SOCIAL AND ECONOMIC WELL-BEING The Potential Economic Value of Unlicensed Spectrum in the 5.9 GHz Frequency Band Insights for Future Spectrum Allocation Policy Diana Gehlhaus Carew, Nicholas Martin, Marjory S. Blumenthal, Philip Armour, Jesse LastunenLimited Print and Electronic Distribution Rights This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial use. For information on reprint and linking permissions, please visit rand/pubs/permissions. The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous. RAND is nonprofit, nonpartisan, and committed to the public interest. RANDs publications do not necessarily reflect the opinions of its research clients and sponsors. Support RAND Make a tax-deductible charitable contribution at rand/giving/contribute rand For more information on this publication, visit rand/t/RR2720 Published by the RAND Corporation, Santa Monica, Calif. © Copyright 2018 RAND Corporation R® is a registered trademark.iii Preface In todays digital era, the number of devices and applications reliant on unlicensed spectrumthe frequencies that WiFi operates onis large and growing. Few people are untouched by the wireless communication enabled by WiFi, and the number of wireless-enabled internet device subscriptions in the United States now exceeds the American population. As our society becomes more interconnected, driven by wireless interactions and wireless technologies, our dependence on the availability of WiFi will increase. Understanding the economic power of WiFi is therefore becoming increasingly important in designing effective policy across virtually every dimension. This study was motivated by the emergence of WiFi as a key enabler to economic growth and prosperity, and in turn the ongoing debates surrounding unlicensed spectrum allocation. Given the importance of WiFi, having accurate and reliable data on the magnitude of its role is critical. Yet there are few empirically driven estimates on how WiFi contributes to the economy. Both data and methodological limitations related to the fact that spectrum is not a traditional good or service create unique challenges to understanding WiFis value. We sought to contribute to the ongoing policy discussions by providing a new data point for the potential economic importance of one unlicensed portion of spectrum that is the current subject of debatethe 75 MHz that comprises the 5.9 GHz frequency band. This study had several core objectives: Estimate the potential economic value of an unlicensed frequency band that is currently under discussion for reallocation. Understand the trade-offs associated with realizing this potential value, in terms of existing and future trends and policies and in terms of how this spectrum could be allocated. Provide a new perspective on the current discourse surrounding unlicensed spectrum allocation policy. This research was funded by the Comcast Innovation Fund. Our intended audience is broadany policymaker, regulator, legislator, academic, or consumer interested in having a stronger appreciation for the potential economic importance of unlicensed spectrum as we move into an increasingly digitized and interconnected world. This study was designed to augment the ongoing work the RAND Corporation is conducting on other emerging technology policy issues, such as artificial intelligence, autonomous vehicles, and cybersecurity. All of these applications either do or could rely on WiFiand therefore unlicensed spectrummaking a strong understanding of unlicensed spectrum policy important. RAND Social and Economic Well-Being is a division of the RAND Corporation that seeks to actively improve the health and social and economic well-being of populations and iv communities throughout the world. This research was conducted in the Community Health and Environmental Policy Program within RAND Social and Economic Well-Being. The program focuses on such topics as infrastructure, science and technology, community design, community health promotion, migration and population dynamics, transportation, energy, and climate and the environment, as well as other policy concerns that are influenced by the natural and built environment, technology, and community organizations and institutions that affect well-being. For more information, email cheprand. v Contents Preface . iii Figures. vii Tables . viii Summary . ix Acknowledgments . xi Abbreviations . xii 1. Introduction . 1 2. Policy Importance of Unlicensed Spectrum . 4 3. Measuring the Economic Value of the 5.9 GHz Band . 6 Measures of Economic Value . 6 Challenges in Measuring the Economic Value of Unlicensed Spectrum . 7 Measuring the Economic Potential of the 5.9 GHz Band . 9 Focus on Residential WiFi Usage . 10 4. Trade-Off of DSRC-Allocated Spectrum . 12 5. Contribution to GDPApproach 1 . 14 Approach 1: Aggregate Contribution from Large-Bandwidth Channels . 14 Sensitivity Analysis . 23 6. Contribution to GDPApproach 2 . 25 Approach 2: Valuation of Additional Capacity . 25 Sensitivity Analysis . 30 7. Consumer and Producer Surplus . 33 Consumer Surplus . 33 Producer Surplus . 35 Comparing Contribution to GDP with Economic Surplus . 36 8. Looking Forward: Implications of Current Trends and Potential Future Policies . 37 5G (mmWave Spectrum Auctions in 2019 and 2020) . 37 The Potential Opening Up of the 6 GHz Band for Unlicensed Use . 37 New Entrants into the Wireless Communications Provider Market . 37 Trade Policy . 37 Internet Regulation . 38 Privacy and Cybersecurity Concerns . 38 Rise of Digital Natives as Todays Youth Enter Adulthood . 38 Rise of Online and Internet-Enabled Work . 38 Digitization of Industry (M2M) . 38 V2V/V2X Evolution . 38 9. Allocation Options and Trade-Offs for the 5.9 GHz Band . 40 Status Quo (No DSRC Reallocation). . 40 vi Partial Unlicensed Reallocation . 40 Shared Unlicensed Reallocation . 40 Full Unlicensed Reallocation . 41 Summary . 41 10. Conclusion . 42 Appendix A. Utilizing Technology in WiFi and the Use of the Nyquist Theorem over the Shannon-Hartley Theorem . 44 Appendix B. Design Specifications of Wireless Devices Used in Approach 2 for GDP Contribution . 49 Appendix C. Alternative Approach to Measuring Potential Consumer Surplus . 53 References . 56 vii Figures Figure 3.1. Market Equilibrium . 7 Figure 5.1 Correlation Among Variables of Interest . 15 Figure 5.2. Variation in Speed Relative to Average Speed Across All States over Time . 16 Figure A.1. 5 GHz Spectrum Channelization Chart . 45 Figure C.1. Isoelastic Demand Curve . 53 viii Tables Table 3.1. Daily Share of Traffic and Time Spent on Wireless Internet, 2017 . 11 Table 5.1. Model Specifications for Elasticity of Speed: Coefficients and Standard Errors . 18 Table 5.2. Estimation of Speed Differential for Total U.S. Traffic (in Mbps) . 22 Table 5.3. Range of Total Additional Contribution to GDP from 5.9 GHz . 22 Table 5.4. Sensitivity Analysis for Approach 1 Under Three Scenarios . 24 Table 6.1. Per-Channel Bandwidth Apportionment (20 MHz Channels) . 27 Table 6.2. Demand for Devices by Load Share and Device Share, 2017 . 27 Table 6.3. Economic Value of 75 MHz Using 2017 Device Traffic Load Share . 29 Table 6.4. Economic Value of 75 MHz Using 2017 Total Device Share . 30 Table 6.5. Data Rate Sensitivity . 31 Table 6.6. Factor by Which Data Rate Increases When Bandwidth Is Increased . 31 Table 6.7. Summary of GDP Effects from Sensitivity Analysis . 32 Table 7.1. Estimates of Consumer Surplus from Opening Up the 5.9 GHz Frequency Band (in $) . 34 Table 8.1. Potential Effects of Trends and Policies on WiFi Demand and Value . 39 Table 10.1. Summary of Economic Value of 5.9 GHz Band ($ billions) . 42 Table B.1. Wireless Device Technical Specifications . 52 Table C.1. Online Advertised Offer Price for Mid-Tier Residential Internet Packages, Spring 2018 . 54 Table C.2. Change in Consumer Surplus per Household with Isoelastic Demand . 55 ix Summary WiFi is an important part of the internet ecosystem. It is the conduit for the majority of online data traffic, for consumers and businesses. It also enables the proliferation of technologies such as smart homes, sensor-based transportation networks, smart electric grids, and sustainable smart cities. Yet this emergence also creates new challenges for policymakers and raises questions about what 21st century spectrum management should look like. Policymakers are grappling with regulations and policies that ensure the development of the internet ecosystem in a way that