds that the optimal level of capacity is
68
Pindyck. August 2005. "Pricing capital under mandatory unbundling and facilities sharing.” http://aeibrookings.org/publications/abstract.php?pid=968 .
69
Harmantzis, Trigeorgis and Tanguturi. September 2006. “Flexible investment decisions in the telecommunications industry;
case applications using real options.” NET Institute Working Paper 06-06. http://www.netinst.org/Harmantzis-Trigeorgis.pdf .
70
This may also imply that the opportunity cost within an un-congested band is potentially greater than zero. Further, less than
full utilisation of a band makes re-planning easier, which is an option value i.e. the option to re-plan.
71
Titman, 1985, “Urban land prices under uncertainty.” American Economic Review, 75(3).
72
Trigeorgis. 1996, “Real options – managerial flexibility and strategy in resource allocation.” The MIT Press. See section 7.3.
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lower when account is taken of real options73. Where demand is uncertain, but growing
over time, the optimal allocation of spectrum for licence exempt applications may be
lower than a static calculation implies.
The optimal size of incremental investments may be smaller with growing but uncertain
demand and irreversibility. Analysis of power station investment decisions implies that
the optimal increment to capacity is typically lower than consideration of scale
economies alone implies74. Smaller more frequent releases of spectrum for licence
exempt applications may be appropriate, rather than a single large initial release.
7.4 Ways forward
The expanded NPV analysis suggests that one should exercise caution when considering
the release of spectrum for licence exempt use due to the irreversibility of such a decision
and the uncertainty around future benefits. It is also important to remember that
investors will be more inclined to invest if they know that their operating environment is
likely to continue into the future. Commitment by the regulator to their decisions is
therefore crucial for the realisation of future uses.
Recognising and incorporating uncertainty and flexibility into a decision making process
opens up a wider range of possible actions, even without having to explicitly model the
dynamics of value maximisation and licensing decisions. The value associated with
flexibility can be thought of as an opportunity to “learn” about the technology and market
aspects of future uses before making a commitment to release spectrum.
A first step in determining whether or not spectrum should be released for the different
uses identified is to estimate the static NPV of benefits and how uncertain they are. As
illustrated in Figure 7.1, uses that have relatively low uncertainty and a high static NPV
will be the ones that have the lowest value to waiting, and therefore the allocation
decision for these uses should not be delayed. For the other uses, the NPVs and
uncertainties should be updated as new information becomes available to determine when
further spectrum releases would be appropriate.
Once the factors that influence the value of expanded NPVs (as shown in Table 7.2) are
identified, we can determine the impact they have on the expanded NPVs. This provides
indicators of what one should focus on to realise the higher potential benefits of spectrum
release. For example, if the uncertainty around future benefits is a major factor increasing
the expanded NPV above the static NPV (resulting in a large value to waiting) then Ofcom
could increase awareness of the availability of the spectrum. This could encourage
investors to develop marketing strategies or trials to promote take up of their new service.
This could in turn reduce the uncertainty of future benefits, and therefore reduce the
expanded NPV and the value to waiting, and could lead to the release of spectrum for the
service. (Indeed, this strategy can also be applied to existing and under-used licensed
spectrum allocations.) Similarly, to reduce the irreversible costs of licensing, one can
release a smaller tranche of spectrum than indicated by the standard NPV rule and see how
the market develops before committing further spectrum.
73
Pindyck. December 1988. “Irreversible investment, capacity choice, and the value of the firm.” American Economic Review, 79.
See also Page 359, Dixit. 1994. “Investment under uncertainty”
74
Page 51, Dixit and Pindyck. Op cit. 1994.
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8 IS THERE A CRITICAL FREQUENCY?
The ITT posed the question: given that range falls with frequency, is there a critical
frequency above which the range would be short enough to make congestion unlikely, and
therefore above which all spectrum could be made licence exempt? The matching of
potential uses to spectrum in Chapter 6 suggests that all spectrum above 102 GHz could be
allocated in this way.
If all spectrum were to be made licence exempt above a given frequency there will be
significant uncertainty as to the uses to which the spectrum would be put. In these
circumstances one can only be reasonably sure that congestion will not occur by making
fairly optimistic assumptions about the level of traffic that might be generated by
whatever applications were deployed, taking account of the limitations imposed by
technology and propagation conditions. Furthermore, since such a decision could be
difficult to reverse, it would be prudent to err on the side of caution. In tackling this
question, and in the absence of any certainty as to what the uses might be, we have taken
a short range WLAN-like application as a proxy for these future applications and assumed a
rather futuristic system supporting very high rates of traffic.
As discussed in Chapter 2 high levels of congestion can be acceptable provided it occurs
only at a limited number of locations and times so that the overall economic benefit is not
materially degraded. Our approach has been, therefore, to consider typical rather than
peak usage situations. The first step is to consider what the range would need to be
restricted to in order that, with a reasonable density of wireless devices, the level of
congestion would be small. The second is to identify the frequency at which propagation
conditions would restrict radio links to this critical range or less.
8.1 Estimating the critical range
The important factors in estimating the critical range are the amount of spectrum available
to carry the communications, the density of active wireless devices, and the amount of
traffic that each device would be expected to generate in a typical situation.
1. We have identified potential uses for much of the spectrum below 100 GHz, and see
200 GHz as being an upper limit on the frequency likely to be used for anything other
than specialist equipment for the next decade or so. We therefore take the amount of
spectrum available as 63 GHz75 commencing at 100 GHz. We further suppose that it
may be used in open areas (such as open plan offices and conference rooms) so that a
frequency reuse factor of around 3 would be required. Thus the spectrum available to
any one group of users would be 21 GHz.
2. To estimate a typical density of users we considered delegates arriving at a conference,
collecting copies of presentations to be made and exchanging files of all sorts. At a
crowded conference delegates could be spaced at ¾ metre intervals and be given as
little as 1.3 metres between rows, corresponding to 1 delegate per square metre. We
took a density of five times less than this as representative of a more typical situation.
3. The traffic per delegate during the period at the start of the conference is something of
a guess. In earlier estimates of the amount of spectrum required for licence exempt
devices, Ofcom has assumed an average figure of 100 Mbit/s per person76 and we have
75
76
This is the amount of spectrum available between 100 and 200 GHz excluding that reserved for passive applications.
Spectrum Review Statement, Ofcom, 28 June 2005, p4.
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taken this as the average traffic generated per user. Although this appears, at first
sight, to be a high figure it should be noted that a lightly compressed HDTV signal
would require a transmission rate of 270 Mbit/s.
As discussed above, high levels of congestion can be accepted during peak usage at the
busiest locations but should be low in typical situations. With a random access protocol
such as optimum p-persistent CSMA a channel loading of 10% to 20% would ensure
minimal congestion. Combining this channel loading with a spectral efficiency of 1.2
bits/second/Hz77 and noting that half the capacity is required for each of the uplink and
downlink directions gives a total capacity of 2 Gbit/s. This would support 20 users (at 100
Mbit/s per user) who would occupy an area of 100 square metres.
Thus congestion will go no higher than we have allowed for provided the range of the
wireless links limits the area of communication for each cluster of users to 100 square
metres. The corresponding range is 5.5 metres. Figure 8.1 shows how this range varies
with the traffic per person.
Critical range vs mean traffic per user
15% load
30% load
10% load
28
Critical range (m)
24
20
16
12
8
4
0
0
100
200
300
400
500
600
700
800
Mean traffic per user (Mbit/s)
Figure 8.1: The maximum (critical) range required to ensure that the channel loading does not
exceed 15% is shown as a function of the busy period traffic per user. Results are also shown for
channel loadings of 10% and 30% Note that the result scales in the same way with the density of
users and inversely with the amount of spectrum available.
8.2 Estimating the critical frequency
The critical frequency is the frequency at which the maximum range achievable with
representative wireless devices is limited to the value derived above. The key factors that
affect the range and vary with frequency are transmitter power, propagation loss, receiver
performance and antenna gain.
1. We assume that any such licence exempt spectrum would be subject to a relatively low
maximum transmitter power – we have assumed 1mW to ensure that radiation safety
limits are not exceeded and further assumed that the achievable transmitter power
77
This corresponds to QPSK with ½ rate coding improved by a factor of two, and assumes signalling and protocol overheads take
25% of the capacity.
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falls with frequency (due to technological limitations) as described in an earlier Ofcom
report78;
ƒ Note that it is assumed that the transmitter power does not change with channel
bandwidth. Thus a higher bandwidth results in lower a S/N ratio and with the result
that the critical range occurs at a lower frequency;
2. We also assume that the user devices would communicate via an access point of some
sort, and use the link budget for Home Communication Networks given in the report
referenced above. The propagation conditions were taken to correspond to free space;
3. The receiver noise floor was taken to increase with frequency (again as per the Ofcom
report). A minimum S/N ratio of 5dB was taken to define the limiting range;
4. The antenna gain of the access point, but not the user device, increases with
frequency.
The impact of gaseous absorption was included in the calculations but, because the
distances involved are so short, the effect is negligible other than at the peak of the
absorption bands. Figure 8.2 shows how the critical frequency increases as the critical
range falls.
Critical range vs frequency
14
Critical range (m)
12
10
8
6
4
2
0
0
100
200
300
400
500
600
700
800
Frequency (GHz)
Figure 8.2: The maximum (critical) range achieved is shown as a function of frequency. Below 400
GHz the transmitter power is limited to 0 dBm but above this frequency it is assumed to fall due to
technology limitations leading to the change of slope at this point. For this calculation the channel
bandwidth was fixed at 1 GHz.
To determine the frequency above which congestion would not be expected to occur we
read the critical range from Figure 8.1 for the selected traffic per user, and then read the
corresponding frequency from Figure 8.2. For 100 Mbit/s per user the critical range is 5.5
metres and the corresponding critical frequency is well above 100 GHz which is the
assumed lower boundary of the available spectrum. (Note, the critical frequency has to be
equal to or less than the lower boundary of the available spectrum otherwise the amount
78
“Theoretical appraisal of the highest usable frequencies”, Ofcom report by Rutherford Appleton Laboratory, May 2003 and “Radio
systems at 60 GHz and above”, Ofcom report by Rutherford Appleton Laboratory, OciusB2 and the University of Durham, February
2006.
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of spectrum available is reduced below 63 GHz contradicting an initial assumption of the
calculation.)
This figure also shows that to achieve a critical frequency of 100 GHz the critical range
would need to be greater than ~13 metres. Referring back to Figure 8.1 shows that this
would require the average data rate per user to be reduced to ~20 Mbit/s.
8.3 Sensitivities
The above result depends upon several uncertain assumptions such as the traffic per user,
transmitter power and the system design, which can markedly affect the link budget. To
obtain an understanding of the sensitivity of the critical frequency to these assumptions a
number were varied. The results are shown in Figure 8.3. (Here, the critical frequency is
the point at which the corresponding line crosses zero.)
Comparing the different cases with the baseline case above shows that:
Changes in traffic per user have relatively small impact on the critical frequency – with
an increase to 250 Mbit/s per user the critical frequency rises from 450 to 525 GHz, and
reduces to 400 GHz with a decrease to 50 Mbit/s per user (reducing the rate to 20
Mbit/s would give a critical frequency of 100 GHz);
The impact of changing the channel bandwidth is greater – an increase from 1 to 3 GHz
reduces the critical frequency to 300 GHz (increasing the bandwidth to 5 GHz reduces
the critical frequency to 100 GHz);
Varying the transmitter power is not shown but if varied by the same amount at each
frequency the result would simply be to move the baseline curve up or down by the
corresponding amount.
Margin above
minimum C/N (dB)
Sensitivities
Baseline case
Traffic per user = 50 Mbit/s
Traffic per user = 250 Mbit/s
Channel bandwidth = 3 GHz
20
10
0
-10
-20
-30
-40
0
100
200
300
400
500
600
700
800
900
1000
Frequency (GHz)
Figure 8.3: This figure shows the margin above the minimum usable C/N at the critical range as a
function of frequency for the different cases. The critical frequency is the point at which the
corresponding line crosses zero (since this is the point at which the maximum range achievable
equals the critical range determined by the density of users and their traffic levels).
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Figure 8.3 shows that the critical frequency is sensitive to the assumptions made,
although in the cases considered the critical frequency lies above 100 GHz. Of course the
critical frequency could be lowered by simply restricting radiated power levels (and
therefore range) to appropriately low values. This would be reasonable provided one was
certain that doing so would not materially detract from the uses to which the spectrum
would be put. It is clear, however, that neither the characteristics of propagation nor the
limitations of the technology at these frequencies can be relied on to prevent congestion.
8.4 Consideration of higher frequencies
The analysis above considered 200 GHz to be the upper limit to usable spectrum over the
next decade or so. In the longer term, developments in technology would be expected to
make higher frequencies practical. This would make more spectrum available and therefore
allow more traffic to be carried before congestion occurs. Furthermore such developments
could have taken place by the time the usage levels assumed for the futuristic WLAN
system reached an average of 100 Mbit/s per user. We therefore considered the situation
in which the upper frequency limit is raised to 250, 300 and 350 GHz increasing the
amount of available spectrum to 113, 163 and 213 GHz respectively79. The results are
shown in Figure 8.4.
Extension to higher frequencies
Baseline case
250 GHz
300 GHz
350 GHz
Margin above
minimum C/N (dB)
20
10
0
-10
-20
-30
-40
0
200
400
600
800
1000
Frequency (GHz)
Figure 8.4: The margin above the minimum usable C/N at the critical range in the case that the upper
usable frequency is increased to 250, 300 and 350 GHz, and the channel bandwidth to 3 GHz, is
compared to the earlier baseline case.
These results show that with the availability of additional spectrum the critical frequency
can match the lower bound of 100 GHz. Thus, provided technology developments can be
expected to raise the upper limit to ~300 GHz by the time large scale demand for
throughput reaches an average of 100 Mbit/s per user, all spectrum above 100 GHz could
be made licence exempt with little risk of congestion.
It should be noted that these results come about as a result of the limitations of the
technology rather than from high levels of atmospheric absorption. The results are still
79
These figures assume that above 200 GHz low power devices would not cause interference to passive services so that the whole of
the spectrum could be available for low power licence exempt applications.
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sensitive to the technical assumptions (for example, channel bandwidth and transmit
power) suggesting that it might be necessary to select the technical conditions so as to
ensure that material congestion was unlikely to occur.
8.5 Summary
If all spectrum were to be made licence exempt above a given critical frequency our
analysis indicates that there is still a chance that congestion could occur.
On the basis of the assumptions made here and in particular assuming that transmit
powers are limited to 1 milliwatt and that technology will limit the usable spectrum to
below 200 GHz for the next 10 to 15 years, the results indicate that we cannot be sure that
material congestion will not occur. On the other hand, if the traffic levels assumed turn
out to be a factor of 5 too high or if technology extends the usable spectrum to 300 GHz
within the time taken for usage levels to reach the assumed levels, then congestion is
unlikely to occur.
It is important to note that the first of these two conclusions does not imply that spectrum
should not be made licence exempt. Rather it suggests that not all spectrum above a given
limit should be released at once.
The conclusion here then is similar to that in the previous chapter. Namely that the greater
the uncertainty over the use to which a proposed licence exempt band will be put, the
more difficult it is to be sure that congestion will not occur. This argues for delay until
further information provides an adequate level of confidence that material congestion is
unlikely to occur.
Two other points are to be borne in mind when considering if all spectrum above a certain
minimum should be made licence exempt. Firstly, there are bands allocated to passive
services and protected by ITU-R Footnote 5.340 and one would wish to be satisfied that
the uses deployed would be not materially affect such services. Secondly, our review of
potential uses and the frequencies over which they might operate shows that there are
several applications (see Section 3.4) which are technically possible up to at least 200 GHz
some of which would not be suited to licence exempt operation. This reinforces the
conclusion that there can be benefits from waiting to release some of the spectrum until
more information becomes available.
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9 IMPLICATIONS AND CONCLUSIONS
9.1 Summary of knowledge gained
Before considering the conclusions that can be drawn from this study it is helpful to
summarise the knowledge that has been obtained.
Summary of knowledge on licence exemption above 30 GHz
1.
RF technology up to ~100 GHz is now reasonably mature and professional and mass market
products could be available up to this frequency within a few years. Technology
developments are expected to extend this to ~200 GHz within the next 10 to 15 years.
2.
Several bands between 30 and 100 GHz are in use today for a variety of uses including
terrestrial fixed links, radio astronomy and military applications. Usage by fixed links is
expected to grow but to be accommodated within the existing allocations over the next 15
years. The other uses are not expected to require additional spectrum.
3.
A range of potential future uses can be foreseen including satellite, fixed wireless access
and very high speed WLANs and WPANs.
4.
There are major international harmonisation and standardisation efforts related to some
potential future uses, particularly harmonisation of the spectrum at 60 GHz for high speed
WLANs/WPANs and standardisation for intelligent transport systems. Harmonisation of
equipment and spectrum can be economically very beneficial and it is likely to be to the
UK’s benefit to take account of such developments.
5.
Some of the foreseen uses (particularly short range uses such as WLANs and WPANs) are
suited to licence exempt operation with today’s technology. With further development of
licence exempt technology, other uses (such as fixed wireless access and high capacity
repeaters) are expected to become compatible with licence exempt operation in the
future, and can be operated under a lightly licensed regime in the meantime. Some uses,
for example satellite links and those requiring exclusive spectrum, will need to be licensed
for the foreseeable future.
6.
Even with further development of licence exempt technologies, our present understanding
suggests that licence exempt applications will co-exist most efficiently with one another
when they are grouped into separate frequency bands according to the distance over
which they operate. This suggests that 3 or 4 generic classes of licence exempt spectrum
will be required in future.
7.
There is adequate spectrum to support all the foreseen activities under appropriate
licensing regimes.
8.
For many of the foreseen uses there is considerable uncertainty over timing, technology
development, market requirements and, today, over future spectrum availability.
9.
At present there are limited opportunities for regulators to use market mechanisms to
determine what spectrum should be allocated under either licence exempt or lightly
licensed regimes. Thus, regulators are faced with the challenge of identifying the most
economically beneficial uses, the amount of spectrum to be released, and its timing.
10. The application of real options analysis to this problem shows that where future
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Summary of knowledge on licence exemption above 30 GHz
developments are uncertain, the standard NPV rule applied by Ofcom to support policy
decisions can be improved by using an expanded formula (derived from real options
theory) that takes account of uncertainty, sunk costs and the costs and benefits of
delaying decisions. Application of such a rule shows that it can in some circumstances be
economically advantageous to delay the release of spectrum and to release spectrum in a
number of stages. Although the application of real options analysis to spectrum allocation
requires further development the key factors which need to be taken into account, and
their impact in qualitative terms, have been identified.
11. Should all spectrum above a certain minimum frequency be made licence exempt, there
would be a high degree of uncertainty as to its likely use. The application of real options
analysis shows that there can be value in waiting to release spectrum until more
information is known. Furthermore, we have shown that it is difficult to be confident that
congestion would not occur in such a situation (given that over the next 10 to 15 years the
usable spectrum is likely to be limited to frequencies below ~200 GHz). Taken together
these points lead to the conclusion that allocating all spectrum above a selected minimum
frequency would not be the optimum strategy.
9.2 Comparison of policy choices
To provide insight into the options and key implications of different approaches to making
spectrum above 30 GHz licence exempt, we consider three broad policy choices. We
recommend that Ofcom does not release all unused spectrum above 30GHz. Rather we
suggest that Ofcom seeks to adopt the third option involving the use of real options to
guide decision making on spectrum releases above 30 GHz (and also below 30GHz),
though we recognise that this may need to be done qualitatively initially.
9.2.1 Allocation of all unused spectrum to licence exempt use
If all unused spectrum above 30 GHz were to be allocated for licence exempt use our
analysis suggests that it would be prudent to divide the spectrum into a number of bands
so that different uses could be grouped according to the distance over which they
operate80. Allocating all unused spectrum in this way would open up a significant amount
of new spectrum allowing the licence exempt uses identified to be developed and
deployed, and could encourage the development of new services. However, the amount of
spectrum released would be significantly more than is likely to be needed by the licence
exempt uses and one would therefore expect diminishing returns from the excess
spectrum.
On the other hand, those uses which require a licensed or lightly licensed regime (some
60% in terms of the spectrum required) would be deployed to a less than optimal extent or
possibly not at all. In the case of lightly licensed uses deployment need only be delayed
until the necessary advances in licence exempt protocols were achieved. Thus this
approach would be expected to lead to forgone benefits in the case of licensed uses, and
at least to delayed benefits in the case of lightly licensed uses, with little additional
benefit from the licence exempt uses.
80
Further study is required to determine how many bands and what rules would be appropriate.
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9.2.2 Allocation of unused spectrum in line with the best predictions that can
be made today
An alternative approach would be to undertake further work to make the best possible
predictions of future uses and estimations of their likely NPVs, using the standard NPV
rule. All uses for which the NPV was positive would then be allocated spectrum in line with
the estimated demand81.
This would be in line with the regulatory process suggested by Webb and Cave (see
Section 2.8). The key advantages would be the certainty that this would bring to the
market and the consequential encouragement to investment and innovation in developing
applications for spectrum that might otherwise remain unused.
This approach reflects the current approach Ofcom takes to allocation decisions. Even if
uncertainty is addressed through Monte Carlo modelling or the use of a number of
scenarios, we know from real options theory that this approach could result in a suboptimal decision. In particular, it is likely that too much spectrum will be released.
This approach therefore runs the risk that some of the spectrum will be released for uses
which later turn out to offer lower benefits than others. For example, if lightly licensed
regimes turned out to be more popular than originally envisaged, too much spectrum
could be released for licence exempt purposes and too little for lightly licensed uses. The
cost associated with this risk may be lessened by the likely availability of “spare” spectrum
arising from the fact that there is more spectrum available than the foreseen uses actually
require. However, there could be unforeseen uses that invalidate this conclusion and all
spectrum is not equivalent (in a technical or regulatory sense), so it may be that the
“spare” spectrum is not suitable for the new applications.
Whilst this approach may not be optimal, it would be expected to result in materially
better outcomes than the allocation of all unused spectrum for licence exempt uses
considered above.
9.2.3 Use real options analysis to determine spectrum release
The analysis in Chapter 7 shows clearly that there can be value in delaying a decision to
release spectrum, and that this value is highest when the uncertainties associated with its
potential benefit are large. In principle, therefore, a better approach is to use real options
analysis to determine both the timing and size of the release of spectrum82. Annex 1 gives
an example of the application of real options analysis. As can be seen, additional
information and judgements are required about a range of factors in order to calculate and
apply the expanded NPV decision rule.
If this is thought to be too burdensome then the standard NPV rule could be adjusted
qualitatively based on views about the factors which increase or decrease the value in
delaying the release of spectrum (see Table 7.2). For example, Ofcom could continue to
make decisions on the allocation of licence exempt and lightly licensed spectrum on the
basis of estimates of the standard NPV rule but recognise that there is value in waiting.
Therefore where the decision is in favour of allocation, the level of uncertainty should be
81
We expect that the results of this further work would still show that the supply of spectrum exceeded the demand, and that
congestion would be unlikely to occur.
82
It is worth noting that the use of options analysis does not guarantee that any particular decision will be optimal, only that the
overall benefits resulting from decisions made in this way will be greater than they would have been if a static decision rule had
been applied.
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assessed and brought into consideration. Our analysis suggests that allocations should be
made where the static NPV is large and uncertainty is low.
9.3 Other implications
Other implications and issues of note that have been identified through this study are
summarised below.
The challenges that face a regulator in deciding what spectrum should be allocated for
licence exempt use also arise in the case of lightly licensed allocations.
There are several bands which are reserved by the ITU-R Radio Regulations for passive
services in which transmissions of any sort are prohibited by Footnote 5.340. These
limit the extent to which contiguous bands of licence exempt spectrum can be
allocated.
Cross border interference issues are not expected to be serious or wide spread but, for
some uses below 100 GHz, limits on radiated power levels may be necessary along the
south coast of the UK and along the border between the Republic of Ireland and
Northern Ireland.
Typical satellite and high altitude platform uses are restricted to operation below 55
GHz. Although not suggested by this study, the limited amount of suitable spectrum
could lead to congestion should these systems be deployed more widely than we have
anticipated.
Satellite systems can only operate in a limited number of internationally agreed bands.
Thus, if a satellite band were to be sterilised by licence exempt (or other) usage, it
could be difficult to find suitable spectrum for a beneficial satellite based use that
arose later. Any decision to allocate licence exempt spectrum in a satellite band should
weigh this consideration.
Future licence exempt techniques are expected to permit licence exempt operation of
higher power, longer range uses than is currently the case. However, licence exempt
uses will need to be grouped according to the distance over which they operate and
future licence exempt allocations will need to take this into account.
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10 ANNEX 1 – APPLYING THE METHODOLOGY
We provide a qualitative as well as a quantitative example of the real options approach to
assessing spectrum allocation decisions.
10.1 Licensing decisions for identified uses
We consider the inputs to the expanded NPV qualitatively for each of the uses identified in
Work Package 3. Interpreting the option pricing formula inputs given in Table 7.2 we can
illustrate the impact on the expanded NPV and therefore which uses to focus on as a first
step to releasing spectrum for licence exempt use.
Since all the uses considered here can be allocated their own band of spectrum and we can
consider each of these uses independently of the others. Exceptions to this are:
The existing allocation to ITS and High capacity repeaters overlaps with the frequencies
planned for Indoor Gigabit WLAN but we assume that the indoor nature of Gigabit WLAN
means that this is not a problem. We assume that we can treat the allocations as
though they were in different frequency bands.
HDTV cameras will probably fit within the regulations for Indoor Gigabit WLAN and,
being used within well controlled environments, not cause interference. As a result we
will also treat these allocations as though they were in different frequency bands.
For each of the uses we have indicated the most likely licensing regimes that will be
required to enable the business viability of service providers. These were based on the
principle that if there is no excess demand, then there is no need to license. However,
some uses will require some form of licensing in order for services to become viable, and
this may be as simple as a registration with a publicly accessible database, or a fully
licensed service.
Table 10.1 below identifies the sources and magnitude of the uncertainties around
potential uses of the spectrum above 30GHz.
Technology: risk is assessed on the basis that someone is interested enough in the
potential use to carry out the necessary R&D (to avoid counting the marketing risk
twice), and takes account of the risk that the technology cannot be made to work, fails
to achieve the necessary performance, or does not meet the necessary cost target.
Market: likely development of business cases for the potential uses; take up, demand
base for these applications and key drivers for future growth.
Regulatory: frequency and bandwidth currently being considered; need for
international harmonisation, etc.
Extent of irreversibility: the ability to refarm spectrum after it has been allocated for a
particular use.
In addition, we have described the extent to which the initial licensing regimes can be
changed in the future. As well as the use-specific uncertainties, there is an additional
point to note that may impinge upon the decision to allocate certain bands. There is a
limited number of internationally designated satellite bands. If the UK uses one for
incompatible non-satellite purposes and later decides that there is a beneficial satellite
application at around the frequency in question, the UK would not be able to substitute
another band for the satellite application (as it would not have been agreed
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internationally). This is an additional reason why it may be beneficial to hold back on the
allocation of satellite bands to incompatible uses. The case in point here is the BFWA
service, which is assumed to largely use satellite bands.
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Potential spectrum
use
Initial
licensing
regime
Regulatory status
and time scale
Technology
uncertainties
Marketing
uncertainties
Regulatory
uncertainties
Extent of irreversibility
Point to point fixed
wireless service
Lightly
licensed
10 MHz will be
opened in 2007
None
Low (already selling in
USA).
None
Low – users registered, numbers
small.
BFWA
Lightly
licensed
Not currently
being considered
Medium, will be
clarified by 2009
High (business case at
lower frequencies still
unproven).
High
Low – users registered, numbers
small.
Indoor Gigabit
WLAN
Licence
exempt
7 MHz under
serious
consideration
Low, will be
clarified by 2007
Medium (given
success of WiFi but
WiFi & UWB are also
alternatives).
Low (Europe likely
to follow USA and
Japan)
High – potentially large numbers
of unregistered consumer
devices. But probably compatible
with outdoor use.
Outdoor Gigabit
WLAN
Licence
exempt
Not currently
being considered
Medium, will be
clarified by 2009
High (5.8 GHz LE is an
alternative).
High
Medium – users unregistered but
a large, but not mass, market.
High capacity
repeaters
Lightly
licensed
2 MHz available
today
Medium, will be
clarified by 2008
High to medium
(supports similar
applications to ptp
FWS above).
None
Low – users registered, numbers
small.
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Potential spectrum
use
Initial
licensing
regime
Regulatory status
and time scale
Technology
uncertainties
Marketing
uncertainties
Regulatory
uncertainties
Extent of irreversibility
ITS communications
(safety related
applications)
Lightly
licensed
1 GHz available
today
High, will be
partially clarified
2010, further by
2015
Medium - some
aspects likely to be
mandated by EC
Medium – spectrum
allocated overlaps
with Indoor Gigabit
WLAN likely
allocation
Low – few infrastructure
operators, and the large number
of vehicular devices would be
limited in operation without the
infrastructure (could be designed
to switch off).
ITS communications
information related
applications)
Lightly
licensed
1 GHz (same as
above) available
today
Medium, will be
partially clarified
2010, further by
2015
High – many
applications can be
provided over other
networks.
As above
Low – similar to above, few
infrastructure operators and
vehicular units will not work
without the infrastructure.
DBS HDTV
Licensed
Not currently
being considered
Medium, will be
clarified by 2012
High to medium
(there isn’t enough
terrestrial spectrum
for HDTV).
High – needs
international
coordination.
Medium – the operator of satellite
is known, subscribers do not
transmit but new use could be
affected by ongoing use in
neighbouring countries.
Aircraft to satellite
Licensed
Not currently
being considered
High , will be
clarified by 2012
High
High – needs
international
coordination
Low – operator of satellite known,
subscribers do not transmit. If
confined to oceanic use,
alternative terrestrial use in UK
could be OK.
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64
Potential spectrum
use
Initial
licensing
regime
Regulatory status
and time scale
Technology
uncertainties
Marketing
uncertainties
Regulatory
uncertainties
Extent of irreversibility
HAPs - HDTV
Lightly
licensed
Not currently
being considered
High, will be
clarified by 2012
High to medium
(there isn’t enough
terrestrial spectrum
for HDTV).
High
Low – switching off HAPs vehicle
disables subscriber terminals
Surveillance radar
Licence
exempt
Not currently
being considered
Low (derived from
ITS long range
radar), , will be
clarified by 2010
High
High
High – potentially large number
of unregistered continuous
transmitters if it becomes popular
for residential security.
HDTV cameras
Licence
exempt
Likely to fit within
Indoor Gigabit
WLAN regulations.
Medium, will be
clarified by 2008
Medium – may be only
uncompressed HDTV
wireless cameras
available.
Low – expected to
fit within
regulations for
Indoor Gigabit
WLAN.
Low – small number of indoor
users (and likely users largely
known).
Mobile broadband
Lightly
licensed
Not currently
being considered
High – likely to be
based on either
HAPs or ITS.
High – alternative
means (satellite and
public networks)
possible.
High
Low – small number of known
responsible users.
Will be clarified by
2012
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65
Potential spectrum
use
Initial
licensing
regime
Regulatory status
and time scale
Technology
uncertainties
Marketing
uncertainties
Regulatory
uncertainties
Extent of irreversibility
SuperBUS
Licence
exempt
Not currently
being considered
High, will be
clarified by 2012
High
High
High – mass consumer market
envisaged.
Examples of existing LE applications above 30 GHz
ITS radar (long
range)
Licence
exempt
1 GHz available
today
Low
Low (radars being
installed in cars
today)
None
Medium – large pool of
installations but very largely
installed at time of manufacture.
ITS radar (short
range)
Licence
exempt
5 GHz available
today
Medium, will be
clarified by 2009
Low (radars being
developed today but
24 GHz equipment
being used in the
meantime)
None
Medium – large pool of
installations but very largely
installed at time of manufacture.
Table 10.1: Uncertainties estimated for each of the potential uses evaluated in the previous Work Packages.
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66
To quantify the impact of the combined uncertainties on the timing of decisions for each of
the uses, we have adopted a simple indexing method that assumes equal weighting for
each of the uncertainty categories, shown in Table 10.2. For example, the point to point
fixed wireless service has low levels of uncertainty for all four categories. This implies that
there is little additional value to waiting. On the other hand, although there may be
potential for SuperBUS to deliver great benefits, the uncertainties surrounding all aspects
of this use means that it is best to wait until there is further development in this area.
Sources of uncertainty
Technology
Weighting
Marketing
¼
Regulatory
Extent of irreversibility
¼
¼
¼
Index of magnitude of uncertainty
Low
0.1
0.1
0.1
0.1
Medium
0.5
0.5
0.5
0.5
High
1
1
1
1
Table 10.2: Index of uncertainty assigned to the three levels of uncertainty.
Using the above table we can illustrate the impact of these uncertainties on the optimal
timing of the decisions for each of the potential uses. Summing the uncertainty indexes
for the four uncertainties for each use provides a total index which represents the total
uncertainty associated with each, shown in Figure 10.1.
Point to point FWS
BFWA
Indoor Gigabit WLAN
Outdoor Gigabit WLAN
High capacity repeaters
ITS comms (safety related apps)
ITS comms (info related apps)
DBS HDTV
Aircraft to satellite
HAPs - HDTV
Surveillance radar
HDTV cameras
Mobile broadband
SuperBUS
Low uncertainty
High uncertainty
Figure 10.1: The total uncertainty index is shown for each potential use.
The actual delay before acting will depend both on the level of uncertainty and the
expected benefits that these uses will bring. So even though each of the uses identified
above can be shown to have positive NPVs, it does not mean that spectrum should be
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67
released immediately to accommodate all of them based on our best estimates. Instead,
judgements around the estimated NPVs and their uncertainties should be taken together.
10.2 Example for fixed wireless access
The Economic Value of Licence Exempt Spectrum work identified a number of future
applications and provided forecasts of the benefits that these applications might bring
about. We use the forecasts for fixed wireless point to point systems to illustrate the
impact of real options analysis on the optimal licensing approach.
Total cost savings from using FWS (£m)
The benefits from this system arise from the provision of products and applications such as
high capacity fixed point to point wireless area networks and broadband internet access
which could potentially be used as an alternative or complement to fibre based solutions.
Further applications also include backhaul point to point high speed links for
telecommunications operators. This application requires some form of light licensing to
enable some coordination and avoid harmful interference. The forecasts of economic
benefits are summarized in Figure 10.2 where demand for fixed wireless systems from
large corporations is expected by 2010.
200
Medium
Low
High
150
100
50
0
2006
2011
2016
2021
2026
Figure 10.2: Net benefits from fixed wireless systems forecast83.
Given the potentially large benefits estimated for such systems (over £600 million in total
under the medium demand scenario and over £1.6 billion under the high demand
scenario), the question for Ofcom is when to make a licensing decision to release the
spectrum required to enable investors to start building a business case around this use,
and bring about the assumed economic benefits.
In this example we assume that once Ofcom makes the spectrum available, fixed wireless
services will be deployed, and this is expected to generate benefits amounting to £628
million84 in total. Ofcom can act now, and we will assume hypothetically that it will incur
sunk costs of £50 million, to reflect technological uncertainty and irreversibility costs.
However, there is a delay of up to 4 years until there is a definite appetite for this service
(there is commercial equipment available today). The question is: Is there value to
waiting?
Based on the NPV rule, the expected benefits would be £628 million - £50 million = £578
million > 0, and one would go ahead with releasing the spectrum for fixed wireless
systems.
83
84
Source: Economic value of licence exempt spectrum. Report to Ofcom by Indepen, Ovum & Aegis, December 2006
Present value of benefits from fixed wireless systems under the medium demand scenario discounted to 2006.
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68
We next turn to the expanded NPV rule and make the following assumptions:
There are no costs incurred or benefits foregone from delaying the licensing decision.
We assume that the benefits from fixed wireless systems when they are deployed are
equal to £628million, equal to the total estimated benefits under the medium case
scenario.
The costs of irreversibility are small due to the small number of registered users, equal
£50 million.
The time frame under consideration is 4 years, i.e. between now and 2010.
The volatility of the benefits is estimated using the forecasts. For each year, we
calculate the annual growth rate85, and then calculate the standard deviation of the
growth rates. This gives us an average volatility of growth rates equal to 24 per cent.
The risk free rate is assumed to be the UK government’s current 4-year bond yield of
4.75 per cent86.
We can input these values into the expanded NPV equation given in Section 7.2.3.
⎧ ⎛S⎞ ⎛
σ2 ⎞ ⎫
⎟⎟T ⎬ σ T
⎜
d1 = ⎨ln⎜ ⎟ + ⎜ r +
2
K
⎝
⎠
⎠ ⎭
⎝
⎩
⎧ ⎛ 628 ⎞ ⎛
0.24 2 ⎞ ⎫
⎟ * 4⎬ 0.24 * 4 = 5.611
= ⎨ln⎜
⎟ + ⎜⎜ 0.0475 +
2 ⎟⎠ ⎭
⎩ ⎝ 50 ⎠ ⎝
N (5.611) = 1.000
d 2 = d1 − σ T
= 5.611 − 0.24 * 4 = 5.131
N (5.131) = 1.000
The option value is therefore
VENPV = SNe − DT (d1 ) − Ke − rT N (d 2 )
= 628 * exp(0 * 4) *1 − 50 * exp(− 0.0475 * 4 ) *1
= 587
The difference between the expanded NPV and the static net present value represents the
value of Ofcom’s flexibility with regards to timing of this decision. This difference is £9
million, which is small relative to the total NPV, and suggests that there is little value to
waiting.
ln (S t S t −1 ) where St
85
Annual growth rates are calculated as
86
Source: Bloomberg, as of 5 January 2007. http://www.bloomberg.com/markets/rates/uk.html .
is the value of the benefits at each time period t.
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69
11 ANNEX 2 – COMPARISON WITH PARALLEL OFCOM STUDIES
Ofcom commissioned a number of studies on different aspects of licence exemption in
parallel with this work. Three studies considered a range of specific uses in their work, and
the study teams worked together to coordinate the definitions used and maximise the
commonality between the uses evaluated. However, the different objectives of the studies
limited the degree of commonality that could be achieved. To assist the reader in
comparing the studies this appendix provides a mapping between the uses considered in
each. The relevant studies are:
The Eco-LE study on the economic value of licence exempt spectrum;
The AS-LE study on the need for application specific licence exempt bands;
The HF-LE study, the study reported here.
A comparison of the uses considered in the three studies is given in Table 11.1.
They are grouped as follows:
1 to 5 are labels which all three studies use. The table indicates where there are
differences in the use of these five labels.
6 to 10 involve labels which the Eco-LE and AS-LE studies use but not the HF-LE study.
This reflects the fact that there are applications where high frequencies (>30GHz) are
not used.
11 to 13 are labels which the AS-LE and HF-LE studies both use but which are not used
in the Eco-LE study.
14 onwards use labels which are used by only one of the three studies and where there
are no mapping problems.
In addition to the labels used in the table, the HF-LE and AS-LE studies also used the
label personal area networks or PANs. In the AS-LE study this involves use of ultra wide
band technology to connect office and home devices at ranges of a few meters or less.
In the HF-LE study the term is used interchangeably with indoor Gigabit WLANs (use 14
in the table).
It is useful to remind ourselves as to how these differences have arisen from the different
objectives of the three studies.
The Eco-LE study selected 10 very different uses for which to make economic value
projections. It did not attempt to be comprehensive and it only made value projections
for those impacts where it was credible to do so.
The AS-LE study considers all of the Eco-LE uses plus some additional, major, uses not
covered in the Eco-LE study. In some cases it uses a wider definition than the Eco-LE
study and, in carrying out detailed interference modelling, assumes that uses will share
frequencies. So Scenario 1 of this modelling has uses 1, 3 and 9 sharing spectrum at
5.8 GHz while Scenario 2 has uses 8, 13, and 19 sharing bandwidth at 0.4 GHz for
interference modelling purposes.
The HF-LE study considers only uses over 30 GHz. So it does not consider many of the
uses covered the Eco-LE and AS-LE studies. In some cases (e.g. uses 2, 4, 19 and 20)
the HF-LE study considers high frequency solutions for uses which are already served at
low frequencies to some extent.
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Ref
Status
General label
Eco-LE
AS LE
HF LE (>30GHz)
1
All 3
Home entertainment/Home network
Wireless home networking at 2.4 GHz. Includes
data networking but not home entertainment
Home entertainment and home data
networking at 5.8 GHz
In door Gbit WLANs at 60 GHz
2
All 3
Vehicle anti-collision radar
Use of automotive short range radar to reduce
traffic accidents. 24 GHz and 79 GHz
As Eco-LE
Intelligent Transport Systems. Short range radar
at 79 GHz and longer range radar at 76-77 GHz.
24GHz not covered given terms of reference
3
All 3
Broadband fixed wireless access
Public access WiFi broadband services - fixed
and nomadic at 2.4 and 5 GHz
Fixed broadband using WiMAX technologies
at 5.8 GHz
Public access fixed broadband at 40GHz
4
All 3
P2P fixed wireless systems
Fixed wireless systems at 71-76 GHz and 81-86
GHz
As Eco-LE
As Eco-LE
5
All 3
Security and detection devices
Wireless home alarms at 868 MHz, with
movement detection at 10 GHz and 24 GHz
As Eco-LE
Short range surveillance radar at around 100
GHz. Starts with applications in the business
sector but may eventually be used in the
consumer sector
6
Eco+AS
Telemetry
Wireless telemetry in the utilities. at 0.3-30 MHz,
402-405 MHz, 433.05-434.79 MHz, 458.5-459.5
MHz, and 2.4 GHz
Wireless telemetry in all industries
Not covered
7
Eco+AS
Medical
Blood glucose sensors based on implants at 401406 MHz
As Eco-LE
Not covered
8
Eco+AS
RFID
Use of RFID in the retail sector. 120-148.5 kHz,
13.56 MHz, 865-868 MHz, 2.4 GHz. Includes instore applications as well as inventory tracking
RFIDs used for inventory tracking at 450
MHz. Covers retail and other industries
Not covered
9
Eco+AS
Road tolling
Road user charging using DSRC technology. 5.8
GHz
As Eco-LE
Not covered
10
Eco+AS
Wireless building automation
Wireless building automation at 2.4 GHz
As Eco-LE
Not covered
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Ref
Status
General label
Eco-LE
AS LE
HF LE (>30GHz)
11
AS+HF
Short range high capacity repeaters
Not covered
As HF-LE
Repeaters at 64-66 GHz to provide backhaul for
a range of wireless applications
12
AS+HF
HAPS broadcasting
Not covered
As HF-LE
Yes
13
AS+HF
Mobile broadband for public safety
Not covered
Mobile broadband at 450 MHz using CDMA
with limited bandwidth
Microwave mobile broadband at >30GHz
14
AS+HF
Gbit WLAN
Not covered
Not covered
Outdoor Gbit WLAN at 40-100 GHz
15
HF only
Direct broadcasting satellite
Not covered
Not covered
At 40.5-42.5 GHz and 45.5-47.0 GHz
16
HF only
Aircraft to satellite communications link
Not covered
Not covered
Yes
17
HF only
SuperBUS
Not covered
Not covered
Yes to connect home and office devices at
>100GHz
18
HF only
Wireless HDTV cameras
Not covered
Not covered
Yes - at and above 60 GHz for connecting TV
studio equipment
19
AS only
Roadside to vehicle communication
Not covered
Roadside to vehicle at 450 MHz using TDAB
Part of intelligent transport systems at 63 -64
GHz
20
AS only
Vehicle to vehicle communication
Not covered
Vehicle to vehicle communication of driver
information. No technical specification
considered given that there is no detailed
modelling
Part of intelligent transport systems at 63 -64
GHz
Table 11.1: Comparison of uses considered in the parallel licence exempt studies.
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