Flexible spectrum and future business models for the mobile industry

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Abstract

The concept of flexible spectrum is often considered as a medium-to-long-term solution to overcome some of the current inefficiencies and high entry barriers plaguing the mobile industry. Increasingly, a cognitive pilot channel (CPC) is regarded as a central enabler for flexible spectrum. This paper outlines the CPC concept from a business point of view and clarifies its current status in the standardization and regulation fields. The idea of a worldwide CPC will be under consideration by the World Radio Conference in 2011. Based on several potential CPC implementations, the paper identifies a number of flexible spectrum business configurations and revenue sharing models. It also performs an initial forward-looking evaluation of these models using a business model scorecard approach, and finds that while the scope appears to be limited for a fully competitive, cross-operator spectrum market, several platform models (e.g. association or consortium models) stand out as feasible options.

Introduction

While it has been asserted that the ubiquity of wireless technologies and the possibilities of multimodal communication are effectuating a transformation to a pervasive ‘mobile network society’ (Castells et al., 2006), the mobile telecommunications industry is still plagued by significant inefficiencies and by high barriers to entry. For a large part, these inefficiencies and barriers are being attributed to the current regulatory practice of exclusive, long-term licensing of spectrum bands to mobile network operators, and the resulting, relatively closed, market structure. At present, this regulatory practice is justified by the necessity to minimize interference and to ensure an economically viable exploitation of spectrum as a scarce resource.

However, several scholars have qualified slow and exclusive allocation processes and strict non-interference guarantees as “fatal” when it comes to the efficient utilization of spectrum. In fact, current spectrum utilization is estimated at best 17% in urban areas and 5% elsewhere (Berggren et al., 2004, ABI Research, 2007). Some regulators, from their part, are now insisting that exclusive long-term licensing creates overly high entry barriers and stifles innovation. They argue that this regime results in users being tied to specific networks and to specific network operator contracts, instead of being able to freely choose between mobile services offered over a multitude of mobile and wireless networks, thereby hindering competition and severely decreasing end user value (Ofcom, 2006).

In addition, current spectrum allocation frameworks and the resulting mobile industry set-up are being challenged by increasing technological heterogeneity and by the impending reallocation of electromagnetic spectrum. While technological harmonization is bound to remain a political and strategic priority for achieving European-wide economies of scale, the co-existence of radio access technologies (RATs) such as GSM, GPRS, EDGE, UMTS, HSPA, LTE, WiFi (IEEE 802.11a/b/g/n), WiMAX (IEEE 802.16d/e), IEEE 802.20, DVB-H and others is expected to be a lasting characteristic of the so-called Beyond3G landscape and to deeply influence network operators’ business models (Ballon, 2007b). Finally, the impending reallocation or ‘refarming’ of spectrum bands used for analogue broadcasting or for legacy cellular communications, and the anticipated rise in demand for broadband wireless connectivity, are leading more and more regulators to the revision of current frameworks based on the attribution of spectrum bands to single RATs or even to particular applications (Odlyzko, 2004, Bourse et al., 2007).

All of these elements are fundamentally calling into question the practice of long-term exclusive allocation of spectrum bands to single operators and to single RATs, and are feeding speculations about significant changes in the associated business models. However, any radical divergence from current regulatory practice implies that issues of interference policing and joint radio resource management need to be solved first.

The concept of flexible spectrum (FS), involving both dynamic spectrum allocation and spectrum pooling, has the objective to overcome these issues (Bourse et al., 2007). Dynamic spectrum allocation is a way of assigning spectrum in a very short time frame, according to services, space and time conditions, and equipment capabilities. This may happen within a single network operator’s domain, or between different network operators. Spectrum pooling is based on the idea of a limited spectrum commons, in which spectrum assignment may happen in a coordinated or in an uncoordinated fashion.

While the majority of research in this field has focused on free-for-all, opportunistic spectrum access for peer-to-peer ad-hoc communication, typically targeting military applications, coordinated approaches are gaining ground, especially in the civil domain (Kamakaris et al., 2005). A number of European collaborative R&D projects have introduced the concept of a cognitive pilot channel (CPC) as a key enabler for flexible spectrum and are exploring its technical, regulatory but also business implications (Holland et al., 2007, https://ict-e3.eu/).

This paper is structured as follows: following Section 1, the need for a coordinating and enabling entity for FS is argued and the CPC concept is outlined. Next, its current status in the standardization and regulation domains is highlighted; then this paper identifies a number of flexible spectrum business configurations and revenue sharing models enabled by a CPC. Finally, an initial forward-looking evaluation of potential future flexible spectrum models is performed using a business model scorecard approach.

Section snippets

The coordination of flexible spectrum

Although the final objective of FS is to achieve a situation where market players are free to define the best use for the spectrum they own and where licenses change owners with little or no regulatory intervention, this does not mean that all activity in the spectrum domain will become decentralized and bilaterally negotiated. On the contrary, it can be argued that the FS concept leads to a new set of risks and challenges.

As an illustration, Xavier and Ypsilanti (2006) discuss a number of

The cognitive pilot channel

New FS mechanisms are being developed which are meant to significantly enhance spectrum efficiency. In particular, underused frequencies can be leased or sold to parties which value these frequencies more, secondary use may be allowed if it does not cause excessive interference, radio access technologies (RATs) operating on these frequencies may be changed, and opportunistic RATs may use varying frequencies depending on their availability, e.g. by using spread spectrum techniques.

While

Cognitive pilot channel standardization and regulation

Currently, several standardization and regulation tracks have been set up for the cognitive pilot channel (see also Bourse et al. (2007)). In the domain of standardization, a first domain of activity is the SCC41 P1900.4 working group within the IEEE, in which three specific use cases are addressed, viz. dynamic spectrum allocation, dynamic spectrum access and distributed decision-making. As the CPC both acts as an enabler for these three use cases, and the use cases in turn influence the

Flexible spectrum business configurations

It needs to be stressed that the CPC is at this moment still very much a hypothetical concept that may never come to fruition. Still, given that the CPC as a central coordination entity for flexible spectrum is currently under standardization and being considered for worldwide implementation, the business implications of such a concept are particularly relevant when envisaging the future mobile network industry structure. Expanding and adjusting the initial analysis featured in Delaere and

Flexible spectrum revenue sharing models

The typology proposed above puts an emphasis on the different configurations that are possible for the CPC (e.g. with regard to which actors exchange data, how many CPCs would need to be standardized and deployed, and how many RATs they need to carry) and their impact on FS business models. However, when considering the different ways in which value may be created through the CPC, there are several options to be taken into account.

First, asset control and customer ownership need to be

Business model scorecard approach

In the absence of quantifiable assumptions, no established method exists for the a priori evaluation of the viability of business models, including revenue sharing models. However, since a business model can be regarded as a tool for strategic management, forward-looking strategic management approaches may be adapted and applied. In strategic management, the viability and long-term soundness of a company’s strategy is commonly measured and assessed by ‘balanced scorecard’ approaches. These

Business model scorecard for FS models

Based on Ballon (2007a), a number of crucial parameters can be defined with regard to the viability of FS revenue sharing models. The first parameter is whether stakeholders and revenues between stakeholders are balanced; more in particular between those stakeholders that concentrate the control over the main system gatekeeping function(s) or gateway(s), on the one hand, and the control over the value network′s core assets on the other hand. The notion of balance may denote both centralization

Conclusions

This paper outlined the flexible spectrum and cognitive pilot channel concepts from a business point of view and clarified the current status in the standardization and regulation fields. The idea of a worldwide CPC will be under consideration by the World Radio Conference in 2011. Based on several potential CPC implementations, a number of flexible spectrum business configurations and revenue sharing models were identified. It also performed an initial evaluation of these models using a

Acknowledgements

This work was performed within the E3 project, which has received research funding from the European Community’s Seventh Framework programme. This paper reflects only the authors’ views and the Community is not liable for any use that may be made of the information contained therein. The contributions of colleagues from the E3 consortium are hereby acknowledged.

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