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Spectrum Is Becoming a More and More Valuable Resource
Following the Italian 5G spectrum auction last October, which was somewhat of a shock, the whole telecommunications industry has been carefully following the activity around the German spectrum auctions. Italian Mobile Service Provider (MSPs) paid a total of €6.55 billion for 5G spectrum. Germany, Europe’s largest economy, has just completed its record long, 497 round 5G spectrum action and raised also €6.55 billon. Based on recent 5G spectrum auctions, the business potential in enterprise verticals, and skyrocketing consumer data traffic in the next decade, interest in 5G spectrum is higher than any other telecommunications generation before it.
5G supports three main spectrum bands: sub 1 GHz, mid-band (between 1 GHz and 6 GHz), and high-band (over 24.25 GHz. In order to not miss the ability to offer a full 5G experience, MSPs need to operate in all the three in long-term. However, the pricing of these frequencies varies significantly: from the beginning of the 5G auctions, the 3.4-3.8 GHz and the 2.5 GHz have proved to be the most valuable based on three main factors:
Firstly, the mid-band is far the most suitable for the consumer-driven early use cases. Despite the hype around industrial 5G use cases, ABI Research expects that “traditional,” consumer-driven use cases will be the easiest for MSPs to monetize, at least until 2021.
Secondly, mid-band allows for large amounts of spectrum with reasonable coverage challenges, unlike low band (low bandwidth) and high band (challenging coverage).
Thirdly, massive Multiple Input, Multiple Output (MIMO) and other recent technological developments increase the value of mid-band. Massive MIMO technology will provide better coverage than was initially expected for deployments on legacy macro cells. This means MSPs can scale back small-cell densification plans and reduce deployment costs.
Using Wireless Resources in a More Efficient Way
The demand for fast, low-latency, and reliable data delivery is only expected to skyrocket in the upcoming decade, and the available bandwidth is limited by the availability of spectrum and the laws of physics. The telecommunications industry basically has two choices to keep up with the increasing demand: start to use new frequencies, such as millimeter waves, or increase efficiency in the frequency already used.
MSPs are experiencing recurring consumer data traffic patterns. During their normal operation, operators are not using the entire capacity of their networks. This implies that MSPs could sell their spare bandwidth to other operators or spectrum users if the technical or regulatory environment is present. From the demand side, 5G will become the “network of networks” and connect literally billions of new objects with differing connectivity needs and data usage patterns. Thus, there will be more and more synergy behind capacity trading, and wireless broadband can slowly become a tradeable, valuable commodity. Right now, there is no marketplace for spectrum,and MSP’s are buying licenses for five, ten, or twenty years and trying to use their assets in the most efficient ways. As spectrum becomes a more and more valuable asset, spectrum trading will become more relevant, which will result a more efficient outcome where the cumulative spectrum supply is higher.
Similarly to other commodities, the most efficient distribution principle to allocate bandwidth is simply commercialisation. Real-time trading is not just an opportunity to provide access to the bandwidth for new players with the need for connectivity, but also helps to distribute data traffic and deal with peak periods. Similarly to other network industries, peak periods can challenge operators/providers and force them to calculate with costly spare resources. Price discrimination helps other industries, too: for example, more expensive peak-time (6-9 a.m.) train tickets push flexible passengers (students, pensioners) toward off-peak times (9 a.m.-4 p.m.) for less urgent trips. Also, electricity providers already stimulate consumers to use nighttime electricity at cheaper prices and unload the system in critical time slots. As soon as the market starts to determine smaller, manageable geographic areas and pricing smaller spectrum timeslots, more dynamic spectrum trading and time-based offers can turn into reality.
The Growing Importance of Spectrum Sharing
Shared spectrum frameworks such as Citizens Broadband Radio Service (CBRS)/OnGo and spectrum trading platforms tear down the entry barrier to access spectrum and bandwidth and bring a more efficient use of the spectrum resource. Technological innovation is expected to bring a transparent market for spectrum and disrupt the existing framework in the next five years. Dedicated spectrum distribution for vertical enterprises is still in the early phase, and the offered spectrum differs significantly on a country level.
-United States: CBRS/OnGo works on the 3,500 MHz-3650 MHz range in shared spectrum framework
-United Kingdom: Consultation for local licences in 3,800 MHz-4,200 MHz
-China: Currently considering 5,925 MHz-7,125 MHz
-Germany: 3,700 MHz-3,800 MHz for local licenses
-France: 2,470 MHz-2,620 MHz and also considering 26 GHz after 2020
-Japan: 4,600 MHz-4,800 MHz and 28.2 GHz – 29.1 GHz
Right now, vertical enterprises can use cellular spectrum in three main ways: via unlicensed spectrum, using some kind of shared spectrum framework, or buying/leasing dedicated licensed spectrum. ABI Research expects that the relevance of the fourth way will become more important and MSPs will start proving spectrum with dedicated network slides or simply via subleasing. Furthermore, the relevance of spectrum trading platforms will increase, creating a market for connected supply and demand for wireless capacity. In order to create technology that makes a digital market possible, it is necessary to prioritize bandwidth by geography, time of the day and who is using it. The telecommunications industry needs to establish this common ground for spectrum sharing and divide the map for manageable geographical areas to enable automated, real-time trading. MSPs are expected to share and start selling their most precious asset, their spectrum resources, because the monetization potential is greater than ever and user-friendly dynamic spectrum sharing will become reality.
Thus, MSPs won’t be the only ones with control over this newly commoditized resource. The new framework is expected to have three actors: the seller, the spectrum controller, and the buyer. The seller could be an MSP, or a governmental body such as the military, and will share an offer of a certain spectrum in a well-defined area for a specified period of time. The spectrum controller will provide a trading platform that processes, collects and evaluates these offers, similar to a stock exchange. The buyer could be any company from any vertical industry or another MSP hungry for capacity because it is experiencing a temporary increase in demand for data traffic. The transactions will be dedicated in the trading platform and capacity will be hand over in a second notice.
MSPs are encouraged to consider capacity trading to fill dead spots in their wireless coverage. Deploying Capital Expenditure (CAPEX)-intensive 5G network infrastructure is not the optimal solution to increase coverage in certain locations. Parallel, neutral hosts are recommended to consider expanding their network to hard-to-reach areas with high deployment costs and dense, historical city centers with high administrative and deployment costs. Building three or four separate 5G networks paralell to hard-to-reach areas is clearly not optimal; trading platforms can help sharing wirless resources.Other than the regular players, trading platforms will allow verticals to buy only what they need. Content providers, Internet of Things (IoT) manufacturers,, hotel chains, property owners, and car companies are all hungry for wireless connectivity and the dynamic, real-time market has just been born.