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.

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