Consultation on Licence-Exemption Framework Review - Microsoft Comments

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1 Consultation on Licence-Exemption Framework Review - Microsoft Comments Overview Microsoft welcomes Ofcom s transparency in publishing the Licence-Exemption Framework Review (LEFR) for consultation, and supports Ofcom s continuing emphasis on technology and service neutrality in the management of spectrum. However, the Review document as published underestimates the potential benefits of, and spectrum-demand for, licence-exempt applications. It presumes that the only rationale for new bands to be designated as licence-exempt is that either there is little or no demand for the spectrum, or that licence-exempt uses can be demonstrated to lead to higher economic value than licensed. The first appears from the consultation document to be relevant primarily for frequencies above 60GHz, while the second is of limited value because of the very substantial uncertainties of prediction. Licence-exempt allocations are collective goods, and therefore likely to be underprovided if one assumes rational actors working in their own self-interest. There may be occasions therefore where the regulator should intervene to achieve the greatest social welfare. Of course licensed allocations can also result in social welfare. But the combination of the two will likely result in a greater citizen benefit than each individually, in the same way that a public park enhances the value of surrounding owned and leased properties, and the use by residents in the surrounding properties increases the utility of the park. Auctions are not the only way of allowing the market to determine the best use of the spectrum; a spectrum commons is also "market-led", since the market decides which applications succeed, not the regulator It should also be noted that licence auctions require significant regulatory intervention themselves, particularly in defining the bundles of goods to be traded in a heterogeneous spectrum regime. So it is wrong to caricature licence-exemption as interventionist and auctions as purely market based. Indeed licensing itself is a major regulatory intervention. The right balance of spectrum management is to have a judicious mix of licensed and licence-exempt uses in all major frequency bands (e.g. below 1 GHz, between 1 and 3 GHz, 3-10 GHz, GHz, above 60 GHz). However, the current LEFR appears to leave little scope for new licence-exempt allocations below 60GHz. For example, even Wi-Fi at 2.4 GHz is reckoned to have a lower economic value than a licensed cellular alternative - implying that if the 2.4GHz band had not already been made licence-exempt Ofcom would be unlikely to agree to it being so today. Given the phenomenal success and user benefits of Wi-Fi, Bluetooth et al (not to mention microwave ovens), this cannot be right.

2 Economic Value Generated by Licence-Exempt Applications The desire for Ofcom to have a rational economic basis for determining whether a particular piece of spectrum should be designated for Licensed (L) or Licence-Exempt (LE) applications is understood. This clearly requires some economic modelling work for both potential outcomes, and Microsoft welcomes the study by Indepen, Aegis and Ovum (the IAO study ) published alongside the LEFR which makes an assessment of the economic value of LE applications. But the inevitable uncertainties in projection over 20 years make any specific figures coming out of such work completely unreliable. Any comparisons are likely to be inconclusive unless the results for L and LE models vary dramatically (by orders of magnitude). The IAO study is a thorough piece of work yielding plausible figures. However, its framework and methodology are likely to provide under-estimations of the value of LE spectrum since they are inevitably rooted in the status quo, and hence unlikely to properly reflect the value of the innovative new applications which LE use will foster. At a detailed level there are questions about whether a lower discount rate might have been used to reflect the positive externalities created by innovation, and about whether the particular consumer surplus methodology applied might be too conservative. But the most significant constraining factor must inevitably be the simple impossibility of making reliable predictions in areas of new technology over 20 years. Thus we cannot agree with the force of Ofcom s analysis in section of the LEFR document. The conclusion that licensed cellular mobile can be expected to generate significantly more economic value than public-access Wi-Fi over the next 20 years is simply not justified by the figures given. Both sets of figures are acknowledged only to provide an indication of orders of magnitude and the Wi-Fi and cellular figures are in fact the same order of magnitude. The differences are dwarfed by prediction uncertainties. We were not able to compare the detailed methodologies adopted in the cellular and WiFi projections, since the cellular figures are based on unpublished work. We note that the authors of the IAO study themselves reached a more positive conclusion on the value of LE applications, noting in the opening sentence of the Main Study Conclusions: Certain LE applications, such as short range radars, RFIDs in retail and public access WiFi could generate economic benefits for the UK which are substantially greater per MHz of use than the highest value licensed applications. Since the LEFR is not considering any specific allocation decision, the WiFi-cellular comparison is given only for illustration. By questioning this example we are not suggesting that Ofcom should make no use at all of economic modelling in making specific decisions, but such work must be carried out and interpreted with great care. The innovation value and social benefit of LE applications should be recognised and, if possible, the value of having a combination of L and LE applications in the same spectrum neighbourhood should be also taken into account. 2

3 Level of demand for LE spectrum The presumption behind the LEFR is that current LE bands are lightly used and that demand for new spectrum is not high. This was explicitly stated in the Ofcom presentation at the consultation seminar on 30 May, and was assumed also in the Spectrum Framework Review (SFR). Microsoft does not consider this to be the case. Use of the 2.4GHz band is intensive, with 250 million WiFi devices sold in 2006 alone and over 1 billion Bluetooth devices in the market. Demand is increasing rapidly, with the n standard being developed using MIMO and beam forming technology to enable yet more intensive use of this precious spectrum. Any WiFi user will be able to testify to the high number of SSIDs detected in many urban areas. The 10% utilisation figure given by Ofcom in its seminar presentation is meaningless as a measure of practical capacity for growth. Indeed a similar exercise applied to licensed spectrum would probably generate lower utilisation figures. Expansion into 5GHz, the growth route envisaged in the SFR, is suitable for some applications but not all. Lower frequencies with better propagation characteristics are simply better suited for creating cost-effective, robust wireless broadband in rural areas, and self-forming mesh networks in cities and suburbs capable of routing traffic at broadband speeds. Demand for LE spectrum is often under-estimated simply because it has fewer and less vocal advocates than the Licensed alternative. Some goods and services produce nearly all consumer surplus. The absence of direct producer surplus for individual companies removes the normal impetus for aggressive advocacy. The consumer surplus itself is diffusely allocated since all citizens benefit rather than a specific interest group. Thus, those likely to recognise the true demand for LE applications are either individual citizens, public interest groups or large companies interested in "raising the level of the lake for everyone" and building on top of that innovation platform. Protocols and Standards In addition to the above general points, there is one very specific area where we take issue with the proposals of the LEFR. This is where Ofcom suggests that Polite Protocols need to have been defined by standards bodies before being authorised by Ofcom. Only considering protocol proposals from standards bodies would suppress investment, delay market roll-out, and limit innovation. Innovation happens cyclically, with proprietary technologies leading to standards which are themselves the basis for the next round of proprietary innovation. A regulator that focuses only on standards alone will freeze the process. A further problem with standards is that it is difficult for fledgling entrepreneurial companies to influence them; therefore a standards requirement will actually help large companies, and hinder small ones. 3

4 Finally, whatever the details of the argument, Ofcom should avoid having to make judgments on what is or is not an acceptable standards body. Our recommendation is that anyone should be able to submit a politeness protocol for authorization, not just a standards body. 4

5 Responses to the Specific Consultation Questions Q1: Do you agree that the spectrum commons model should be the preferred approach for licence-exempt use of spectrum, and that application-specific allocations should only be considered where technical constraints or safety issues require this? Q2: Do you agree with the proposal for multiple classes of spectrum commons? Broadly yes - but see important comments above about polite protocols. Also, the conclusion that the spectral efficiency in a spectrum commons is maximised when the applications sharing the spectrum have similar bandwidths is questionable. It appears to look in Appendix 6 purely at the W term, ignoring the utilities. The constraints among utilities may mean that packing a mix of wide and narrow band uses into as band could have a higher utility, say, than simply limiting access to one or the other. That is, this conclusion appears to assume that the W and v terms are independent, whereas this is unlikely in practice. Q3: Do you agree with the distinction made between the licence-exemption and lightlicensing regimes? Q4: Do you agree with the view that the licence-exemption and light-licensing regimes will converge in the future? Q5: Do you agree with the proposed mixture of licence-exempt and light-licensed use of the GHz spectrum? Do you agree with the bands that have been identified for such use? Q6: Do you agree with the view that the use of the GHz spectrum should be licence-exempt? Q7: Do you agree with the view on the levels of future demand for licence-exempt usage in the GHz spectrum? Do you agree that the Group-A bands identified above should be considered for licence-exempt use? Do you agree that licence-exempt and light-licensed use of the Group-C bands identified above should only be considered when there is evidence of demand for such use? 5

6 Q8: Do you think it could be desirable for transmissions at levels below certain power spectral density limits to be exempt from licensing? Q9: Do you agree with the transmission limits proposed in this document? Where higher, the FCC limits should be used Q10: Do you agree with the harmonisation strategy discussed above in the context of licence-exempt devices? Q11: Do you agree with the view that no additional regulatory instruments, beyond those available today, are required for the protection of licence-exempt equipment? Contact Details For further information contact: Tren Griffin Director, Advanced Technology & Policy Ian Ferrell Director, Wireless Incubation Jim Beveridge Director, International TV Policy & Standards 6