Mission critical - the value of LMR spectrum

LMR radio spectrum provides a benefit of at least $2 billion to the community.

Early last year, ARCIA commissioned Windsor Place Consulting to conduct an economic study of the value of LMR spectrum use in Australia. The study was concluded by the end of October and was officially launched at a function at Parliament House in Canberra on 26 November. In attendance were representatives from a cross-section of the LMR field - manufacturers and dealers, industry bodies and government agencies.

The 50-page report states that the “rise of mobile Internet-connected computing devices has not only increased demand for spectrum but also led to significant increases in personal and corporate productivity. The increasing sophistication of digital services provided over public cellular networks leads naturally to the question of to what extent these services now constitute a viable and effective substitute for traditional LMR services from the perspective of efficient spectrum use.”

The report’s authors go on to say that a related question from the spectrum allocation perspective is: should spectrum currently allocated to LMR services be, at some time, allocated to mobile cellular services and to what extent should mobile be favoured over radio in future spectrum allocation decisions?

“From the economic perspective the central question is: to what extent is mobile cellular a close substitute for LMR?” says the report’s executive summary. “For this study we conducted two surveys, met with industry representatives and conducted structured face-to-face and telephone interviews. We wanted to investigate the importance that users, particularly users ‘in the field’, attached to LMR services and the extent to which (hypothetical) increases in costs of such services would lead to decreases in use.”

The value of LMR spectrum

The authors found that users were highly committed to traditional LMR technologies and services, and their associated characteristics. “In particular, the immediacy of establishing communications using LMR was emphasised as well as its ‘one-to-many’ characteristic, which is regarded as indispensable in creating ‘shared situational awareness’ in emergency scenarios,” they said.

“This was contrasted with the characteristics of mobile cellular systems: a one-to-one communications channel that requires significant user time and focus before a communications channel can be established. This gap between the intent to communicate and the establishment of communication was seen as a key disadvantage of cellular mobile as a substitute for LMR.”

The authors say the focus on LMR as the core communications system for the emergency and first responder services “should not, however, presume to be indicative of a conservative attitude towards new digital technologies. Emergency services organisations are making innovative use of mobile broadband, social media and messaging services to provide information to and receive information from the public.

“In addition, public cellular services are being used to augment emergency services, creating productivity gains and improving performance (including saving lives).”

The study generated two sets of estimates of economic benefits, “one based on LMR equipment costs and one based on associated time costs”, said the authors. “We believe the former estimate of economic benefit is demonstrably conservative. The equipment valuation method yields an economic benefit estimate of $1.99 billion per annum while the time valuation method yields $3.72 billion.”

Windsor Place compared this with the opportunity cost of the spectrum used for LMR, which is estimated to be $39.7 million per annum. “Set against these benefit estimates, the estimated opportunity cost is relatively tiny. In order for this estimate to be comparable with the benefit estimate, however, it needs multiplied by the consumer surplus ratio that would be created were new services provided over this spectrum,” the authors said. “Even if we use the highest value consumer surplus ratio used in our benefits estimates, the benefit associated with this next best use of spectrum would be in the order of $200 million per year.

“Thus, the allocation of spectrum to the current set of uses (including critical, emergency and first responder services) generates an economic benefit at least 10 times greater than the benefits that would be generated by its allocation via market-based processes to the next best use,” the report’s authors concluded. “This indicates that the current use is strongly preferable from a social welfare perspective to a market-based alternative use of the spectrum.”

Methodology

Simon Molloy from Windsor Place Consulting was on hand at the launch in Parliament House to discuss the firm’s methodology and results.

“What we were trying to value is the social or economic benefit of the spectrum that is allocated to LMR in Australia - what social or economic value arises from the use of spectrum in that particular way?” said Molloy. “As we all know, spectrum is a very scarce resource, and it’s an essential input into a whole lot of activities, not least of which are emergency and essential services.

“We used two methods. One method was based on the amount of dollars that organisations and individuals spend on mobile radio equipment and the other approach was based on the amount of time spent using that equipment,” said Molloy. “Both of those things are a handle on the value, and there’s nothing out there in published statistics that would help us, so we had to do some estimation, gather some survey data and then do some modelling.

“The bottom line is that with the method based on equipment valuation, we think about $2 billion is what an economist would call the social welfare benefit. Based on the time use, about $3.5 billion to $4 billion worth of benefit.”

Molloy said the researchers looked at a few similar international studies and found that they came up with similar kinds of numbers. “So we’re pretty confident that those numbers are strong,” he said.

One of the most important questions asked of senior managers in emergency services organisations was: how critical is LMR to your organisation’s ability to deliver services in the field? “We had 97.6% of respondents say LMR is critical, indispensable, extremely important or important,” said Molloy.

Parliamentary interest

Present at the launch were several members of parliament, including Senator Anne Ruston, chair of the Senate Environment and Communications Legislation Committee, and The Hon. Paul Fletcher MP, Parliamentary Secretary to the Minister for Communications.

“Being from rural South Australia, it’s just so terribly important that what you guys do … and the maintenance of the radio network for us in country areas, just goes without saying,” Senator Ruston said.

“I’m sure when you say to people that we still need radio, they probably think we do, but it wasn’t until I actually read your report [that I] realised that in situations of emergency, when maybe the power goes out or the mobile tower goes down, in a localised area all you need is your handset and the handset of the person that you’re talking to and that’s got live communications,” she added. “All of the sudden the reliance on having a third-party infrastructure has been removed.

“Coming from a rural area where you’re subject to a lot of bushfires, it just really hit home to me that maybe the message needs to be sold out there of how terribly important this type of communication is,” said Senator Ruston.

Parliamentary Secretary Fletcher spoke of the need to take a wide view about the various telecommunications modes.

“I think one of the other important observations in the report is the complementary nature of mobile telecommunications and two-way radio,” he said. “And that complementarity is something that has been strongly brought home to me in quite a number of meetings in rural and remote Australia over the last year, where the principal purpose of the meeting has been to talk about some additional funding for providing for improved mobile communications, more mobile base stations.

“Typically at these community meetings … we’re joined by local police, State Emergency Service, fire, ambulance and so on. The message that comes through very much is the importance of having all available modes of communication and the complementarity of the dedicated emergency services networks and mobile telecommunications,” he added.

Secretary Fletcher went on to say, “As policymakers, the challenge we face clearly is to allocate this scarce and increasingly valuable public resource. If you’d said to people 30 years ago that for something you can’t see, you can’t touch, you can’t smell … that people would be paying $1 billion or more for an allocation of it, you’d have been viewed with considerable scepticism I’d suggest.

“We’ve now all seen the market appetite for radio frequency spectrum and that is clearly a factor to be thought about as we go through this public policy process,” he added. “I think one of the very clear and important messages from the report, as you think about the economic importance of this resource, [is to] understand the value to the community expressed and quantified here in economic terms of not only the emergency services but all the other uses … of LMR services.

“I want to congratulate ARCIA for pulling together this report, and I think some of its findings are obviously very constructive and informative,” said Secretary Fletcher. “Clearly, putting a valuation of the LMR spectrum as between $2 billion and $4 billion is significant, and it’s important to have that as a piece of information to take account of in relation to the public policy process.”

The report can be downloaded from: arcia.org.au/about-arcia/land-mobile-radio-industry.html.