1THE ECONOMIC VALUE OF WIFI: A GLOBAL VIEW (2018 and 2023) October 2018 2Authors Raul Katz ( P h . D . , M a n a g e m e n t S c i e n c e a n d P o l i t i c a l S c i e n c e , M a s s a c h u s e t t s Institute of Technology) is currently Director of Business Strategy Research at the Columbia Institute for Tele-Information, and President of Telecom Advisory Services, LLC (url: teleadvs). B e f o r e f o u n d i n g T e l e c o m A d v i s o r y S e r v i c e s , h e w o r k e d f o r t w e n t y y e a r s a t B o o z A l l e n Hamilton, where he was the Head of the Telecommunications Practice in North and Latin America and member of its Leadership Team. Fernando Callorda (BA, MA, Economics, Universidad de San Andres-Argentina) is a project manager with Telecom Advisory Services, an Assistant Professor ESEADE (Argentina) and a Research Fellow with the Economics Department at the Universida d de San Andres. Before joining Telecom Advisory Services, he was a staff analyst in Argentinas Congress. Telecom Advisory Services LLC (TAS) is an international consulting firm specialized in the d e v e l o p m e n t o f b u s i n e s s s t r a t e g i e s a n d p u b l i c p o l i c i e s f o r d i g i tal and telecommunications companies, governments, and international organizations. Its clients include leading companies in the digital and telecommunications sectors, as well as international organizations such as the International Telecommunications Union, th e World Bank, the Int er-American Development Bank, the World Economic Forum, the Economic Commission for Lati n A m e r i c a a n d t h e Caribbean, the GSMA Association, the CTIA, the Competitive Carriers Association, and the FTTH Council (Europe). In addition, TAS has conducted projects for the governments of Argentina, Brazil, Colombia, Costa Rica, Ecuador, Mexico, Peru, Saudi Arabia, and United Arab Emirates. This study was commissioned by Wi-Fi Alliance ® , the worldwide network of companies that brings you Wi-Fi ® . The authors would like to acknowledge the support from Jean-Christophe Budin (Wireless Business Line Director, Hubone), Claus Hetting (CEO, Wi-Fi Now), Christian Wagner (Vice President - Business United Enterprise, m3connect), and Roland Montagne (Business development Director, Broadband and FTTx IDATE). The authors are solely responsible for the views and content of the study. 3 CONTENTS EXECUTIVE SUMMARY I. INTRODUCTION AND BACKGROUND II. TOP LINE ESTIMATES OF ECONOMIC VALUE III. THEORETICAL FRAMEWORK FOR ESTIMATING THE ECONOMIC VALUE OF WI FI III.1. The intrinsic value of Wi Fi III.2. The derived value of Wi Fi III.3. Methodologies to estimate the economic value of Wi Fi III.3.1. Free Wi Fi traffic III.3.2. Residential Wi Fi III.3.3. Enterprise Wi Fi III.3.4. Cellular off loading III.3.5. Locally manufactured Wi Fi devices III.3.6. Bridging the digital divide III.3.7. Wi Fi return to speed III.3.8. Revenues of Wi Fi carriers and Wireless ISPs III.3.9. Wi Fi contribution to employment IV. ECONOMIC VALUE OF WI FI IN THE UNITED STATES IV.1. Total economic value (2018 and 2023) IV.2. Free Wi Fi traffic IV.3. Value of Residential Wi Fi IV.3.1. Home Internet access for devices that lack an Ethernet port IV.3.2. Avoidance of investment in in house wiring IV.4. Enterprise Wi Fi IV.4.1. Savings in wireless business traffic IV.4.2. Avoidance in enterprise building inside wiring IV.5. Cellular off loading IV.6. Locally manufactured Wi Fi enabled equipment IV.6.1. Consumer products IV.6.2. Enterprise products IV.7. Bridging the digital divide IV.8. Wi Fi return to speed IV.9. Revenues of Wi Fi carriers and Wireless ISPs IV.10. Wi Fi contribution to employment V. ECONOMIC VALUE OF WI FI IN THE UNITED KINGDOM V.1. Total economic value (2018 and 2023) V.2. Free Wi Fi traffic V.3. Value of Residential Wi Fi V.3.1. Home Internet access for devices that lack an Ethernet port V.3.2. Avoidance of investment in in house wiring V.4. Enterprise Wi Fi 4 V.4.1. Savings in wireless business traffic V.4.2. Avoidance in enterprise building inside wiring V.5. Cellular off loading V.6. Locally manufactured Wi Fi enabled equipment V.6.1. Consumer products V.6.2. Enterprise products V.7. Bridging the digital divide V.8. Wi Fi return to speed V.9. Revenues of Wi Fi carriers and Wireless ISPs V.10. Wi Fi contribution to employment VI. ECONOMIC VALUE OF WI FI IN FRANCE VI.1. Total economic value (2018 and 2023) VI.2. Free Wi Fi traffic VI.3. Value of Residential Wi Fi VI.3.1. Home Internet access for devices that lack an Ethernet port VI.3.2. Avoidance of investment in in house wiring VI.4. Enterprise Wi Fi VI.4.1. Savings in wireless business traffic IV.4.2. Avoidance in enterprise building inside wiring VI.5. Cellular off loading VI.6. Locally manufactured Wi Fi enabled equipment VI.6.1. Consumer products VI.6.2. Enterprise products VI.7. Bridging the digital divide VI.8. Wi Fi return to speed VI.9. Revenues of Wireless ISPs and Wi Fi service providers VI.10. Wi Fi contribution to employment VII. ECONOMIC VALUE OF WI FI IN GERMANY VII.1. Total economic value (2018 and 2023) VII.2. Free Wi Fi traffic VII.3. Value of Residential Wi Fi VII.3.1. Home Internet access for devices that lack an Ethernet port VII.3.2. Avoidance of investment in in house wiring VII.4. Enterprise Wi Fi VII.4.1. Savings in wireless business traffic VII.4.2. Avoidance in enterprise building inside wiring VII.5. Cellular off loading VII.6. Locally manufactured Wi Fi enabled equipment VII.6.1. Consumer products VII.6.2. Enterprise products VII.7. Bridging the digital divide VII.8. Wi Fi return to speed VII.9. Revenues of Wireless ISPs and Wi Fi service providers VII.10. Wi Fi contribution to employment VIII. ECONOMIC VALUE OF WI FI IN JAPAN VIII.1. Total economic value (2018 and 2023) 5 VIII.2. Free Wi Fi traffic VIII.3. Value of Residential Wi Fi VIII.3.1. Home Internet access for devices that lack an Ethernet port VIII.3.2. Avoidance of investment in in house wiring VIII.4. Enterprise Wi Fi VIII.4.1. Savings in wireless business traffic VIII.4.2. Avoidance in enterprise building inside wiring VIII.5. Cellular off loading VIII.6. Locally manufactured Wi Fi enabled equipment VIII.6.1. Consumer products VIII.6.2. Enterprise products VIII.7. Bridging the digital divide VIII.8. Wi Fi return to speed VIII.9. Revenues of Wireless ISPs and Wi Fi service providers VIII.10. Wi Fi contribution to employment IX. ECONOMIC VALUE OF WI FI IN SOUTH KOREA IX.1. Total economic value (2018 and 2023) IX.2. Free Wi Fi traffic IX.3. Value of Residential Wi Fi IX.3.1. Home Internet access for devices that lack an Ethernet port IX.3.2. Avoidance of investment in in house wiring IX.4. Enterprise Wi Fi IX.4.1. Savings in wireless business traffic IX.4.2. Avoidance in enterprise building inside wiring IX.5. Cellular off loading IX.6. Locally manufactured Wi Fi enabled equipment IX.6.1. Consumer products IX.6.2. Enterprise products IX.7. Bridging the digital divide IX.8. Wi Fi return to speed IX.9. Revenues of Wireless ISPs and Wi Fi service providers IX.10. Wi Fi contribution to employment X. GLOBAL ECONOMIC VALUE OF WI FI XI. CONCLUSIONS XII. BIBLIOGRAPHY XIII. GLOSSARY APPENDIX: Wi Fi and 5G 6 EXECUTIVE SUMMARY Wi-Fi technology is an enabling resource that generates economic value across four dimensions: Supporting the development of alternative technologies, such as multiple access point (AP)/mesh networking systems and smart speakers, that were deve loped leveraging Wi-Fi, thus expanding consumer choice; Supporting the creation of innovative business models, such as Gogo, a leader in the provision of airline broadband access; Expanding access to communications services. Telecommunications companies such as British Telecom (BT) have deployed thousands of Wi-Fi hotspots to enhance connectivity to its fixed and mobile networks; and Complementing wireline and cellular technologies, thereby enhancing their effectiveness. For example, Vodafone Germany operates 1,000,000 hotspots, partly as a complement to its cellular network. There is a significant amount of research-based evidence that Wi-Fi technology has very high social and economic value. Prior research agrees that, contrary to licensed bands where economic value could equate to whatever is paid at auction, the economic value of unlicensed spectrum, such as Wi-Fi, needs to be measured based on the concept of economic surplus and contribution to GDP. Consumer surplus measures the total amount consumers would be willing to pay to have the service compared to going without it altogether, while producer surplus measures the analogous quantity for producers, that is essentially the economic profit they earn from providing the service. Consumer and producer surplus together yield an economic surplus. Adding GDP contribution results in a total economic value estimate. Despite the fact that Wi-Fi is a worldwide phenomenon, most research studies have so far focused only on the United States 1 . The following study goes further and estimates the total economic value of Wi-Fi in six developed countries: United States, United Kingdom, France, Germany, Japan, and South Korea. The studys purpose is to measure economic value, both to consumers and producers, as well as Wi-Fis direct net contribution to output (Gross Domestic Product, or GDP) and employment for 2018 and 2023. The result of this analysis estimates the overall economic value of Wi-Fi for each selected country and is used to extrapolate results to a global scale. All figures are represented in US dollars, except where noted. Using the detailed analysis and methodology explained in the following chapters of this report, the estimated economic value of Wi-Fi in 2018 for the six countries studied is: United States: $ 499 billion United Kingdom: $ 54 billion France: $ 44 billion Germany: $ 94 billion Japan: $ 171 billion South Korea: $ 68 billion Estimates for 2023 represent significant increases in economic value for each market: 1See Thanki (2009), Cooper (2009), Millgrom et al. (2011); Katz (2014a), Katz (2014b), Katz (2018). 7 United States: $ 993 billion United Kingdom: $ 71 billion France: $ 64 billion Germany: $ 132 billion Japan: $ 248 billion South Korea: $ 138 billion Using these six markets and relying on a leading indicators methodology, global economic value of Wi-Fi in 2018 is estimated at $ 1.96 trillion. By 2023, global value of Wi-Fi should increase to $ 3.47 trillion. As a result of the growth and value of Wi-Fi, increases in jobs related to Wi-Fi are calculated. Current estimates show that global jobs attributable to Wi-Fi will increase by more than 50% to nearly one million by 2023. 8 I. INTRODUCTION AND BACKGROUND The debate over the most effective way of allocating frequency spectrum has been conducted over the past seventy years since the publication of Coases seminal paper (1959) on spectrum management. In particular, a key issue underlying the policy debate has been in the past ten years the assessment of the economic value of certain spectrum bands, more specifically the unassigned or unlicensed 2 . Prior research agrees that, contrary to licensed bands where economic value could equate to whatever is paid at auction, the economic value of unlicensed spectrum, such as Wi-Fi, needs to be measured based on the concept of economic surplus and contribution to GDP. Part of the difficulty in assessing the value of Wi-Fi resides on the fact that, unlike licensed spectrum that is used for a few, homogeneous services, Wi-Fi provides the environment for the provision of several heterogeneous services and devices. In 2009, Richard Thanki produced the first paper to determine the economic value of unlicensed spectrum. He estimated that three major applications (residential Wi-Fi, hospital Wi-Fi, and retail clothing RFID) in the United States generated value in the range of $16 and $36.8 billion. At the time, the author acknowledged that these estimates covered only a fraction of the economic value 3and, consequently, were too conservative. Two years later, Milgrom et al. (2011) provided additional support to Thankis numbers, but also calculated value estimates for other applications. For example, the authors estimated the economic value of Apples iPad, a device intimately linked to the use of Wi-Fi, at $ 15 billion. Additionally, the authors quantified other benefits in the United States alone, such as Wi-Fi supported cellular off-loading ($ 25 billion) and the value of Wi-Fis faster data rates compared to cellular service ($ 12 billion). A year later, Thanki (2012) produced a new piece of research, refining his residential Wi-Fi estimate and quantifying other benefits of unlicensed spectrum. He estimated the annual consumer surplus of residential Wi-Fi to be between $118 and $225 per household 4(a total of $ 15.5 billion for the United States). Additionally, enlarging the original scope of benefits, he assessed the producer surplus derived from carrier savings resulting from Wi-Fi off-loading ($ 8 . 5 b i l l i o n f o r t h e U n i t e d S t a t e s ) . F i n a l l y , h e e s t i m a t e d t h e v alue generated by enhanced affordability (an assessment mainly focused on emerging markets) and mentioned potential innovation related benefits related to deployment of Wireless Internet Service Providers. In the same year, Cooper (2012) calculated Wi-Fis economic value by estimating the number of cell sites that the wireless industry would avoid investing in as a result of traffic off-loading (130,000), which would result in annual savings of $26 billion. The author also updated Thankis residential wireless consumer surplus as a result of the considerable increase in Wi-Fi adoption that had taken place since 2009. Th e au th o r o f th is stu dy h as c onducted three successive studies on the economic value of unlicensed spectrum in the United States for 2013, 2014, and 2017 (the last one complemented with a forecast for