Video brightens the radio star

Geneva is a curious destination. Host to the United Nations and some 20 other international organisations, a centre for private wealth management with more than 100 banks, the base for 160 State permanent missions, birthplace of the World Wide Web and a handy location from which to explore the stunning Alps and Jura mountains.

The International Telecommunication Unions (ITU) is headquartered in Geneva. Active for 150 years, in 1865 the ITU was formed by international treaty to harmonise cross border telegraph services ensuring consistent end-to-end delivery of messages. The following year the first trans-Atlantic cable was laid.

The latter part of the 19th century saw a proliferation of pioneering wireless innovation from the likes of Heinrich Hertz, Guglielmo Marconi and Nikola Tesla. The first voice transmission over radio waves was made in 1900 and the ITU hosted an inaugural International Radio Conference in 1906 to agree which frequencies would be used for radio services, thereby preventing interference.

The ITU’s role in the communications revolution should not be underestimated. For mobile, internationally harmonised frequencies have underpinned the industry’s growth by enabling unprecedented economies of scale that drive the affordable adoption of interoperable services which in turn enable the ever expanding smartphone inspired digital ecosystem. By assigning spectrum to mobile, governments are guaranteed an economic return other industries cannot match, amounting to $3 trillion in 2014 and contributing an additional $400 billion plus to the public purse.

The 38th World Radiocommunication Conference kicked off in Geneva this week and will attract more than 150 Member Sates. The 25-day event will discuss how best to allocate a scarce resource, spectrum, to different services: amateur radio, aviation, emergency communications and disaster relief, maritime, mobile, satellite, etc. Given the expected 10X increase in mobile data traffic over the next five years the mobile industry will ask for additional spectrum to meet this demand and be prepared for longer term traffic growth. It is hard to argue against the economic logic of allocating more spectrum to mobile.

But what this intergovernmental process ensures is a considerable time lag from treaty decision to market action. Consider the digital dividend, identified for mobile use in 2007, but in 2014 as this map shows little more than a quarter of the world’s jurisdictions had assigned this “beach front property” for market use. This is a great shame for the 30% of people that do not yet have mobile broadband coverage as the digital dividend is ideal for extending network reach: a rural base station using the digital dividend will cover an area more than 12 times the size as a base station using a typical 3G frequency[1].

To meet the 10X data demand over the next five years, and to cover rural areas with connectivity, policy makers and operators must rely on spectrum that is already allocated but perhaps not yet assigned. Which begs the question how should government best assign spectrum?

Is it in the public interest to maximise short-term revenues by restricting spectrum supply or better to maximise the supply and reap the downstream economic and social benefits of a healthy sector? On this question, policy makers sometimes find themselves at opposite ends of the, err, spectrum.

There is evidence that a short-term windfall for governments comes with a significant long run cost. Consider the winner’s curse associated with the 3G auctions in Europe that took place at the beginning of the 21st century. In Germany and the United Kingdom, revenue raised from 3G auctions amounted to almost 2.5 per cent of GDP. To put it another way, in 2000 United Kingdom operators paid ￡22.5 billion for 3G licenses and earned only ￡11 billion in revenue. In Germany 3G auction fees were three times annual revenue. Mobile operators bet their analogue house on a digital future.

Little wonder then that investors became nervous after this transfer of funds from capital markets to government coffers. Share prices fell as operators piled on debt and balance sheets became toxic with assets that were not worth their cost. One operator’s total debt increased 10X while its return on assets plummeted into negative territory. Finance for new network roll out and service launches was constrained. Whereas Europe had been a global leader in mobile technology, some maintain that the 3G auctions sent Europe’s mobile edge into rapid decline.

In markets where spectrum is in short supply the economic and social impact of the connected economy and society will be suboptimal. To best serve the public interest, policy makers should consider carefully and urgently how to maximise the availability of harmonised spectrum in a manner that ensures financial markets back industry investment in innovative networks and services.

Market friendly spectrum policy would allow operators to aggregate and trade spectrum and deploy the technologies of their choice. Licensing would not discriminate in favour of new entrants, and would carry the presumption of renewal with a “use it” or loose it” clause to ensure efficient use of spectrum and to prevent hoarding. Such an approach would be good for consumers: continuity of services and long-term investment incentives would be ensured.

Notwithstanding the WRC’s prominence in shaping the future of worldwide spectrum use, at a jurisdictional level, best practice spectrum policy remains the pivotal tool to realise the ITU’s commitment to connecting the world.

[1] Bernstein Analysis: a base station using 800MHz would cover 35 square KM v a base station using 2100MHz which would cover 10 square KM