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The Uberization of Spectrum

Spectrum on Demand

Good spectrum is scarce and with the explosive rise in demand for mobile broadband we may soon face a “good spectrum drought”. Recognizing this, the Defense Advanced Research Projects Agency (DARPA) (the same folks who invented the precursor to the internet) recently released a new Grand Challenge to focus on spectrum collaboration. DARPA’s underlying hypothesis is that rather than an exclusive license for one entity, consumers are better off if all the spectrum was pooled together and dynamically allocated upon request. As a result, users could demand and receive “spectrum on demand” – the price being determined based upon current utilization of the network. Operators would not have exclusive license to this asset – but rather request and receive it on a collaborative basis based upon some set rules.

Recent spectrum auctions in USA and Europe have raised billions of dollars as operators compete for virgin spectrum to be licensed. At stake is the need to satisfy millions of customers who, armed with sophisticated devices demand more and more. While we continue to license off spectrum, there is a growing alarm that in a couple of decades there may not be any more left. Operators looking at 5 GHz+ spectrum are faced with steep costs associated with densification of sites. DARPA clearly believes that this is not tenable in the long run and hence has launched a grand challenge in 2016.

The problem is clear; right now spectrum is licensed for exclusive use by an operator, however the utilization of the spectrum is not constant. At times, utilization would be high and at other times the spectrum would remain underutilized. Both these situations point to an economic waste, it would be better if we could enable spectrum to be highly utilized with pricing or other mechanism to maintain this level. If this sounds familiar – it is simply due to the fact that the “on-demand” economy runs on this premise. It is also commonplace in the advertising world, with real-time bidding exchanges in place to ensure that there is a spot market between publishers and advertisers.

What would this look like for spectrum? Rather than licensing use of spectrum an operator would bid for spectrum in an open exchange on a dynamic basis – based upon immediate and short term forecast needs. The result would be similar to the Uber model that we are now accustomed to – during periods of high demand, prices would be high – with those being passed on to the customer. Once spectrum was secured for a predefined duration the operator could assign it to their users based upon need. The result would be that an operator could offer additional capacity to his premium customer base on demand; their higher ARPU offsetting the premium paid to access the spectrum.  This would alleviate the operator having to pay high upfront costs for spectrum, while adopting a pay as you go model. While there is a genuine concern that this may result in a lot of signalling overhead to manage this bidding exchange – these are the sort of issues that the DARPA Grand Challenge hopes to solve. Of course, steps should be taken to ensure that a basic service is available for all and is not subject to these pricing mechanisms. However, if done right it could herald a radical transformation in how we see and perceive the telecommunications industry as a whole – along with their underlying business models.

For the regulator, it would promote economic virtues leading to the efficient utilization of spectrum. Since spectrum could be acquired “on the fly”, the upfront payments made by operators would be replaced by transaction based income with dynamic pricing based upon supply and demand. It would dissuade spectrum hoarding and introduce a heightened level of competition – one which could benefit the end consumer.

For the operator, it would significantly level the playing field since all operators would have access to the same spectrum – one they previously acquired for exclusive use. Those operators which would successfully woo the customer would win; premium operators would be able to engage high value customers by securing access to additional spectrum and hence additional capacity. It would open up a market for newer players not willing to play that game – instead targeting lower tier customers (those who potentially do not need high speed data). The lack of upfront investment in spectrum would allow operators to efficiently allocate capital to better serve customer needs. They could also sell this capability as a service to other service providers (a.k.a. Netflix) who may need a particular QoS and throughput – and are willing to pay for it.

But the biggest impact I suspect will be for the newer entrants. All these players seek to provide a great user experience to the customer irrespective of his operator. If we take a potential case such as 4K streaming where only one provider has a majority of the spectrum – then trying to stream with a competitor would result in a poorer user experience. With dynamic allocation – you could simply define different tiers (and quality levels) for your users and partner with all infrastructure players to ensure that spectrum can be made available on demand for your service; thus ensuring a high quality experience immaterial of the operator.

Does it drive the operator down the bit pipe? Perhaps yes and no. While the operator would not be the face to the end customer, it would by its very nature foster a closer collaboration between the operator and the end service provider. The customer could very well be the ultimate winner – with companies pandering to best serve their needs.