Spectrum concerns reach far beyond traditional telecoms

We last had an in-depth look at spectrum policy and its implications for telcos almost three years ago, in our report on 5G spectrum in January 2017. (Please refer to that report for general background information on the ways that spectrum is organised and allocated for mobile and wireless networks).

That report has proven prescient:

“5G development and deployment is largely happening between WRC-15 and WRC-19. By November 2019’s event, a lot of spectrum decisions may have been taken locally, early networks deployed, and thus given to ITU’s delegates as a “fait accompli”. As well as bringing in many new radio technologies and innovations, the new focus on IoT, “network slicing” and industry verticals complicates matters still further. For instance, many of the most-touted new use-cases are likely to occur indoors, or on industrial sites – not outside “in public spaces” where mobile operators can exert most control and oversight. Potentially, new models such as shared licensing of spectrum are needed, with large companies running their own on-site private 5G networks”.

This has largely been reflected in the outcome of events. Today, we have had early launches of around 50 5G networks worldwide, from the US to South Korea to Ireland. These use a mix of bands that are about to be discussed by ITU at WRC, and others that were not even supposed to be in consideration, such as the US and Korean 28GHz band. Meanwhile, as we recently discussed in our Private/Vertical Networks report, various countries have started awarding spectrum to “non-public networks”, on a localised basis. The US CBRS band, the German industrial 5G allocation and various different approaches taken in the UK exemplify this. This raises the question of whether the current ITU processes are really “fit for purpose” for the modern wireless industry. Especially given the growing levels of geopolitical controversy in many areas of the economy, we may see the WRC process becoming increasingly side-lined in future policy discussions.

Given that ITU’s World Radio Congress has recently concluded – and has been attended or closely watched by the telco and wider spectrum community, this seems to be a good time to revisit the topic – which has also cropped up in our recent work on 5G launches, indoor wireless, and private networks.

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What WRC really means

Access to spectrum is critically important for 5G. That is widely understood in the telecoms industry. But often, there is little awareness of how and why spectrum is allocated to mobile use, which bands make most sense, or what else radio frequencies are used for.

Not all bands are created equal – so when someone says that 100MHz or 1GHz is being made available for 5G, it’s important to understand which frequencies are being discussed, with which conditions – and what else is currently using that allocation.

The negotiators are governments, not companies, so telcos and vendors are represented indirectly through many layers of advisors, delegations and lobbyists.

Countries and regions adopt ITU and localised regulatory stances based on national priorities, champion exporters or intellectual property owners, visions of the future around social inclusion, climate change and the UN Development Goals, and how various sorts of wireless applications (and thus spectrum) can improve humanity.

Sometimes there are trade-offs between tangible (economic) outcomes and less-tangible social or geopolitical impact.

The main telecoms-related battle at WRC centred on what high-frequency mmWave bands should be dedicated to 5G, and under what conditions. This involves a mix of technical arguments (“does X cause interference for Y?”) and politics. But the other agenda items also relate to how telcos should be seeing themselves, and positioning for roles in what STL calls the Coordination Age.

While 5G has extremely important roles to play in coordination, so do other wireless technologies – and telcos and policymakers should be embracing them, their applications, and their own spectrum needs – rather than just putting all their future eggs in a still-hypothetical 5G basket. MNOs should resist hype from vendors proposing 5G as the solution to all problems, and the source of all new revenue opportunities. It’s important certainly, but that is a major – and naïve – overstatement.

Recent developments: What has changed?

What has changed since early 2017? A few items of particular interest for the telecoms industry have risen up or suddenly appeared on the regulatory/spectrum agenda:

We have had numerous trials and commercial launches, and hence some more hard data on 5G performance in different spectrum domains, and increasingly more realistic views on the abilities and constraints of antennas, devices, core networks and concepts like network-slicing. While there’s still a lot of hype – and capabilities will obviously improve over time – the practicalities have become more visible. In particular, the early focus of 5G on mmWave bands (especially in the US) has stepped down a notch, with the recognition that low- and mid-band spectrum will be the main driver for 5G usage and value. Even the GSMA’s 15-year forecasts – discussed later in this report and which we think are methodologically questionable – only put mmWave as accounting for 25% of the total forecast GDP contribution from 5G. The true number may well turn out be closer to 10%, with even that biased towards the years from 2029-2034.
The global regulatory community seems to have accepted that various forms of spectrumsharing, sub-leasing and local licensing is important for some mobile bands – at least in developed markets. The complex economics of building multiple competing cellular networks, the difficulty of completely clearing incumbents from new bands, and the desire for industry/rural/vertical/metro -specific cellular or other networks is driving this. (While this is a hotbed of regulatory action, it is rather less relevant to WRC – the ITU mostly determines usecases for spectrum such as cellular vs. satellite, but it is up to local regulators to decide how best to parcel up licenses and authorisations within those constraints).
The main exception is around fixed wireless access (FWA) which is turning out to be one of the main commercial focuses of mmWave spectrum, both for 5G and Wi-Fi type network technologies, along with urban densification. Various new initiatives and services have launched, and considerable innovation is ongoing. We will be looking more closely at FWA in a future report in the Network Futures research stream. (It is worth noting that a large amount of FWA is not mmWave-based, but in sub-6GHz bands, especially in the 3-5GHz range, which gives it much better propagation characteristics and a certain level of indoor penetration).
Geopolitics has become more important, especially in the US vs. China (and to an extent, vs. Europe) trade war and battles about network security and strategic advantage. That is filtering through to spectrum policy in unexpected ways – especially as the US currently seems to see itself having home advantages in mmWave, Wi-Fi and cloud-based platforms. Europe, which has numerous densely-populated member states, and is home to a number of major satellite companies, seems much more equivocal about mmWave 5G, and is more hesitant about dedicating more bands to it – especially given possible knock-on effects on earth/weather observation and its effects on climate science. China is somewhere in between, advocating various mmWave bands for 5G use, but currently focused on the mid-band, including (controversially within the spectrum community) the 4.9GHz range.
Various industries and new sectors have woken up to the IoT future, and are demanding their own spectrum resources, either for private 4G / 5G or alternative dedicated sector-specific approaches. A May 2019 meeting convened by European regulatory agency CEPT on Spectrum for Industries featured diverse interest groups, from railways to aviation to medical sectors. At that event, telecom/mobile was “just another vertical”. While some of the use-cases described could possibly be satisfied with variants of 5G (or Wi-Fi) others clearly have very special requirements that need different technologies, and probably different (dedicated or shared) spectrum allocations
There has been growing coordination – and better lobbying – from new and existing groups to counter some of the 5G hyperbole. The satellite industry in particular has been pushing back, often cleverly embracing the cellular industry by pointing to ways it can integrate with, and complement, terrestrial cellular networks. (As long, of course, as the mobile industry doesn’t steal its spectrum for ground-based uses). The automotive industry has been arguing about flavours of V2X technology based on variants of WiFi and/or cellular.
Internet-era companies have entered the spectrum fray in a major fashion. Google is a big fan of dynamic spectrum regimes like CBRS and seems to want “spectrum-as-a-service” to become reality, aided by cloud and AI platforms. It’s also a noted fan of satellite and balloon-based wireless, through O3B and Loon. Amazon also seems keen on CBRS and is closely watching international developments. Facebook has been pushing its Terragraph 60GHz FWA technology, and also catalysing many other developments through its TIP (Telecoms Infrastructure Project) work. Microsoft is still arguing for TV White Space and other dynamic approaches, especially in the developing world. And Elon Musk’s SpaceX wants to launch a massive LEO (low earth orbit – maybe 200-400km altitude compared to 36,000km for geostationary satellites) constellation called Starlink for satellite broadband globally. All these initiatives have spectrum angles, plus asking ITU for orbital slots in some cases.

Behind all this, there are other application and political drivers of spectrum policy and allocation mechanisms, some of which relate to telecoms and some of which are more distant:

Near-insatiable demand for consumer mobile broadband capacity, especially in the 5G era
Similar insatiable demand for Wi-Fi and other unlicensed, simple data networks with different power and range levels.
Political desires for better rural cellular coverage, satisfying industrial requirements for private networks, encouraging innovation, productivity and maintaining national security and critical infrastructure
Desire for better connections for smarter cars, ships, planes and trains – both for passengers and for the transport systems themselves
Innovation in satellite communications, which is especially relevant for remote and island communities, but which is potentially becoming more “mainstream” with the imminent arrival of huge new constellations of low-orbit birds.
More requirements for spectrum for scientific and medical uses, especially relating to climate monitoring and weather-forecasting, as concern grows about the environment.
Continued use of spectrum for non-communications uses, drones and “high altitude platform” connectivity, aviation radar and beacons, GPS / GNSS signals, short-range sensors, maritime functions and so on.

WRC’19 is a microcosm – spectrum issues are much broader

This report looks at three areas that reflect the changing spectrum landscape, and how the telecom/mobile industry participates in it:

The current World Radio Congress (WRC19) that took place in Egypt during October and November, convened by the ITU (International Telecommunications Union, an arm of the UN). This updated the global harmonisation rules called the Radio Regulations, including defining new dedicated bands for mobile/cellular use. The main telecoms interest related to 5G-suitable bands, but we argue it should also be looking at other wireless applications, in order to satisfy a wider range of future “Coordination Age” opportunities than cellular alone can cover.
The growing demands for cellular-suitable spectrum by enterprises and other groups outside the traditional MNO world (also “non-public networks”), typically for private 4G or 5G networks, or various new types of wholesale. This is somewhat separate to the WRC process, although once suitable cellular spectrum is identified, governments can allocate it to enterprise or local use, rather than national telcos, if they choose.
Innovation outside the cellular industry, driving extra spectrum demand from satellites, transport and utility wireless, Wi-Fi, LPWA and various other use-cases.

Executive Summary
Introduction
- What WRC really means
- Recent developments: What has changed?
- WRC’19 is a microcosm – spectrum issues are much broader
Spectrum for 4G / 5G
- Is mmWave 5G spectrum a red herring?
- Implications for the Coordination Age
- WRC-19 process and structure
- How ITU and WRC work
- Spectrum, WRC and The Great Game: Why telcos need to care
- WRC: Other issues and debates
- How important is WRC and harmonisation in future?
Beyond WRC: Other spectrum issues and debates
- New mobile spectrum conditions
- Local, dynamic and vertical spectrum
- Secondary spectrum markets
- Spectrum for Wi-Fi
- Satellites and HAPs
Conclusion

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Introduction

Network sharing is well established

Network sharing has become well established as a useful means of reducing capital and operating expenditure by mobile network operators and sharing of passive infrastructure such as towers has become commonplace. The main reasons for sharing are a need or desire to:

reduce capital expenditure
reduce operating expenditure
achieve faster rollout or upgrade
extend coverage at a lower cost
improve operational and/or organisational efficiency
more efficient use of spectrum efficiency
as a precursor for possible merger or acquisition.

The speed at which operators wish to roll out their 5G networks will depend on a number of factors, including their need for additional capacity to meet market demand, respond to or pre-empt competitive actions by other operators, and their overall business strategy. Minimising the costs of doing so will be important, although some dominant and well-funded operators, such as Verizon, may choose to avoid sharing to put pressure on weaker competitors. Operators choosing to share have several options which may include mergers or acquisitions.

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Where are the largest current costs?

Analysis of data from mobile operators in both developed and developing countries shows that network operating costs are split between three main areas:

the radio access network (RAN)
the core network
IT systems and service platforms.

While the proportions of the total operating costs taken by each of the three areas vary between operators, the overall pattern is the same for all. Typically, the RAN accounts for over half of operating costs, and the core network from one eighth to a quarter. IT and platforms account for the rest. Average operating cost splits for mobile operators are shown in Figure 4. Most operators find that around half of the RAN cell sites generate insufficient revenue from the traffic they carry to cover their operating costs, although such a simple measure does not take account of the benefit that wide coverage brings to overall business revenues. Nevertheless, it is important to manage the costs of the RAN effectively to ensure that resources are used in the most efficient manner. Typical cost splits are shown below.

Typical top-level split of network opex costs

Source: STL Partners

5G is bringing changes

5G is designed to cater for the rapidly growing demand for mobile broadband and for new use cases that require higher speeds and lower latency while at the same time minimising capital and operating costs. To cater for these requirements the use of higher frequency bands is being introduced, together with network slicing and wherever possible the use of standard computing equipment. The use of mid band frequencies of 3.5GHz and above and millimetre wave (mmWave) will enable much higher speeds, but these frequencies have shorter range and are less able to penetrate most buildings. The impact of the poorer propagation will depend on several factors.

Where very high levels of traffic are concentrated in a small area the extra bandwidth provided may permit the replacement of a number of low frequency base stations by a single mid-band or mmWave base station. In other cases where traffic is more thinly spread but still heavy enough to warrant the use of and investment in high capacity high frequency base stations then it is likely that more base stations will be required to provide equivalent coverage, placing greater demands on the availability of suitable sites and provision of associated infrastructure for backhaul and power.

In more remote areas use of low frequencies will be required to provide wide area coverage, but their use may place limits on the bandwidths that can be economically delivered.

In-building coverage may well prove more difficult to provide, and although some tests suggest the problem may be less severe than initially feared, in many cases it will require the provision of alternative means of delivering in-building coverage. Options include the provision of indoor base stations, potentially meaning multiple installations to support different carriers, the use of neutral hosts or increased reliance on Wi-Fi. The requirements of different industries, large and small businesses and individual householders or tenants will vary enormously, and means will need to be found to meet a wide variety of situations in an economic manner. Neutral hosts for 4G already exist in some venues and products are appearing that connect an internal network to an antenna installed externally.

With rollout of the first 5G networks beginning soon, operators need to ensure that they can deploy their networks fast enough to meet market demand and any regulatory targets whilst at the same time containing costs to a level consistent with their revenues. However, in some cases plans for sharing, especially active and spectrum sharing, may result in delays caused by the time required to reach agreements with prospective partners and to gain any necessary regulatory approvals. They will also wish to ensure that they at least maintain or preferably improve their position relative to their competitors.

Technical changes that can be expected to affect the need for and viability of sharing therefore include:

Use of spectrum in higher frequency bands:
- shorter range of higher frequencies
- densification and the availability of sites and backhaul links – and ease of access.
- availability of sufficient low frequency spectrum for rural areas
- spectrum sharing
- regulatory factors
Changes in architecture for:
- slicing
- NFV, cloud
- use of off-the-shelf IT components and their reliability and availability.

Contents:

Executive Summary
Introduction
Network sharing is well established
5G is bringing changes
Obstacles: MNO fear of sharing
Other Issues
Structure of report
How will 5G drive demand for sharing?
Overview
Spectrum: Use of higher frequency bands
Options for sharing
How will 5G affect costs of sharing?
Current costs
How will networks costs be split in the future?
NFV, Cloud and Slicing
How soon does the market need 5G?
Other options for MNOs
Neutral host
Implementation: Lessons from experience
Timing is important to obtain best results from sharing
Lessons from existing sharing arrangements
Conclusions & recommendations
Recommendations for telcos

Figures:

Figure 1: Types of network sharing
Figure 2: Typical network cost splits of no sharing versus sharing active RAN
Figure 3: Modelled effect of 3.5 GHz RAN sharing on 5G rollout speed in UK
Figure 4: Typical top-level split of network costs (opex)
Figure 5: Losses from building penetration as frequencies increase
Figure 6: MORAN sharing
Figure 7: MOCN Sharing
Figure 8: Shared spectrum efficiencies
Figure 9: Examples of spectrum sharing
Figure 10: Range of typical network costs as percentage of total
Figure 11: Typical breakdown of RAN opex costs
Figure 12: Network and IT costs
Figure 13: Effect of increased number of cell sites on proportion of network cost in RAN
Figure 14: Population and coverage data for the UK
Figure 15: Capex and opex infrastructure costs
Figure 16: Population coverage for different levels of gross annual capex
Figure 17: Base case coverage (£2 billion per annum)
Figure 18: The effect of sharing small cell layer on rollout
Figure 19: Effect on regional rollout of sharing small cells
Figure 20: Ericsson mobile data growth forecast
Figure 21: Ericsson forecasts data traffic growth 2018–2023 by region
Figure 22: Growth in traffic for different applications
Figure 23: Neutral host configuration for US 3.5GHz CBRS
Figure 24: Red Compartida coverage targets

Spectrum concerns reach far beyond traditional telecoms

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What WRC really means

Recent developments: What has changed?

WRC’19 is a microcosm – spectrum issues are much broader

Table of contents

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Introduction

Network sharing is well established

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Where are the largest current costs?

Typical top-level split of network opex costs

5G is bringing changes

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