Bottom Line: Drones are gaining tremendous market attention, fueled by grandiose plans for autonomous systems, which are in stark contrast to the solutions deployed today. Drones need command and control and LTE is being touted as fit for this purpose. While LTE has many favorable characteristics for drone command and control, its limitations must be recognized and solutions targeted accordingly.
Unmanned airborne vehicles (UAV), aka drones, have seen robust market adoption fueled primarily by consumer/hobbyist and commercial demand for
photography, videography and media and entertainment. In Exhibit 1, drone shipments in the United States are forecast to increase from 2.5 million
in 2016, to 7.0 million in 2020. This forecast, which was developed by the Federal Aviation Authority, (FAA) and its partners, predicts that the
consumer/hobbyist market will remain larger than the commercial market for drones, and that annual sales to the commercial market will remain
relatively static between 2017 and 2020.
Companies like Amazon have pulled drones into the limelight with innovative concepts for autonomous drone deliveries. However, most of the proposed innovations are not possible today because of the available technology and regulations, which are necessarily conservative. Industry players like Amazon, AT&T, BSNL, CNN, NASA, Nokia, PrecisionHawk and Qualcomm have been conducting technology trials, with the aim of addressing regulatory constraints and advancing drone technology capabilities. These efforts are loosely related to the UAS Traffic Management (UTM) initiative that is being spearheaded by NASA. Many of the players involved in UTM recognize that effective drone identification and command and control capabilities are needed to safely address regulatory constraints. Many proposals and technology trials have targeted LTE for drone command and control so that drones can operate safely beyond visual line of sight (BVLOS), and over crowds at events and in urban environments. Other technologies such as ADS-B has also been used as a complement to LTE. ADS-B is widely used as an alternative to radar for air traffic control, and has been implemented in drones by DJI and PrecisionHawk using uAvionix technology. While ADS-B enables basic drone proximity information it lacks the versatility offered by LTE, which is needed for many proposed drone use-cases.
LTE technology trials for drones have been conducted by a variety of companies including Qualcomm. These trials have demonstrated that while LTE networks are capable of supporting drones up to altitudes of 400 feet, dedicated optimization efforts are needed to address changes in handover boundaries and the potential for increased interference relative to terrestrial operations. While these trials demonstrate the suitability for LTE to support drone command and control requirements, we believe that practical use-cases will initially be targeted towards isolated implementations to ensure that network performance is not unduly taxed, particularly in capacity constrained environments. These isolated implementations will evolve towards larger scale deployments over the next five years as technologies mature and regulations evolve. In addition, we expect that drone solutions will capitalize on advancements in autonomous vehicle technologies, and the ultra-low latency and ultra-broadband capabilities of 5G once it is available.
Exhibit 1: Annual UAV/drone shipments in the United States
Source: Federal Aviation Administration (FAA), 2016
Unmanned airborne vehicles (UAV), or what are more commonly referred to as drones are on the increase and benefiting from a World that is becoming
digitized. For example, the Federal Aviation Authority (FAA) forecasts that drone shipments in the United States will increase from 2.5 to 7.0 million
between 2016 and 2020. Quad-copter drones are most popular, and benefit from operational stability and numerous attachments to support different
applications. The range of attachments are vast and include high resolution video cameras for media capture, infra-red cameras for search and rescue,
multi-spectral imaging techniques for agricultural crop management, and carrying apparatus for package transportation.
Since drones have tremendous versatility, they are riding high on a hype curve that is being fueled by innovative “blue-sky” service concepts. Large enterprises like Amazon have brought drones into the lime-light with proposals for autonomous drone parcel delivery. The New Zealand pizza company Dominos gained notoriety when in 2016 it launched its somewhat absurd drone pizza delivery service, and Uber has captured the imagination of the consumer with autonomous flying car concepts. Clearly there is no limit to the innovative concepts for drones, however the industry currently lacks a structured framework for development and is supported by a variety of independent efforts that are loosely managed under the umbrella of the UAS Traffic Management (UTM) initiative, spearheaded by NASA. A variety of concepts have been developed for managing the drone airspace, including Amazon’s proposal which is illustrated in Exhibit 2. In it, Amazon proposes that the airspace up to 200 feet be used for localized traffic, and between 200 and 400 feet be used for high speed transit drones. In addition, Amazon has patented a concept for floating airship based warehouses operating above commercial airspace at altitudes in excess of 45,000 feet and supported by autonomous drones.
In spite of high expectations, drones are mainly used today by consumers/hobbyists for video, photography and entertainment applications. The drone market is constrained by tremendous technical and regulatory challenges that render many of the proposed innovations to niche applications or science fiction, at least for now. In particular:
In essence, the unlicensed wireless connectivity that is commonly used for drones today, has its roots in remote control technology that has been used by hobbyists for decades. Companies like AT&T, NASA, Nokia and Qualcomm are promoting the notion of upgrading drone connectivity to LTE, so that drones can leverage the existing cellular network coverage for command and control, real-time videography and first person view functionality etc. The efficacy of this approach is investigated in this report, with particular emphasis towards its ability to address safety concerns and the associated implications for regulations, alternative approaches and the impact of network performance and costs use-case feasibility.
Exhibit 2: Amazon’s airspace management concept
Source: Amazon, 2016
CBRS is relevant to Wi-Fi and cellular systems and a combination of both. This is punctuated by the cross section of members in the CBRS Alliance, which includes Google (Alphabet), WiFi and cellular technology vendors, including Cisco, Ericsson, Huawei, Nokia, and Ruckus, outsourced infrastructure providers like American Tower and Extenet, and Tier 1 US mobile operators.
The positioning and value proposition for CBRS differs, depending on whether it is anchored to Wi-Fi or cellular business models, or somewhere in between. Furthermore, we believe that there are several factors that impact the value proposition for CBRS for practical operating environments. In particular:
In spite of its challenges for CBRS in Wi-Fi and cellular environments, CBRS benefits from being at the intersection between them to enable neutral host capabilities, which are inherent to WiFi, but not necessarily cellular technologies. In particular, like Wi-Fi, CBRS has a dynamic rather than static radio spectrum allocation scheme for both PAL and GAA users. This contrasts conventional cellular systems, where the spectrum allocations are static and associated with specific mobile operators. As a result, CBRS radio equipment is agnostic to the operators and enterprises that use it, which enables the potential for neutral host capabilities, depending on how user authentication and authorization is handled.
With neutral host capabilities, enterprises, platform providers, building owners and other players that lack cellular spectrum assets can deploy CBRS radio equipment that is compatible with any and all CBRS devices. With these capabilities, the objective is for CBRS neutral hosts to combine with others to enable wide area coverage and capacity, and create a bridge between enterprise and mobile operator led CBRS networks. We believe that, while this capability is compelling, it tends to be overplayed by CBRS advocates, who tend to underestimate the important role that mobile operators will play in enabling these neutral host networks to scale.
Traditionally mobile operators in the United States and many other markets have resisted neutral host deployments for fear that by sharing radio resources, overall system performance will be compromised. Our research shows that while operator resistance towards network infrastructure sharing has diminished over the years, their continued resistance towards neutral host networks runs deep. Operators are willing to use neutral hosts for DAS implementations because they have direct control over the radio equipment,. Operators have yet to adopt cellular platforms that share active radio equipment, such as base band and power amplifier technologies.
If the CBRS framework proposed by the FCC is successful, we believe that it will set a precedent for spectrum sharing in the future. This is particularly the case for under-utilized spectrum licenses. Globally regulators are closely observing the CBRS licensing strategy that is being pursued by the FCC, with a mind towards introducing spectrum sharing within their respective markets. For example in Europe, regulators like Ofcom are considering similar license sharing schemes for upcoming auctions. This will be welcomed by some and shunned by others. For example, companies like Google have aggressively promoted the notion of spectrum sharing as being valuable for the consumer, by creating an avenue for increased innovation and competition. Mobile operators have expressed a different view, believing that spectrum sharing is sub-optimum since it creates uncertainty in terms of spectrum resource availability and network economics. In particular, operators argue that if they are not certain that the spectrum in a new band will be available when it is needed, then there is less incentive to upgrade network infrastructure and devices to operate in the new band. In response to this concern, the FCC has introduced the PAL option for the CBRS licenses, however it is not yet clear whether this will be enough for CBRS to gain adequate support from mobile operators. It is also unclear how mobile operators will value the PAL licenses, and whether PAL licenses might be acquired by non-mobile-operator entities, such as Google and Comcast, enterprises, tower companies and venue owners.
There is a strong theoretical case for regulators to accelerate spectrum sharing licensing schemes irrespective of the mobile operator concerns. However we believe that while spectrum sharing is compelling, approaches that disregard mobile operator concerns are generally flawed when applied to spectrum assets that are intended for mobile services. In particular:
While there is a clear historical precedent that points to the important role mobile operators play in driving the ecosystem development and expansion of wireless services into new spectrum bands, there are also some precedents that have succeeded without the need for mobile operator support. Perhaps the best example of this is the standardization and market expansion of Wi-Fi in unlicensed spectrum under the stewardship of a variety of players including Intel, with its Centrino initiative. It is conceivable that a large technology vendor like Intel or Qualcomm, or a platform company like Google could pursue a Centrino-like strategy for CBRS spectrum. However we do not believe that a Centrino-Like strategy would be successful since the CBRS spectrum and associated services will not be sufficiently differentiated relative to competitive alternatives.
The FCC’s framework for the CBRS spectrum is a bellwether of a broader trend that is heralding innovate licensing schemes, with the aim of increasing the availability, versatility and usage of radio spectrum resources. This comes at a time when unlicensed spectrum resources and technologies like Wi-Fi and LTE-Unlicensed are growing in importance. In addition innovative antenna designs and signal processing capabilities are enabling spectrum bands above 6GHz for 5G mobile services. In aggregate we expect that these market developments will drive down radio spectrum asset valuations and the fees that can be expected from future spectrum auctions. This perhaps justifies the under-whelming valuations emerging for the 600MHz spectrum licenses that are currently being auctioned in the United States.
Even though it has always been challenging to accurately anticipate the value of radio spectrum licenses, the valuations have been predicated on several relatively well understood principles, which don’t necessarily apply in the future. In particular:
It is crucial for operators and the mobile industry as a whole to have as best understanding as possible of the economic underpinnings of the changes to radio spectrum regulation, and emerging technologies. We also believe that operators must be proactive in capitalizing on the changing technical and regulatory landscape. This is particularly the case while many of the innovations being pursued by regulators are still nascent. For example, if an operator has idle spectrum it might propose sharing arrangements through its regulator as a concession for access to other licenses that are of more useful.
With CBRS, the FCC has introduced an innovative approach to enable tiered spectrum sharing, that protects incumbent systems and enables both priority and general access services. We believe that CBRS is a bellwether for regulatory innovation and if successful will drive spectrum sharing initiatives for other bands. However the success of CBRS is by no means a certainty. It requires adequate support from mobile operators, who must be convinced of the value that CBRS brings to their existing cellular operations. Others including enterprises, venue owners and other non-operator entities must be convinced of the value that CBRS brings relative to Wi-Fi. Much of this value is expected to come from the neutral host capabilities that CBRS enables, with dynamic radio channel allocations and equipment that is compatible with operator-deployed CBRS systems.
As regulators like the FCC introduce innovative licensing schemes, such as CBRS, and radio technology advancements, such as LTE Unlicensed are developed, we expect that the the value of existing and future spectrum licenses will decline and their utility increase. As this occurs, mobile operators must change their strategies towards spectrum licenses and take more proactive and innovative in their approaches, with the aim of directing regulations to their advantage.
Enterprises, venue owners, and other non-mobile operator entities are well positioned to benefit from the neutral host capabilities enabled with CBRS. However these benefits are dependent upon broad market support for CBRS (particularly from mobile operators) to drive network deployment activity and sufficient economies of scale.
Since CBRS technologies use TD-LTE radio technology standards, telecom equipment vendors can leverage their existing TD-LTE platforms for its deployment. However as they do this, they must pay careful attention to the dynamics necessary for the CBRS market to scale, and the deployment scenarios and business models that are likely to prevail. This will impact the pace of product development, the manner in which the products are adapted to align with market demands, and channel strategies for operator and non-operator entities.
The CBRS framework is a bold move for the FCC and is being closely followed by regulators in other markets. It is clear that the mobile industry has reached a level of maturity where regulatory change is necessary. Industry players must respond to these changes with optimistic and opportunistic expectations, moderated by the recognition of the practicalities and challenges in enabling regulatory innovation.