Final Report for Department for Business, Innovation and Skills and Department for Culture, Media and Sport
Wi-Fi and other licence-exempt uses of radio spectrum
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- Wi-Fi
- Consumer surplus
- Producer surplus
Wi-Fi and other licence-exempt uses of radio spectrumOverview and key resultsThis section describes the economic benefits and contribution to the economy generated by Wi-Fi and other licence-exempt uses of spectrum. ‘Wi-Fi’ is the name used to describe equipment that conforms to a family of wireless local area networking technology standards developed by the IEEE. Wi-Fi devices most commonly operate in the licence-exempt 2.4GHz industrial, scientific and medical spectrum band but some are also capable of operating in licence-exempt spectrum at 5GHz as well. Today millions of Wi-Fi access points have been deployed in UK homes and places of work to enable laptops, tablet devices and smartphones to access fixed broadband connections without the need for cables. Successive versions of Wi-Fi over the last decade have increased the maximum data rate substantially from 11Mbit/s to around 500Mbit/s. These improvements have been achieved in part by increasing the bandwidth of the channels used for Wi-Fi. This, coupled with the rapid rise in the number of Wi-Fi-enabled devices, has meant that utilisation of the 2.4GHz band has increased markedly in the last five to ten years. Estimates from research company Informa Telecoms and Media suggest that there were more than 18 million Wi-Fi access points installed in the UK at the end of 2011 and that this number will rise to 21 million by the end of 2015.41 A proportion of Wi-Fi access points can also be accessed by the public: in particular, BT’s broadband customers are invited to share their Wi-Fi access point with the public in return for the ability to use access points belonging to other customers, and the company has stated that over 4 million hotspots were available on this basis as of July 2012.42 In addition, Wi-Fi access points have been installed in many cafés, bars, restaurants, hotels and transport hubs in the UK for the purpose of providing internet access to customers. In a recent development, Virgin Media has started rolling out Wi-Fi coverage at London Underground station platforms. This is the first time that wireless communications have been provided for public use on the deep-level Underground lines in Central London. As of July 2012, 35 stations had been enabled and the company states that it intends to provide service at 120 stations by the end of the year.43 In parallel, BSkyB’s subsidiary The Cloud has announced plans to provide Wi-Fi coverage at all 56 London overground stations, and service will be available at around a dozen stations by the end of 2012. Other common devices that use licence-exempt spectrum include: cordless telephones based on the DECT standard; wireless headsets and hands-free devices based on the Bluetooth standard; baby monitors; remote locking/opening devices for cars, gates and garages; radio-controlled models; and medical devices with remote monitoring. Previous studies, including the 2006 study,44 have attempted to estimate the consumer surplus from the use of Wi-Fi to access a fixed broadband connection at home, but they have suffered from a lack of data on consumers’ willingness to pay for this service and have been forced to assume a largely arbitrary value for willingness to pay. Regarding producer surplus, the 2006 study attempted to estimate the producer surplus from Wi-Fi using the accounting method previously described, based on the accounts of just one hotspot provider (The Cloud, which has subsequently been acquired by BSkyB) and one supplier of hotspot equipment (Redline UK). Wi-Fi services: consumer surplus, producer surplus and NPV In our opinion, the average household’s willingness to pay for Wi-Fi access to fixed broadband is low since the occupants could relatively easily use a wired connection instead. However, we believe it is appropriate to treat as a consumer surplus the amount that smartphone owners save by using Wi-Fi networks rather than their mobile operator’s network for data transfers in their homes and their places of work (we refer to this as passive Wi-Fi offloading and assume a saving of £0.04 per MB). It also seems appropriate to treat passive Wi-Fi offloading of data from laptops and tablets that have a mobile broadband connection in the same way, since owners of such devices have indicated that they are willing to pay for mobile data capability and Wi-Fi enables them to pay less than they otherwise would. Our approach to Wi-Fi consumer surplus therefore takes these factors into account. We believe that most of the producer surplus from Wi-Fi will accrue to the mobile operators who, in the absence of Wi-Fi, would need to construct more base stations to handle data traffic. Our producer surplus Wi-Fi offload model considers the amount of data traffic that is likely to be offloaded from cellular networks through either home or office Wi-Fi networks (passive offloading, as discussed above) or through public hotspots owned by either the mobile operator or a third party (active offloading). Overall our results indicate that the consumer and producer surplus of Wi-Fi offloading were around £1.8 billion in 2011 and have an NPV of £31 billion over the next ten years, with 90% being enjoyed by consumers, who will make savings on mobile data charges; the remainder of the benefits go to operators, who will be able to spend less on increasing the capacity of their networks than they would have spent in the absence of Wi-Fi offloading. The benefits of other uses of licence-exempt spectrum are harder to quantify, but no less real in the benefits that they deliver to consumers, and the opportunities for businesses to innovate without having to purchase a licence to access the necessary spectrum. One emerging use for licence-exempt spectrum is machine-to-machine (M2M) communications. Typical applications use a grid of devices for monitoring and reacting to relevant changes in real time; examples include smart city sensors, and applications in transport and healthcare. A new source of licence-exempt spectrum is the white spaces between TV channels. This has promising possibilities, and one Cambridge-based start-up, Neul, has already developed a new M2M standard, dubbed ‘Weightless’, that takes advantage of white spaces. Wi-FiAs the methodology that we have used to calculate both consumer surplus and producer surplus is very different from that used in the 2006 study, it is not appropriate to compare the results from the two studies. A detailed description of the modelling methodology and assumptions can be found in Annex B. Consumer surplusFigure 5 .34 below shows our estimates of the consumer surplus generated by Wi-Fi. This is largely due to passive offloading, with some sources claiming that over 80% of smartphone traffic data is currently carried over Wi-Fi networks.45 This suggests that consumers are substituting the cellular networks with their home and office Wi-Fi networks, saving approximately £0.04 per MB.46 Consumer surplus in 2011 is estimated to be £1.8 billion, and as data consumption increases over the forecast period, this consumer surplus is expected to grow to reach £3.9–4.8 billion in 2021. Figure 5.34: Range of consumer surplus from Wi-Fi offloading [Source: Analysys Mason, 2012] 
Producer surplusFigure 5 .35 shows the increase in the producer surplus from public mobile resulting from Wi-Fi offloading. This is estimated to be £25 million in 2011 and, although this is much less than the consumer surplus, Wi-Fi offloading is important to mobile operators as it will reduce congestion in their radio networks, reducing the number of costly capacity sites that are required. We forecast that the producer surplus will rise to between £0.7–1.0 billion in 2021. This is, in fact, sufficient to offset the decline in producer surplus that occurs after 2016 in the mobile base case (see Section 4.2.1). Figure 5.35: Range of increase in producer surplus from public mobile resulting from Wi-Fi offloading [Source: Analysys Mason, 2012] 
NPVFinally, we have calculated the NPV of Wi-Fi offloading over the period 2012–2021 for our base case. Our results suggest that the direct economic welfare from Wi-Fi offloading is likely to have an NPV of £31 billion over the next ten years, as shown in Figure 5 .36.
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