A Peek into Radio Spectrum Economics

We all know that the radio spectrum is the electromagnetic spectrum which mobile operators use to offer wireless services. It’s interesting to look into the lesser-known economics of the radio spectrum, such as auctions, spectrum allocation and regulation.

In most cases, governments assign the national radio spectrum licenses with one of the following methods:

  • Beauty Contest: Companies interested in obtaining spectrum licenses submit proposals to regulators outlining what they would do if they got them. The regulators then determine which applicant would make best use of the available radio spectrum.
  • Lottery: self-explanatory.
  • Auction: Available radio spectrum is licensed to the company offering the most money.

The philosophy behind the “beauty contest” was to ensure that spectrum would be passed on to the group that would best use it for the public interest. It’s still the system used in a number of countries, including France and Spain. Many governments rely on the “beauty contest” because they want to keep control on the spectrum usage while supporting the investment capabilities of the telecom industry.

Lotteries have been abandoned because of large number of bidding companies and many times the wrong kind of winning companies (companies that do not utilise spectrum in the most appropriate way)
Auctioning has gained popularity because of fairness, transparency, and high government revenues.

Statistics from the ITU-R show that most governments favour the auctioning process when:

  • the density of the country’s population in high enough,
  • the government’s budget deficit is large,
  • the number of licenses is high.

Auction basics

The auction method in assigning radio spectrum is considered economically efficient because it maximises the social welfare if it allocates items to bidders who value them the most.

Types of Auction:

  • Open or oral auctions – These often have several rounds while sealed-bid auctions have only a single round.
  • Dutch or descending auctions are typically fast because the auctioneer alone drives the price down.
  • First-price sealed-bid auction is when the bidders decide off-line their claim without revealing any information and the winner pays the highest bid.
  • Second-price sealed-bid or Vickrey auction is when the bidders tend to bid their true valuations and the winner pays the second highest bid.
  • Sequential is the auction when prices tend to decline in the later auctions due to fewer or poorer bidders (e.g. UMTS).
  • Simultaneous ascending auction is the most common approach for auctioning a set of spectrum licenses (most European UMTS license auctions).

Spectrum allocation – demand vs supply

ITU-R create global recommendations on spectrum allocations but it is governments taking the decisions.

Governments consider radio spectrum as a scarce resource requiring extremely strict regulation.

High demand of mobile broadband wireless services together with the development of new wireless technologies like DVB-H, 4G and UWB maintain demand for new spectrum.

The impact of new technologies

New technologies can utilise the radio spectrum more efficiently. For example, radio spectrum can be shared efficiently using spread spectrum technologies like in WCDMA 3G. Digitalisation i.e. Digital TV (MPEG 2, 4) also saves spectrum. Smart antennas and MIMO techniques further increase the spectral efficiency (bits/second/Hertz) hence reducing the spectrum demand.

However, we are in the era where everything tends to be wireless and spectrum availability for deploying new services is very limited. There are many technologies in devices sharing the same spectrum i.e. WiFi and Bluetooth share the 2.4GHz spectrum. Wireless technology coexistence in the same spectrum band will be very common in the future, and it will be interference dictating the performance of these systems. Interference, even though is not an inherent property of spectrum but a property of devices, limits the performance of most current radio systems. In this multi-radio world where a single device might have more than nine different radio technologies, it is heavily mandated to find techniques allocating spectrum in a smarter way. But how is that going to be achieved?

The emergence of cognitive radio

Future radio systems should be able to sense the radio spectrum and adapt their service to the spectrum which is least utilised. This requires the development of smart radios or radios that are defined by software. Spectrum sensing radios or “cognitive radios” that adapt their transmit/receive parameters and access spectrum dynamically will decrease interference and allow wireless coexistence. A step closer to the development of a commercial cognitive radio is Vanu which is pioneering in the area of software defined radios.

Is there an expiry date for radio spectrum regulation?

4G radio systems that might be deployed in the 2015 – 2020 timeframe are probably going to use software cognitive radio technology in order to achieve wireless convergence and coexistence. But, if cognitive radios are going to be used in the future, is there a need for spectrum allocation and auctioning? Is there going to be a “peaceful” coexistence between the radio systems sharing the same spectrum or chaos will emerge in the radio world?

Whatever the future holds, ITU should allow the usage of cognitive radios but apply rules on spectrum usage to avoid a chaotic wireless coexistence that might hinder the development and adoption of future ubiquitous wireless broadband services.

The Industrial Design Platform

I ‘ve spent most of my time in the last three months researching and authoring a report on the future of handset customisation. I believe that in 2008, hundreds of consumer brands will be commercialising mobile handsets, in a trend started by Bang & Olufsen’s Serene, ELLE’s Glamphone, Elite Model Look’s EML1 and Dmobo’s Disney-themed handset. There are far too many boring grey- and black- coloured handsets out there with the same-old designs and form factors. At the same time, operator and manufacturer brands are too coarse and rarely communicate values which are relevant to the user. There is a clear demand for handsets branded and designed to appeal to different consumer groups, while at the same time manufacturers are desperately trying to produce handsets where the brand value can command a significant delta on the retail price.

Overcoming challenges for unique handset designs
In order for supply to meet the demand for branded or uniquely customised handsets, there are several economic challenges, most of which are being overcome.

  • The cost and time-to-market of producing made-to-order handsets (with moderate modifications to software and plastics) is very reasonable thanks to customised design manufacturers like Modelabs.
  • Hardware reference designs are shrinking in size (see NewGen’s square phones for example) which frees up the industrial designer’s imagination to go create. There is no shortage of creativity and concepts today from industrial design houses like Idem, Ocean Observations, Frog, Product Visionaires, No Picnic, Alloy and IDEO.
  • Distributors are getting into the handset customisation game (see Dangaard’s business of customising Qtek-brand handsets), and customised design manufacturers are getting into the distribution game (see Modelabs’ and Emblaze Mobile‘s acquisitions of distributor businesses).

However, there is still a significant barrier to the proliferation of handsets with unique industrial designs (that appeal to the heart and the wallet of the niche segments to whom they are targeted).

The supply chain issue
If we are going to see tens or hundreds of consumer brands like Nike, Gucci, MTV and Google release their own handsets to the market, someone will have to stock these handsets and have a brilliantly effective system for managing these stocks. In other words, we need to see the Zara equivalent of the mobile handset customiser and distributor – Zara’s success is in most part owning to their just-in-time clothes customisation business and lean supply chain management.

In plain English, this means that the distributor should be able to take the unsold stock of 10,000 Barbie handsets, change the plastics/enclosure to a Gucci handset, repackage the contents and shift the boxes from Malaysia to the UK.

Vertu’s circa $50 hardware BOM is a testament to the power of the plastics and enclosure and the commodity of the hardware. To accomplish this just-in-time customisation we need two things:

  1. One-size-fits-all hardware reference platforms. With the component size reducing and the form factor volume reducing to 3x3cm PCBs, I don’t see this as being an issue. Add a customisable software stacks from Purple Labs, a la Mobile, or the Digital Airways + SKY MobileMedia + Montavista partnership and you’re there. Add a firmware OTA platform from Red Bend, Innopath or Bitfone (or OMSI‘s firmware over-the-wire platform) and you can customise the software at any stage in the distribution channel.
  2. Industrial Design Platforms. This is the three-word answer to the problem of snapping off the Barbie enclosure and snapping on the Gucci enclosure (and it’s not as easy as it sounds).

Calling for the Industrial Design Platform
To date, ID houses have worked off assumptions of the volume metrics of the hardware reference design of the handsets (and in a several cases, the ID and the hardware reference design have been created through iterative revisions). I believe what we need is a new paradigm of the industrial design platform (IDP), i.e. a physical plastics arrangement that can act as the smallest-volume common denominator for a range of industrial designs, that wraps around given hardware reference platforms. IDPs should be designed for certain classes of form factors (for example a lipstick-type factor, a thin flip phone or a square single-body factor) and allow reliable and safe modding of the entire handset enclosure. On top of the IDP, enclosures can be as sophisticated from Voce’s leather RAZRs to a Replay-jeans-moulded handset (as e.g. made possible by Inclosia technology), to cheap plastic Barbie enclosures.

UI Customisation platforms: the perfect partner
UI customisation platforms such as TAT, MSX, Digital Airways, e-SIM (and in the future Flash) are the perfect partner for industrial design houses, as well as the IDP model. This is for three reasons:

  • UI customisation platforms make money through handset royalties – the nicer a handset looks the more money they make (and ID houses sure know how to make a handset look nice)
  • ID houses need flexible UIs to work with. Ocean Observations’ Sofia Svantesson calls this an elastic UI. UI customisation platforms can deliver this elasticity to mass-market handsets and across the entire breadth and depth of the user journey, from start-up to shut-down
  • The ID needs to be coordinated with the UI of the handset. Bang & Olufsen’s Serene is the perfect example. An IDP should therefore be matched with a UI customisation platform; you snap on the enclosure, you update the software UI, and voila, you have a totally different handset in your hands. Wildseed’s Smartskin tried to execute this very concept in 2004, but they were too early to market.

Lesson for industrial design houses: Invest in building IDPs. This offers a clear differentiation to your competitors, reduces time-to-market and cost for handset variants, and improves your attractiveness as a valued partner for your customers (both tier-1 and tier-2 OEMs, customised handsets manufacturers, and value-added distributors).

Go forth and multiply.

On-Device Portals: Here to Stay

I ‘ve written before about on-device portals (ODPs) – it’s essentially device software that delivers offline browsing, storefront and homescreen replacement functionality. Whereas before it was a space to watch, ODP is now an adopted industry term and a vibrant market that’s here to stay.

Quick round up of the market
The ODP market was first analysed in a January 2006 ARCchart research paper which also coined the term – as the lead author of that report, I have since been watching the space closely.

There are now 25 or more vendors of ODP products: Abaxia, Action Engine, Airmedia, Cibenix, Communology, Comverse, Crisp Wireless, Everypoint, Geniem, Macromedia (FlashCast), Handmark (Pocket Express), InFusio (nMap), mPortal, MSX, Nellymoser, Nokia, OnSkreen, Opera Platform & Mini, Picsel, Qualcomm (uiOne), RefreshMobile, Silk, Streamezzo, SurfKitchen, U-Turn and Volantis. The term ODP has now been adopted by Nokia, SurfKitchen and Cibenix. It’s good to see a term that you ‘ve coined become adopted (although it can become abused for self-promotion, too).

Nokia, Airmedia, mPortal, Everypoint, Volantis and Picsel are vendors that have popped onto the ODP radar in the recent months.

Nokia Content Discoverer
In June 2006, Nokia announced the Content Discoverer (NCD) on-device portal solution, as the evolution of, and successor to, Nokia’s Preminet. Content Discoverer is currently embedded in millions of Nokia devices based on S60 and Series 40, including the Nseries multimedia devices, Eseries devices for enterprise users, Nokia 3250 and 6131 devices, and to-be-embedded on six more handsets by end 2006.

Nokia dropped the Preminet back-end and instead integrated NCD with several service delivery solution providers, incl. Handango, Jamster, End2End, Plus Four Six and Qpass. Nokia has also established content aggregation agreements with eight local content aggregators. It’s worth noting that NCD features a portal-based view of content catalogues, rather than search-based views, to avoid disintermediation of content retailer portals.

Vendor update: Airmedia, mPortal, Everypoint, Volantis, Picsel, InFusio
Airmedia channels content to BREW, Java and FlashLite-capable devices using on-device portal products. Troy Evans, Macromedia’s FlashLite guru stopped briefly at Airmedia before going to Nokia as a Sr Manager, Branded Content.

mPortal is an MVNO-focused ODP vendor that is targeting the US market and counts Disney and ESPN among its customers – another unique positioning among ODP vendors. Interestingly, according to an investor report, mPortal is looking towards MVNEs, chipset manufacturers, and device manufacturers as potential acquirers.

Everypoint is an ODP vendor that specialises in the delivery of real-time sports content onto mobile devices. Everypoint developed Yahoo’s Mobile Matchcast application, an ODP application with sports content for the World Cup in Germany. MatchCast is a MIDP2 application available as a free download in 12 countries and 7 languages. Check out the screenshots here.

Everypoint claims several selling points such as a home-grown vector-graphics engine, incremental, fast data updates and rapid application development. The Boston-based company has so far received $14M in VC investment from Venrock Associates, Prism Venture Partners and TD Capital Ventures. Everypoint’s closest competitor is Streamezzo, with the difference being that Everypoint focuses on real-time data delivery, while Streamezzo focuses on real-time video delivery.

Volantis is a vendor of mobile content delivery platforms that recently launched two ODP products (Content Storefront and Content Player). Picsel is a Glasgow-based company that is planning to spin off its office document viewer into an ODP product for magazine publishers. Essentially, this is another uniquely positioning ODP product, targetting magazine publishers and addressing ease of use for publishers. Picsel claims they ‘ll have the solution live by the end of summer 2006. Finally, InFusio’s nMap is a repackaged Geniem Superstore ODP product which will feature on the ELLE Glamphone uniquely customised handsets in 4Q06.

Deals and partnerships
Quick update on the deals that I have come across in the last few months in the ODP market:

  • In February Vodafone K.K. announced that its Live! Cast product will launch in Japan (following its launch in Germany last year). The service will be pre-installed on NEC and Toshiba handsets and will feature three content magazines targeted at 25-35 old males.
  • Adobe announced that more than two million mobile phone subscribers have signed up for DoCoMo’s i-channel news and information delivery service since it was launched in Japan last September (i-channel is powered by FlashCast).
  • Refresh Mobile customer base has expanded to ITV, BBC, Conde Nast, Shiny Media, AFP (Mumbai)
  • OnSkreen’s Fusion feature set now mobile search for movie times, stocks and sports scores and the web.
  • UIEvolution developed the application environment and ODP application that powers Mobile ESPN’s MVP and ACE’s handsets
  • Comverse announced that it will resell SurfKitchen products
  • Cibenix announced a combined solution with Sybase mFolio
  • July Systems announced it is partnering with SurfKitchen to extend its content retailing channels with on-device storefronts.

Yahoo’s big bet: beyond the browser
The market of on-device portals is certain to grow aggressively. This is not only forecasted by ARCchart and indicated by Nokia’s Content Discovery deployment plans, but also hinted by Yahoo at their presentation at their Analyst Day in May. One of Yahoo’s big bets for the next 5 years is titled ‘beyond the browser’ – they see their Yahoo! Go product providing a range of features including integrated mail, integrated contacts, calendar, messenger, photos, search, news and information. This is ODP on steroids.

Some Yahoo! facts:

  • Yahoo! has over 50 mobile partnerships worldwide
  • Yahoo! Go Mobile will support over 50% of Java handsets launched in the next 18 months
  • RIM partnership enables Y! distribution across 160 carriers worldwide
  • Partnered with Nokia, the largest handset manufacturer in the world
  • Partnership to bring Y! services to millions of Motorola Linux-based mobile devices

Trends in the ODP market
So where is the ODP market heading? There are several clear trends. Firstly,ODP products will morph into on-device search portals, as ordinary content portals are disintermediated by search engines. Secondl ODPs will extend into an Electronic Service Guide for all mobile media, incl. TV, irrespective of format. This is where Streamezzo is taking their client and O2 UK certainly seems to agree, based on their presentation at the World Handset Forum in May.

I have little doubt that ODPs will be featuring on every high-end handset (and several mid-end handsets) by the end of 2007.

Super 3G: Competition for Mobile WiMax

3.5G or HSDPA was developed as an evolution of initial UMTS network to enhance the data throughput and provide a better data usage experience to users. 3GPP is considering another evolution step after HSxPA so-called 3GPP long-term evolution ‘3G LTE’ or as more commonly called 3.9G or ‘Super 3G’.

Super 3G is expected to be an evolved radio access technology that can provide equivalent or better service performance compared to current fixed line access technologies, and at much lower cost compared to current radio access technologies (e.g. HSDPA and HSUPA).

Deployment timeframe
The main focus of this evolution will be on enhancements for packet-based services over an all-IP core network. 3GPP aims to finalise the development of the standard in July 2007, with subsequent initial operator deployments in the 2009 – 2010 timeframe. Super 3G will be based on 3GPP Release 8 and will be built on already existing investment.

Super 3G aims
The main targets of Super 3G are:

  • Higher data rates than HSxPA: 100 Mbps for downlink, and 50 Mbps for uplink
  • Increased ‘cell edge’ bit rate whilst maintaining same site locations as deployed today
  • Improved spectral efficiency – three times more compared to current systems
  • Reduced network delay – below 10 ms
  • Spectrum flexibility – enabling deployment in different spectrum allocations
  • Reduced CAPEX and OPEX

To meet this challenge, a change in 3G radio technology is envisaged that integrates OFDM (Orthogonal Frequency Division Multiplexing) and MIMO (Multiple Input Multiple Output) technology within the current 3G investment. This is called HSOPA or High Speed OFDM Packet Access and was proposed initially by Nortel. HSOPA is considered necessary in order to achieve higher download data rates than 50 Mbps.

Impact on existing infrastructure
Super 3G will provide a smooth technological upgrade, using the existing WCDMA / HSxPA infrastructure, such that operators will not need to build a new network from scratch. However, how is it going to impact the HSxPA network? Is Super 3G a Mobile WiMAX killer?

The only thing that’s certain is that Super 3G will further increase the capacity and hence the throughput of current 3G networks. The transmission network will require serious upgrades to accommodate the increased capacity.

Mobile WiMAX and Super 3G
Mobile WIMAX (IEEE 802.16e) will compete head to head with Super 3G and the comparison between the two will be more fair since both of them share the same technologies e.g. OFDM, Hybrid ARQ, All-IP Architecture, Adaptive Modulation and coding.
The wireless leader will be the one not having necessarily the best radio technology but the best capacity and range of user devices. NTT DoCoMo is so far keeping a distance from Mobile WiMAX. Is that a strategy to protect their FOMA investment? It probably is. DoCoMo is pushing hard Super 3G as the main 3GPP standard for mobile broadband before the advent of 4G systems. On the other hand, Intel is aggressively promoting Mobile WiMAX and is starting integrating their Rosedale 2 chipset in some OEM laptops.

Time will show which technology will dominate at the end and how “Super” Super 3G is going to pan out.