The Mobile Provide Economic Impacts of Alternative Uses of the Digital Dividend Public Report, September 2007 Simon Forge Colin Blackman Erik Bohlin

Transcription

1 The Mbile Prvide Ecnmic Impacts f Alternative Uses f the Digital Dividend Public Reprt, September 2007 Simn Frge Clin Blackman Erik Bhlin

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3 The Mbile Prvide Ecnmic Impacts f Alternative Uses f the Digital Dividend Public Reprt, September 2007 Simn Frge* Clin Blackman** Erik Bhlin*** * SCF Assciates Ltd 4 Chiltern Clse Princes Risbrugh Bucks HP27 0EA UK ** als Editr f inf, and fresight *** als affiliated with Chalmers University f Technlgy, Dept. f Technlgy Management & Ecnmics SE Götebrg Sweden

4 The views expressed in this reprt are thse f the authrs and d nt necessarily reflect thse f Deutsche Telekm r T-Mbile Internatinal SCF Assciates Ltd 4 Chiltern Clse Princes Risbrugh Bucks HP27 0EA UK

5 Highlights frm the study The switchver frm analgue t digital TV bradcasting in Eurpe culd release significant spectrum in the UHF bands. Smetimes called the Digital Dividend, it ffers a unique pprtunity t meet new demands fr services and t supprt the Eurpean agenda fr innvatin. Mst imprtantly, it culd have a significant impact n the EU ecnmy, driving innvatin, jb grwth, prductivity and cmpetitivity. Ecnmic analysis f the impacts f different uses f the spectrum is key t deciding hw such spectrum shuld be used. The study has cnsidered the ecnmic factrs invlved in the Digital Dividend, frm a micr- t a macr-ecnmic Eurpean level. It delivers a framewrk fr assessment f their impact and prpses hw best t explit the new spectrum fr efficiency gains. The study cmpares the ecnmic impacts f tw different scenaris fr allcating the Digital Dividend Bradcast TV Rules, in which 70% f the dividend ges t TV bradcasting and The Mbile Bazaar, in which the mbile sectr receives 60% f the freed spectrum. The results indicate: Investment in wireless cmmunicatins culd bring significant prductivity gains thrughut the Eurpean ecnmy, resulting in faster GDP grwth rates up t Apprximatins indicate that accumulated effects ver the next decade r mre might have a significant impact. Estimates f the accumulated effect indicate as much as an additinal 0.6% GDP grwth per year fr the EU ecnmy by 2020 in the mbile case when cmpared with bradcast TV. This cumulative effect wuld tend t increase with lwer priced services. If we lk at current perfrmance as an indicatr f future ecnmic impact, we can see that the use f the Digital Dividend by the mbile sectr culd be much mre advantageus fr the EU. Fr instance: The ecnmic utput per MHz f bandwidth is estimated at 168 millin fr mbile cmpared t 28 millin fr the digital TV case. Direct ecnmic effects in the EU (services, revenues, prduct sales etc) fr peratrs are currently estimated t be 208 billin fr mbile cmpared t 43 billin fr bradcast TV. Suppliers presently directly benefit by sales f 87 billin in the mbile case v 30 billin fr bradcast TV. Indirect ecnmic effects thrughut the EU, such as user and prducer surplus, are estimated at 165 billin fr mbile against 95 billin prduced by bradcast TV. Investment in bradcast TV will nt create nearly as much wealth r as many jbs as investment in mbile. Emplyment in the mbile sectr is grwing strngly and already utstrips emplyment in TV bradcasting, which is stagnating. Spending by the mbile sectr already stimulates 2.3 millin jbs in ther industries, a figure well in excess f the estimated 1.8 millin resulting frm TV sectr spending. Cnsequently, release f a majr part f the Digital Dividend t bradcast DTV cannt be justified in ecnmic terms. In cntrast, the mbile sectr can use the Digital Dividend t the benefit f Eurpe bth ecnmically and scially. In particular, allcating spectrum t enable wireless bradband culd have a dramatic impact n bridging the Digital Divide by using the new spectrum t prvide access fr all acrss the EU s 27 Member States. SCF ASSOCIATES LTD 5

6 The Mbile Prvide Public Reprt Objectives and scpe f the study This reprt briefly summarises the findings frm an innvative research study 1 int the lng-term impacts n the Eurpean ecnmy f alternative uses f the radi spectrum released thrugh the Digital Dividend. The study builds n a methdlgy develped by SCF Assciates in several recent prjects fr the Eurpean Cmmissin cmbining qualitative scenari building with quantitative ecnmic frecasting. Our study and this brief reprt are structured as fllws: First we explre the meaning f the Digital Dividend its nature and pssible uses fr the spectrum that will be released. We then cnsider tw scenaris ne in which mst f the spectrum is allcated fr bradcasting, the ther in which mst is used fr cellular wireless frecasting the majr ptential ecnmic impacts fr these tw ptins. Finally, the reprt discusses the brad plicy implicatins arising frm the study s findings at a Eurpean level. A unique pprtunity fr Eurpe With the arrival f digital televisin (DTV), the prpsed analgue switch ff between 2010 and 2012 in the EU Member States presents a ne-time pprtunity fr Eurpe. It has been called the Digital Dividend since it will release significant segments f spectrum in the ultra high frequency (UHF) band. This is because: Tday, nearly half f the lwer part f the UHF band (200 MHz-1 GHz) is used t bradcast analgue televisin in many Member States, sme 390 MHz specifically the MHz band. With DTV, all current analgue TV channels culd be transmitted using nly 25% r less 2 - f the riginal spectrum, as illustrated belw: Figure 1. With digital switchver, current TV channels need much less spectrum 1 The study was cmmissined by Deutsche Telekm/T-Mbile and carried ut by SCF Assciates in May- September A separate Methdlgy Reprt describes the study s methdlgy, data surces and estimatins in detail and is available frm 2 Ofcm s Digital Dividend Review, 2006, nted that the 368 MHz f UK analgue bradcasting culd be carried in just 40 MHz. 6 SCF ASSOCIATES LTD

7 Public Reprt The Mbile Prvide Ptential uses fr released spectrum There are many pssible, and smetimes cmpeting, uses fr this valuable spectrum. Pssible applicatins that have been prpsed include: Digital terrestrial televisin Mre standard definitin channels and prgramming (eg lcal, special interest) Increased gegraphical cverage High definitin TV Mbile/prtable receptin Data bradcasting Licence exempt services and lw-pwer wireless devices, eg fr: Prgramme making and special events (PMSE), theatres, cncerts, etc Instrument, scientific and medial applicatins Business netwrking, industrial sensr netwrks Hme applicatins (netwrking, lw-pwer devices) Wireless cmmunicatins and services, including: Cellular mbile Wireless htspts Mbile multimedia, mbile TV Wireless bradband, especially fr rural areas t bridge the Digital Divide Private mbile radi Releasing the spectrum t new users culd ffer new pprtunities t Eurpe, eg: Clsing the digital divide: rural cverage fr the EU with bradband at lw cst has been the aim f industry and gvernments since the Lisbn agenda was first launched in 2000, t prpel the EU twards a knwledge-based sciety. The Digital Dividend with its highly advantageus prpagatin characteristics (see next sectin) is exactly what is needed fr lw-cst bradband Eurpe s citizens. It can d far mre than ffer IPTV frm the Web it can stimulate the lcal ecnmy with fast Internet access and als ffer mbile bradband. Health and elderly care applicatins: ur aging ppulatin and the increasing csts f in-hspital care are a duble burden n EU sciety. New slutins are essential that can cmbine better care but at lwer cst. One slutin is t prvide mre care at hme. In fact the hspital in the hme, r the less intensive elderly care thrugh smart sheltered husing, can be effected using dedicated radi cmmunicatins fr mnitring vital signs f ill patients during recvery at hme, as well as vide surveillance. This apprach wuld require a wide variety f bradband radi cmmunicatins, frm bdy area netwrks ver a few metres, t hme cverage netwrks, up t vide relayed ver several kilmetres. Releasing the new spectrum culd literally be a life-saver. Flexible disaster recvery netwrks fr glbal warming: again, in the area f vital applicatins fr the new spectrum, ur rapidly changing climate is bringing mre frequent catastrphes. The effects f flding, trnades, castal ersin and ther natural phenmena demand natinal and Eurpe-wide respnse netwrks. The frequencies shuld be apprpriate fr lng-distance cmmunicatins in pr weather (rain and wet fliage attenuatin) but als fr in-building rescue which needs prpagatin in ferr-cncrete structures. Other cuntries (eg USA) are already reserving bands fr new emergency services band in the Digital Dividend s UHF range, usually arund 700 MHz, wing t these advantages. SCF ASSOCIATES LTD 7

8 The Mbile Prvide Public Reprt The prpagatin characteristics f frequencies Bradcast TV, much f which is still analgue in the EU, currently enjys the majr share f sme prime spectrum. 3 The prime 200 MHz t 1 GHz spectrum band in ne Eurpean Unin Member State is used fr terrestrial televisin (46%), military (26%), public mbile (9%), private business radi and ther (7%), aernautical/maritime (6%), emergency services (2%)with sme 4% fr digital radi, science and licence exempt applicatins. This spectrum is very valuable, particularly t wireless peratrs, because f the prpagatin characteristics at these frequencies. They ffer an ptimal cmbinatin f range and data capacity. Fr example, at 3.5 GHz, the signal cvers a receptin radius, r cell size, f abut 5 km while at 700 MHz it is abut 10 km (see Figure 2). Figure 2.The prpagatin characteristics f spectrum Surce: BBC R&D. In ecnmic terms these features determine infrastructure cst. Better prpagatin means fewer base statins. Thus the netwrk infrastructure investment (CAPEX) is nearly seven times higher if wireless peratrs have t use 3.5GHz cmpared t the larger cell sizes at 700 MHz, r even higher at the lwer frequencies in the Digital Dividend (see Figure 3). Mrever, imprved prpagatin qualities als means better receptin fr mbile phnes inside buildings a factr that may hld back substitutin f wireless fr fixedline cmmunicatins in the future. Thus the UHF band has particularly valuable prperties fr wireless cmmunicatins netwrks, using any generatin f technlgy whether it be 2G cellular, 2.5G, 3G r 4G r, as we lk t the future, nvel radi technlgies such as WiMax r WiFi. As already indicated, it culd als stimulate innvatin in newer Eurpean radi technlgies fr emergency cmmunicatins, health, elderly care and lwer-cst cmmunicatins. 3 Nte: In Eurpe the UHF band is cnventinally divided int channels f 8MHz. Bradcast TV ranges frm channel 21 at the bttm t channel 69 at the tp 470 t 862 MHz sme 392 MHz. 8 SCF ASSOCIATES LTD

9 Public Reprt The Mbile Prvide Figure 3. Lwer frequencies reduce csts f infrastructure and cmmunicatins Surce: BBC R&D. Estimating the ecnmics f the digital dividend Translating the ptential impacts f the prpagatin characteristics f the Digital Dividend int ecnmic terms is a lgical and metrical challenge. Like any kind f industrial develpment, the grwth in industries prducing infrmatin and cmmunicatin technlgy (ICT) services and gds is thught t be imprtant t the general grwth f the ecnmy in terms f their impacts n ther sectrs. But as many researchers have fund, measuring the impact f any kind f ICT is difficult, wing t prblems f identifying linkages between these ecnmic inputs and their impacts. Clearly the chice f apprpriate parameters as indicatrs fr measurement is ne f the keys t the study. Our chices have been guided by several factrs: by the desire t make a methdlgical advance in quantitative frecasting, by the literature n measuring impacts f ICTs, and by gd practice in impact assessment in keeping with the cncept f the SMART bjectives 4 used in EC impact assessments. With this in mind we have cnstructed a quantitative apprach fr extraplating frm qualitative scenari building, using SCF Assciates previus experience in this dmain. This quantitative apprach is based n linking micr-ecnmic factrs t macr-ecnmics via an intermediate level, that f a sectr r scial grup, the mes-ecnmic level. We spent significant time in researching the availability f data t supprt pssible parameters befre deciding which were mst prprtinate t plicy bjectives. At the micr-ecnmic level, we use parameters related t cnsumer behaviur. We cllected data n cnsumer expenditures n cmmunicatin and media, measured eg by mbile ARPU, TV and Internet/bradband spending as a percentage f ttal husehld expenditure n e-cmmunicatins. At the mes-ecnmic level, we cnsidered grwth indicatrs f media and wireless sub-sectr-penetratin in the EU27, eg the grwth f wireless industries, penetratin f TV receivers, TV and mbile sectr revenues. Finally, the macr-ecnmic parameters fcus n Eurpean GDP and emplyment, measured by EU GDP grwth rate, EU emplyment, and EU emplyment in services as a percentage f ttal emplyment. At each level, parameters were calculated fr frward simulatins ver the perid 2007 t SMART: Specific, Measurable, Accepted, Realistic and Time-depended bjectives. SCF ASSOCIATES LTD 9

10 The Mbile Prvide Public Reprt Explring the ptins thrugh tw scenaris We analysed the ptins fr allcating the Digital Dividend by building tw scenaris and mdelling their impacts n the ecnmy. The tw scenaris created t cntrast the allcatin f the digital dividend are as fllws: Scenari 1. Bradcast Media Rules Theme Mst f the dividend is used fr additinal digital terrestrial channels and HDTV 2. Mbile Bazaar A significant prprtin f the spectrum is released via a licensed spectrum regime fr mbile cmmunicatins services We cntrast the different amunts f spectrum frm the Digital Dividend allcated within each scenari t the varius applicatins in the illustratins belw. Nte that bth scenaris allw fr at least 15% f the released spectrum t be used fr ther purpses, such as military. Figure 4. The tw scenaris and the allcatin f the Digital Dividend 10 SCF ASSOCIATES LTD

11 Public Reprt The Mbile Prvide The impact f the use f the Digital Dividend n the ecnmy The key finding f the study is that use f the Digital Dividend by the mbile sectr is highly psitive fr the Eurpean ecnmy ver the next decade and mre. By cmparisn, use f the released spectrum by bradcasting has much less impact n the ecnmy. The difference in results arises mainly frm the significant prductivity gains thrughut the EU ecnmy, cming frm the investment in wireless cmmunicatins, and driving GDP grwth rates higher. This is a cumulative effect ver at least a decade, which accelerates with lwer priced services (see Figure 5). Figure 5. The impact f the tw scenaris n Eurpe s GDP grwth rate Further results frm scenari mdelling shw ther psitive impacts fr Eurpe f allcating spectrum fr wireless cmmunicatin services. Ttal emplyment, the prprtin emplyed in services (an indicatr f knwledge-based wrk), and GDP per head are all mre clsely assciated with mbile sectr use f spectrum. The macrecnmic impacts fr the EU can be summarised as fllws: Use f mbile prvides majr benefits fr the EU ecnmy, as measured in GDP grwth, especially when its additinal prductivity factr is cmbined. After 2014 with cheaper services used mre, the rate f grwth f annual utput takes ff as vice prices fall with mbile VIP intrduced and prgressive take-up t 2018/2019, when the effect starts t diminish. Overall emplyment is increased by mbile usage as the ecnmy expands with extra prductivity acrss all sectrs, especially emplyment in the service sectr. The differences in EU emplyment in services and thus the knwledge wrker industries, as a percentage f the wrkfrce, favur the mbile market scenari, as wuld be expected, indicating use f richer services, mre types f usage and mre minutes f use verall. GDP/head als is psitively affected by increased mbile usage resulting frm use f the radi spectrum. SCF ASSOCIATES LTD 11

12 The Mbile Prvide Public Reprt The mbile prvide Supplementary research was als cnducted t validate these results, specifically by cmparing the direct effects f the mbile industry in terms f industrial utput and emplyment with thse f TV bradcast media. In cmparing the differences in impacts f the tw scenaris dminance by bradcast TV r mbile the figure belw shws that mbile spectrum allcatin culd generate mre direct and indirect ecnmic benefits as well as stimulating greater direct emplyment in the wireless sectr. Furthermre, investment in mbile brings enrmus indirect ecnmic benefits thrugh the ecnmic stimulus f mbile enabled wrking, a primary ecnmic difference between the tw chices in driving the EU ecnmy. Mbile as an Ecnmic Driver the Mbile Prvide Direct Operatrs service prvisin, SCF prjected time series estimate Suppliers/distributrs hardware (handsets), sftware, netwrks, cntent, estimate base n 2004 data 2 Ecnmic utput per MHz at 900 MHz 3 Ecnmic Significance Mbile 208 billin (2007) 87 billin (2007) 168 millin (2006) fr the EU TV 43 billin (2005) 1 30 billin (2006) 28 millin (2005) Indirect Ecnmic stimulus f mbile wrking, cumulative driving effect f mbile prductivity t Indirect stimulus t the ecnmy by spend f direct impact revenues in ther sectrs: User surplus, scial and ecnmic value, ie difference between what paid and prepared t pay Prducer surplus, ie difference between margins t stay in business and margins actually achieved 0.6% GDP grwth Negligible 165 billin (2007) 5 95 B 8 Jbs Emplyment in sectr 0.5 millin millin 7 Emplyment stimulated by spend frm sectr 2.3 millin millin 10 Table 1. Direct and indirect ecnmic impacts n the EU ecnmy Surces: 1 Ofcm, 2006; 2 CEBR, 2004; 3 Vdafne/Ofcm, 2006; 4 Maliranta and Ruvinen, 2006; 5 Extraplatin frm Murik, 2003; 6 GSMA, 2004; 7 Cardna, 2002; 8 Estimate, Eurpe Ecnmics, 2006; 9 Estimate, Ovum, 2004; 10 pr rata estimate. 12 SCF ASSOCIATES LTD

13 Public Reprt The Mbile Prvide Implicatins fr Eurpe Investment in mbile rather than media bradcasting thrugh the Digital Dividend will be much mre beneficial fr the ecnmy f Eurpe and clearly suggests the way frward: The cntributin t prductivity and GDP frm investment in telecms and especially mbile is much greater than anything else, as cnfirmed by a range f ecnmic mdelling studies. 5 GDP grwth rate cumulative effects means significantly higher rate f grwth in GDP with mbile allcatin by Similarly, the cumulative effect n average GDP per head acrss the Eurpean Unin is significant. Jbs created mbile investment means jbs in the mbile industry but mre imprtantly mre jbs in mbile user industries. The net impact is millins mre additinal jbs likely t be created by mbile cmpared with bradcasting ver the next decade. In cmparisn, the case fr investment in bradcast TV thrugh spectrum frm the Digital Dividend is weak n ecnmic grunds: Investment in bradcast TV will nt create nearly as much wealth r as many jbs as investment in mbile (see Table 1). Even s, investment in mbile wuld nt halt technlgical investment in display devices cnsumer electrnics wuld cntinue with mbile spectrum allcatin - new mbile TV and IPTV might even drive display devices mre, including prgramming and technlgy fr: TV prducts, media recrders and players (DVD, hard-disk, MP3 players, etc). Netwrk distributin. Cable and satellite TV. In reality the bradcast paradigm f the past is becming less and less relevant t the future. When distributin channels were limited a ne-t-many mdel was the slutin, but technlgy and sciety has mved n. A plethra f ther platfrms can nw deliver cntent: IPTV ver fixed xdsl r fibre t the hme (FTTH). Internet media dwnlads fr nn-ip TV frm the Internet - and many fixed line peratrs are investing in next generatin netwrks (NGN) with bradband capabilities. Mbile TV cellular channels r bradcast elements. Wireless bradband, fixed and mbile. The TV sectr s argument in favur f using the released spectrum fr HDTV is difficult t justify n ecnmic grunds and even n cnsumer demand grunds: HDTV is already available thrugh alternative platfrms - bradband telecms, cable TV and satellite, s demanding spectrum fr making DTTV int HDTV is just a Me T play. 5 See, fr instance, studies by Waverman, Maliranta and Ruvinen, Brynjlfssn, Hardy, CEBR, NERA and Ovum. SCF ASSOCIATES LTD 13

14 The Mbile Prvide Public Reprt Cnsumer demand fr better quality pictures has yet t be established. This is because cnsumers wh currently receive free-t-air channels seem unwilling t pay fr HDTV. If, hwever, TV viewers are willing t pay, then alternative platfrms may be better placed t deliver. If they are nt, we questin whether taxpayers mney shuld be used t subsidise HDTV entertainment. Cnclusin In cnclusin, ur study shws that the release f a majr part f the Digital Dividend t bradcast DTV cannt be justified in ecnmic terms r scial terms. In cntrast, the mbile sectr can use the Digital Dividend t the benefit f Eurpe bth ecnmically and scially. In particular, allcating spectrum t enable wireless bradband culd have a dramatic impact n bridging the Digital Divide by using the new spectrum t prvide access fr all acrss the EU s 27 Member States. In shrt, the Digital Divide can be clsed thrugh the Mbile Prvide. Bibligraphy Brynjlfssn, E. and Hitt, L. (2003), Cmputing Prductivity: Firm-Level Evidence, MIT Slan Wrking Paper, N Cardna, J. (2002), Cultural statistics in Eurpe: updates and trends, paper presented at UNESCO sympsium n Statistics in the Wake f Challenges Psed by Cultural Diversity in a Glbalizatin Cntext, Mntréal, 21 Octber. CEBR (2004), The Cntributin f Mbile Phnes t the UK Ecnmy, study fr O2, Lndn. Eurpe Ecnmics (2006), Ecnmic Impact f the Use f Radi Spectrum in the UK, study fr Ofcm. Frge, S., Blackman, C., Bhlin, E. (2006), Cnstructing and using scenaris t frecast demand fr future mbile cmmunicatins services, fresight, Vl 8, N 3. Hardy, A. (1980), The rle f the telephne in ecnmic develpment, Telecmmunicatins Plicy, Vl 4, N 4. Maliranta, M. and Ruvinen, P. (2006), Infrmatinal mbility and prductivity: Finnish evidence, Ecnmics f Innvatin and New Technlgy, Vl, 15, N 6. Murik, R. (2003), Benefits f mbile t sciety, Presentatin t GSM Eurpe Seminar, 25 Nvember. NERA (1995), The Ecnmic Impact f the Use f Radi in the UK, Reprt fr the Radicmmunicatins Agency. Ofcm (2006), Digital Dividend Review, A reprt f cnsumer research cnducted fr Ofcm by Hlden Pearmain and ORC Internatinal, Research Dcument. Ovum (2004), The Ecnmic Cntributin f Mbile Services in the Eurpean Unin Befre its 2004 Expansin, Reprt t the GSM Assciatin, Lndn. Waverman, L., Meschi, M., and Fuss, M. (2005), The impact f telecms n ecnmic grwth in develping cuntries, in Africa: the Impact f Mbile Phnes, The Vdafne Plicy Paper Series, N SCF ASSOCIATES LTD

15 A nte n the study s methdlgy The scenari apprach: Scenari Cnstructin fr Frecasting The study uses scenaris t build a qualitative picture f alternative futures. Scenaris are by nature apprximatins f reality they simplify and extend the strngest features beynd what may happen t ensure that each scenari paints a picture that is vivid, clear and well distinguished and cntrasts with ther scenaris. There are many ways f building scenaris. Our apprach (Scenari Cnstructin fr Frecasting see Frge, Blackman and Bhlin 2006) is based n a frmalisatin f several f these, built up ver sme fifteen years f lking at future directins f market, high technlgy sectrs and the ecnmy. It cnsists f creating a key theme and its drivers, then wrking thrugh assumptins and assertins and several further stages twards the full scenari. Estimatins using a quantitative ecnmic apprach: Micr Mes Macr Our apprach here is based n linking behaviur at the level f ne firm r individual (micrecnmic) t that f a scial class r sectr (mes-ecnmic) t that f the EU ecnmy (macrecnmic). The scenari lgic is then applied t prjected time series at each level frm the available data. The results presented here are indicative, n mre. A mre detailed Methdlgy Reprt may be btained frm r by cntacting the authrs (simn.frge@whsmithnet.c.uk). Abut the authrs This reprt, created by SCF Assciates fr Deutsche Telekm/T-Mbile Internatinal, was written by Simn Frge, Clin Blackman (als Editr f inf and fresight), and Erik Bhlin (als affiliated with Chalmers University f Technlgy, Dept f Technlgy Management & Ecnmics, Sweden). SCF Assciates Ltd, Princes Risbrugh, Bucks HP27 0EA, UK

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