The Economics of Shared Infrastructure in 5G Networks
Zoraida Frias, Universidad Politécnica de Madrid, Spain; Volker Stocker, Weizenbaum Institute for the Networked Society (The German Internet Institute) / Technische Universität Berlin, Germany
5G, the new generation of mobile communications, has been designed to become the ultimate enabler for a digital revolution. Making possible a variety of new applications and business models, 5G is expected to drive a disruptive transformation of societies and economies. It promises to connect vehicles for more efficient, sustainable, and safer mobility; facilitate connected urban infrastructures for improved public services; revolutionize the health sector; and make factories and production processes smarter.
On the one hand, these innovative applications and use cases will significantly broaden the range of services delivered via mobile networks. On the other hand, they entail much more dynamic, diverse, and complex demands for connectivity, particularly in terms of Quality of Service. While some applications require ultra-high data rates or extremely low latencies, others need to be highly energy-efficient.
Even though the amount of spectrum for mobile services has increased significantly in recent years, it remains a limited and scarce resource. According to Cisco , mobile data traffic has grown 18-fold over the past five years and is expected to continue to increase sevenfold between 2019 and 2024. Whereas the spectrum allocated to mobile services is typically the same across different geographic areas within individual countries, local traffic demand and spectrum scarcity vary. One may, for instance, expect greater rivalry over spectrum resources in cities than in sparsely populated areas.
To date, Mobile Network Operators (MNOs), which hold the long-term licenses to use radio spectrum, have addressed the rivalry over spectrum resources by combining cell densification strategies with strategies of physical separation. While the former strategy implies that the base station density is increased in high-demand areas, the latter implies the deployment of multiple (physically separate but overlapping) mobile networks that are optimized specifically for each service requirement. Many MNOs use 3G networks to serve voice traffic and 4G networks to deliver broadband data services. Thus, they avoid rivalry over scarce spectrum between voice and data services and prevent impairments in functionality of their respective services. Apart from technological and economic inefficiencies that result from the operation of parallel networks, neither 3G nor 4G are fit to efficiently cater to the emerging diversity and stringent requirements in terms of mobility, latencies, data rates, and energy efficiency. So, what makes 5G so special?
5G abandons the notion of physical separation through parallel networks. Instead, it introduces a new resource sharing paradigm: an evolving array of services shall be efficiently delivered in an integrated fashion, i.e., via the same (shared) infrastructure and network resources. The efficient realization of this paradigm is contingent on three fundamental cornerstones. First, extreme (cell and fiber) network densification, multi-radio access technologies, millimeter-wave spectrum, and an increased number of parallel communication streams through massive MIMO enhance infrastructure capacities . Second, the deployment of highly distributed cloud computing resources close to end users (or devices) enhances network resource capacities and yields reductions in network latency. Third, the deployment of programmable networks enables dynamic capacity sharing based on the granular control and orchestration over (virtualized) network resources and functions. Software Defined Networking (SDN) and Network Function Virtualization (NFV) are considered building blocks for the establishment of virtual networks or ‘network slices’ that can be (i) dynamically created and adapted ‘on top’ of the same (shared) physical network resources, (ii) customized to meet the capacity and QoS requirements of a specific application or use case, and (iii) independently managed [3, 4]. Each network slice is composed of a collection of 5G network functions and resources (e.g., local computing capacity and transmission capacity of the communications links) as well as radio access technology settings. The allocation and orchestration of (virtualized) resources is performed by a central unit that has the ‘end-to-end vision’ of the network.
As it turns out, this new sharing paradigm might emerge as a double-edged sword. The degree to which the required geographic coverage of 5G use cases overlap might be critical to facilitate the business cases and required investments. Similarly, the more services provided on the same physical network resources, the higher the potential for network resource sharing. However, resolving the resulting rivalry in such a way that radio spectrum is shared in an economically efficient fashion is complex and presents an unprecedented challenge of coordination.
The way spectrum is shared is inherently linked to coordination and allocation problems. In this context, it is instructive to take a glance at the different decisions made by European regulators in the design of national 5G spectrum auctions. These decisions reveal different positions as to how regulators intend to reconcile the spectrum needs of different 5G use cases in both public and private networks. For example, in Italy or France, regulators have added ‘use-it-or-lease-it’ provisions to the new licenses. These provisions mandate licensees to grant reasonable requests for spectrum access from firms that do not hold spectrum, or to lease spectrum locally at reasonable prices. In contrast, the Bundesnetzagentur (BNetzA), the German regulator, set aside 100 MHz out of the 400 MHz available at 3.5 GHz. This band will — basically following the criterion of land property rights — be separately assigned for the deployment of private and locally constrained networks. Finally, Ofcom, the UK regulator, has embarked on a path to create a general spectrum sharing framework  that enables local licensing outside the 5G spectrum auctions, which do not have coverage or access obligations attached. To spur the deployment of local 5G networks and facilitate subsequent innovation, the local licenses are awarded on a fist come, first served basis. Any interested party can thus access spectrum portions that are licensed to the major mobile operators but remain unused in the 1800 MHz, 2300 MHz, and 3.8-4.2 GHz bands.
While the concentration of the demand for 5G services in specific areas, such as main urban centers, will certainly put the technical and regulatory designs of 5G to the test, it will be interesting to see how the different regulatory approaches will affect spectrum resource sharing and the realization of different 5G use cases. 5G enabling technologies such as network slicing and edge computing, along with 5G spectrum regulation will lead to more localized network traffic and emphasize the role of private 5G networks. In combination, these developments will not only affect the ‘traditional’ economics of infrastructure sharing and revenue-sharing conventions in the mobile sphere, but they might also give rise to new (and undesirable) forms of fragmentation.
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- Shukla, Apoorv, and Volker Stocker. “Navigating the Landscape of Programmable Networks: Looking beyond the Regulatory Status Quo.” Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3427455 (2019).
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- Agcom, Resolution No. 231/18/CONS, Assignment procedures and rules for the use of the frequencies available in the 694-790 MHz, 3600-3800 MHz and 26.5-27.5 GHz bands for terrestrial systems of electronic communicationsin order to favor the transition to 5G technology, Available at https://www.agcom.it/documents/10179/10517165/Allegato+7-8-2018/637af9a9-8a60-4b3e-8ac0-3ce2cd808ac4?version=1.2
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- Ofcom, Statement: Enabling wireless innovation through local licensing. 2019. Available at https://www.ofcom.org.uk/consultations-and-statements/category-1/enabling-opportunities-for-innovation
Dr. Zoraida Frias earned her Ph.D. in Communications Systems and Technologies from the Universidad Politécnica de Madrid, and her MSc degree in Telecommunications Engineering from the Universidad de Málaga. Since 2010, she has been a fellow of the Group of Information Technologies and Communications (GTIC) of the Universidad Politécnica de Madrid, where she has contributed to several research projects related to the deployment of telecommunications infrastructure, its economics and the implications for regulation and public policies. She is currently an assistant professor at the Universidad Politécnica de Madrid and has been a visiting scholar at the University of Pennsylvania (US), at the University of Cambridge (UK) and at the TU Berlin and the Weizenbaum Institute (Germany).
Dr. Frias has written several international articles and given scientific-technical speeches in the telecommunications policy field. Her research interests revolve around data-driven models for telecommunications infrastructure, especially in regards to next-generation mobile networks analytics. A firm believer in the power of technology to transform the world, she actively participates in activities with the Internet Governance Forum in Spain (IGF Spain) and is passionate about innovation and entrepreneurship.
Volker Stocker joined TU Berlin and the Weizenbaum Institute for the Networked Society in May 2019 as a Postdoctoral Researcher and head of the research group “Work and Cooperation in the Sharing Economy”. Before, he was a doctoral researcher at the University of Freiburg (where he obtained his Dr.rer.pol.) and the Max Planck Institute for Informatics in Saarbrücken. Volker studied at the Universities of Freiburg and Mannheim and the Hanken School of Economics in Helsinki (Finland) and holds a Diplom degree (Dipl.-Vw.) in Economics from the University of Freiburg. During his time as a doctoral researcher, he has been a Lecturer in Economics at the Baden-Württemberg Cooperative State University (DHBW) in Lörrach and spent time as a visiting researcher at the TU Berlin, the University of Northumbria in Newcastle (UK), and the Massachusetts Institute of Technology (MIT) in Cambridge (US).
His major research interests are in the fields of the economics of the Internet, the sharing economy, ICT-fueled platforms, and Internet policy. Volker is a regular speaker at international conferences and has published multiple papers on topics like network neutrality, content delivery networks, and broadband policy.
Mohammad Saud Khan is a Lecturer (Assistant Professor) in the area of Strategic Innovation and Entrepreneurship at Victoria University of Wellington, New Zealand. Before taking up this role, he was positioned as a Postdoctoral researcher at the University of Southern Denmark. Having a background in Mechatronics (Robotics & Automation) Engineering, he worked as a field engineer in the oil and gas industry with Schlumberger Oilfield Services in Bahrain, Saudi Arabia and United Kingdom. In addition to several consulting assignments, his corporate experience includes a project on “Open Innovation” with Agfa Gevaert, Belgium. Saud’s research has largely been focused on investigating entrepreneurial teams within high-tech business incubators. His work has appeared at several reputed conferences (such as Academy of Management Annual Meeting and Babson College Entrepreneurship Research conference) and journals (such as Creativity and innovation Management and Management Decision). Currently, his research interests include innovation management (especially managerial implications surrounding novel technological paradigms such as big data, IOT and 3D printing), technology and digital (social media) entrepreneurship.