The Power of the Unlicensed Economy

In 1985, the Federal Communications Commission permitted, for the first time, low-powered wireless communications equipment to be used without the need for a license. The prospects for this experiment were not entirely promising. The bands of radio spectrum assigned for unlicensed use were full of powerful and polluting industrial uses and were thus widely considered “junk spectrum,” unsuitable for communications.

However, the potential rewards offered by this new, unlicensed spectrum were also great: Citizens and businesses might have the freedom to deploy their own wireless networks without the need for costly and bureaucratic spectrum licences, encouraging a deluge of technological and business model innovation, transforming this onetime “junk spectrum” into the most economically productive radio spectrum in the world, and becoming home to an incredible diversity of coexisting uses. Unsurprisingly, the unlicensed bands have been adopted worldwide.

These rewards became a reality and now the power of this unlicensed economy is clearly reflected in the present-day Internet and its future trajectory.

Talking advantage of the freedom offered by unlicensed spectrum access, one quarter of the world’s households and tens of millions of businesses have deployed Wi-Fi networks to deliver broadband Internet access. The scale of this deployment is almost incredible. The combined capacity of the world’s Wi-Fi access points is at least 30 times greater than that of all cellular data networks. Wi-Fi carries substantially more traffic from PCs and laptops than wired connections and more traffic from smartphones and tablets than 3G or 4G networks. The economic gain is commensurately large. Wi-Fi enhances the annual economic value of fixed broadband connections by up to $99 billion. In the absence of Wi-Fi, cellular operators would need to construct up to 450,000 new radio base stations to serve increased smartphone data traffic. This could cost $93 billion — subjecting smartphone and tablet users to significantly higher network charges or greatly diminished service. In addition, unlicensed spectrum has allowed entrepreneurs to roll out broadband Internet services in areas of the world where there is no other provision. Four million people in the U.S. are served by rural wireless Internet providers and, globally, many tens of millions more are connected to the Internet in this way.

Technologies that use the unlicensed spectrum are enabling the next great evolutionary step for the Internet: The rapid rise of machine-to-machine communications. Widely embedded wireless connectivity and intelligence is enabling many new applications, from wireless networks used to detect forest fires to pacemakers able to report health data to doctors. The number of intelligent connected devices is growing quickly, and is likely to exceed 100 billion by 2020, potentially generating an economic contribution of more than $1.4 trillion per year — five times greater than the Internet today. Technologies using unlicensed spectrum are set to provide 95 percent to 97 percent of these connections, as unlicensed technologies are cost-effective, power-efficient and provide users fine-grained control over the networks and infrastructure they deploy.

Unlicensed spectrum is also important in ensuring that our networks are adaptable to change and resilient to attack. As business and home users deploy their own unlicensed networks, our infrastructure becomes less vulnerable to the outage of any one network. In the aftermath of a natural disaster or violent attack, when fixed and mobile networks have failed, off-the-shelf home and office Wi-Fi access points can be stitched together to create broadband networks. This approach has been used in a number of instances, from the aftermath of the Haiti earthquake to areas affected by the Indian Ocean tsunami.

New unlicensed allocations, such as the TV white-space spectrum will allow the creation of broadband links that span hundreds of metres and lower-speed machine-to-machine links that span many kilometres. White spaces will also provide a substantial boost to adaptability by enabling the rapid creation of near-ubiquitous networks in the case of disaster. Major white-space technology trials are investigating precisely these disaster-recovery capabilities.

The power of the unlicensed economy derives ultimately from freedom: The freedom of innovators to bring their products to market and the freedom of businesses and individuals to build infrastructure to solve the issues they face, without requiring the permission of spectrum licence-holders. By coordinating users through technical rules built into equipment, some of the unlicensed bands achieve unparalleled spectral efficiency, far in excess of any licensed bands. The FCC’s experiment appears to have succeeded; the tiny fraction of the spectrum devoted to unlicensed usage is already delivering substantial economic benefits. In fact, there are strong grounds to extend the unlicensed experiment into new bands, providing even greater scope for innovation, value creation and more efficient use of spectrum.

Richard Thanki is currently completing a doctorate at the Institute of Complex Systems Simulation at the University of Southampton, and was formerly a senior associate economist at Ofcom, the U.K. telecommunications regulator. He is the author of two major studies exploring the economics of the unlicensed economy.