INTRODUCTION

DESCRIPTION OF MMDS TECHNOLOGY

HISTORY OF THE DEVELOPMENT OF MMDS

EVALUATION OF THE TECHNOLOGICAL OPTIONS

 
• The altenative technologies


The services

• The environment
• The general interests
- cost
 

- consumer benefitst
 

- freedom of speech
 
 

- encouragement of competition
 

- environmental impact

A SUGGESTED APPLICATION FOR MMDS IN EUROPE - EDUCATIONAL TELEVISION

CONCLUSIONS

INTRODUCTION

MMDS is the designation adopted by the Federal Communications Commission (the "FCC") in the United States for a service distributing a plurality of commercial television channels using hertzian terrestrial point to multi-point equipment.

What distinguishes MMDS technology from other hertzian terrestrial systems is the range of frequencies which it exploits. Specifically, the frequencies allocated to this service in the United States are in the 2-3 Gigahertz band. Manufacturers in the United States have however customized equipment for operators using frequencies on either side of this bandwidth. The FCC refers to these frequencies as the "microwave" band.

Although the International Telecommunications Regulations allocation of this band on the European continent provides for multi-point services, many countries have in fact fully or almost fully attributed the frequencies in the relevant range. Consequently, adoption of MMDS technology would entail modifications to frequency attributions in those countries; alternatively exploitation of MMDS would have to be limited to a number of channels that would be be less than maximal.

The principal economic advantages associated with MMDS as compared with alternative technologies, such as cable and satellite, are:

- the low cost for connecting each subscriber,

- the short gestation period between construction of the infrastructure and commencement of commercial operations,

- the consequent facility of financing.
 
 

DESCRIPTION OF MMDS TECHNOLOGY

As with other hertzian services, communication is effected from the head station's transmitter through an antenna to the destinations where the signals are capted by an antenna, adapted to television set frequencies (UHF and VHF) by means of a down converter and passed over cables to each receiver television set. At the present time, the vast majority of equipment manufactured is intended for the United States market where NTSC specifications are applicable. However certain transmitter manufacturers have already delivered PAL and SECAM adapted transmitters.

Resort to microwave bandwidths subjects transmission to greater physical limitations than those associated with VHF and UHF transmissions.

The area which can be serviced from an MMDS transmitting antenna is circumscribed to a radius of some 40 kilometers. Line of sight problems arising from the presence of physical obstructions on the path of the signals create areas of shadow where signals are received in unsatisfactory condition, if at all. Depending on the topography of the service area, as many as 30 % of potential viewers may find themselves in the shadow. On the other hand, use of repeaters and relatively powerful transmitters (100 Watts) can greatly mitigate this problem.

enabling operators to achieve coverage rates approaching 95 %. Experience in the United States has demonstrated that image quality using MMDS technology is altogether comparable to, and maybe even better than, cable reception.

Several American companies offer encoding and decoding equipment for MMDS transmission. The range of this equipment includes models which permit pay-per-view programming.
 
 
 
 

HISTORY OF THE DEVELOPMENT OF MMDS

The United States began its use of microwave frequencies in 1963 with the establishment of the Instructional Television Fixed Service ("ITFS"). The purpose of the service was to provide a low cost means of delivering educational programs to schools and non-profit organisations. The Federal Communications Commission set aside the frequency band between 2.500 and 2.690 Gigahertz for the creation of 31 such educational channels. By 1982, 124 ITFS licensed operators were using some 808 channels. More than half the States had systems. The majority of systems were located within 25 miles major metropolitan areas. Nevertheless some 75 % of channels available for ITFS use had gone unclaimed.

In 1974, the FCC began authorising a new service which was also to exploit the microwave frequencies. This service which was called Multi-point Distribution Service ("MDS") was originally expected to be used primarily for the transmission of business data. Over the years the number of bandwidths attributed to MDS made possible the creation of up to eleven channels in the 2.150 to 2.644 frequencies range. But the possibilities for any one operator in a given territory to control more than one MDS station were severely limited. MDS operators were viewed as performing essentially a "common carrier" function in that the content of no more than 50 % of all transmissions could be of their own origination.

As of the end of 1982, there were 239 licensed MDS operators distributed throughout the States servicing more than 700,000 households. An additional 114 stations had been authorised and were under construction while almost 200 applications were pending.

Other microwave frequencies which were traditionally used in the United States for voice and data circuits were regrouped in 1975 by the FCC under the heading "Private Operational Fixed Microwave Service". In 1983 there more than 1,400 applications to use these frequencies to transmit entertainment programming.

Thus by the early 1980's, the FCC was faced with demand for entertainment channels which its allocation of frequencies was unable to satisfy whereas the frequencies it had allocated to educational television were largely unclaimed.

In the meantime MDS operators were demanding access to unused ITFS frequencies with a view to providing a service comparable to that offered by cable operators. They argued that they were unfairly hindered in their competition with cable operators who were authorised to deliver a multitude of entertainment channels whereas MDS licensees were limited for practical purposes to providing only one channel.

By 1983 the pressure on the FCC became irresistible and it decided to re-allocate eight ITFS frequencies to MDS operators and also to allow ITFS operators to share their frequencies with MDS operators. In this manner, MDS operators could expand their service into a multi-channel service, that is MMDS.

In support of its decision, the FCC invoked the interest of expanding consumer options through the provision of multi-channel entertainment television in competition with cable in markets where the latter was present and in substitution for cable where the latter was not present and might not be for many years. The FCC also referred to the interest in encouraging technological and industrial development.

In response to its call for applications for MMDS licenses the FCC was deluged by more than 16,500 filings. Under these circumstances the Commission decided to proceed by lottery to make a priori attributions of licenses for each territory. Review of the lucky candidates' applications was undertaken to confirm their ability to execute their project. Also deadlines were set down for commencing construction and for starting commercial operations.

The first MMDS operation opened in Cleveland in 1986 and others followed in New York, Detroit and Washington (in 1988 and 1989). It must be admitted that the opening of MMDS operations did not proceed nearly as quickly as had been expected.

The reason most frequently given to explain this disappointment has been the difficulty, indeed the impossibility, of gaining access to attractive programming due to alleged unfair competition from cable operators. It is a fact that some of the most desirable entertainment channels belong to corporate groups which also own major cable operators; for example, the most popular cable entertainment channel (Home Box Office) belongs to the nation's second largest owner of cable systems (Time Inc.).

Under the threat of anti-trust action by MMDS operators, access to programming has recently improved and consequently solicitations of investment capital for MMDS operations are being received more favourably. As a result many more MMDS operations are now coming on line; the Wireless Cable Association estimates that there are now some 300,000 subscribers to MMDS distributed among the more than 20 operators.

Most noteworthy in the European context is that the use of MMDS has been approved in the Republic of Ireland where franchises have been awarded and some of which at least should commence operations in the near future. Also the Government of the United Kingdom was advised in the White Paper on Broadcasting to adopt MMDS technology; while it would appear that this decision has not yet been made as regards the British Isles, the U.K. Government has approved MMDS for use in Hong Kong.
 
 
 
 

EVALUATION OF THE TECHNOLOGICAL OPTIONS

In deciding which technology to adopt for distributing television programs decision-makers must seek to optimize the general interest in relation to the environment where the service is to function.

The altenative technologies
 

The alternative technologies are:

- cable, whether coaxial or fiber optic, or any other variant relying on a trunk consisting of cable.

- hertzian space to ground technology, that is direct broadcast by satellite (DBS)

- hertzian terrestrial technologies, of which the only practical variant is the exploitation of microwave frequencies (MMDS) since VHF and UHF frequencies in all countries of North America and Western Europe are virtually saturated.
 
 

The services
 

All the technologies may be used for purposes other than television transmission. Other potential services include data transmission and tele-surveillance. What matters most in terms of the choice of technology is the number of channels to be communicated. In all hertzian systems this number is limited by the availability of a finite quantity of frequencies. Cable technology is also limited in the number of channels it can carry although the maximum load, especially where fiber optic cable is used, would be much higher than that afforded by any hertzian system.

But to the extent that the primary purpose of the technology were to be the transmission of television programs, there is a practical limit to the number of channels that need be offered. Most experts, at least in the United States, agree that fifty channels are sufficient to satisfy the desires of viewers and that the marginal interest of each channel thereafter moves on a rapidly decreasing curve.

All three technologies are capable of carrying at least fifty channels. Of course the costs of doing so vary greatly among the technologies and more will be said on this subject below.

Since most countries already provide several channels of television through VHF and UHF technologies, the relevant question then is what technology is best suited to carrying the additional thirty or forty channels considered useful for satisfying public demand.
 

The environment

Certain technologies are better suited to specific environments. For instance, cable is definitely not well-suited to rural areas where population densities are low. Hertzian terrestrial technologies do not function at their best on highly accidented terrain.

The case of urban areas is more controversial. Cable operators have the advantage of amortizing their infrastructure, such as trunk cables, over more potential hook-ups than in rural areas. Thus the direct economic cost of cable technology is perhaps at its lowest in urban areas. On the other hand, calculations of the cost of building cable systems rarely take account of indirect social costs that result from the inconveniences attendant upon the execution of public works, in particular: traffic congestion and noise during trenching, and visual pollution due to surface wiring.
 
 
 
 

In order to protect and further the general interest, certain criteria must be considered in determining the optimal choice of technology for distributing television programs.
 
 

- cost

All other things being equal, it is in the general interest to spend as little as possible on the function of carrying television signals. In other words, the burden of persuasion should be on the spokesmen of higher cost signal carrying technologies to show some overriding advantage to their system.

The cost associated with each technology involves both the investment in building its infrastructure (launching of a satellite, laying of the cable trunk, equipping a head station, etc.) and the price (whether capitalised and depreciated, or inventoried and negotiated) of each hook-up (antenna, converter, cable, and decoder).

For any given environment and service, each technology will have a specific cost. Nevertheless certain generalisations are valid for purposes of comparing the costs of the three technologies under consideration.

Clearly the launching of satellites and the laying of trunk cable are vastly more costly than the setting up of the head station required for MMDS operations. The following cost comparisons will serve to illustrate the point. Whereas five million French Francs would be sufficient to equip an MMDS head station transmitting twenty channels covering the entire Paris region (about two and half million households), the same amount would barely cover one months' rent of a single transponder on TDF1, the French DBS satellite, and would equip a mere one thousand cable subscribers (based on an estimated cost of five thousand French Francs per hook-up to the French cable system).

An equally important financial consideration involves the duration of the gestation period between the expenditure for building the system and the first commercial returns. In the case of satellites, their design, manufacture and launch are undertaken before subscriptions can be offered to potential customers. With cable systems, trunk and feeder lines to each household must be installed before marketing can be begun. Thus the greatest part of the infrastructure is built before any revenues can be generated. Moreover in the initial years only a fraction of households with cable hook-ups actually subscribe (a rate of 25 % in the first year and increases of 10 % every year thereafter would be considered a reasonable performance).

Consequently, the quantity of resources required to finance satellite and cable systems is available to only a few companies or even nations. And the risks of failure are so great that only very powerful concerns should venture into these fields.

On the other hand, the cost of building MMDS systems is only a fraction of the costs associated with cable. As compared with the above estimated cost of FF 5,000 to equip a cable subscriber in France, MMDS subscriber installations would cost about FF 1,000. (In each case the cost of decoders is excluded). Admittedly the MMDS operator would also have to recover the higher cost of its head station as compared with that of a cable system. But even assuming the difference to be FF 3,000,000 for the hypothetical twenty-channel system servicing the Paris Region, an MMDS operation would become overall less costly than a cable operator at the point of achieving 750 subscribers.

Also once the MMDS head station is set up, it can immediately begin to serve customers. The MMDS operator's major investment, that is the cost of purchasing reception equipment for its subscribers, may be incurred in conjunction with sales of subscriptions.

MMDS operations thus require much less investment than alternative technologies and the gestation period between the investment outlay and its generation of revenues is much shorter.

In conclusion on the matter of comparative costs, MMDS entails much lower start-up investments than either cable or satellite and also requires much less working capital since the cost of acquiring receiving equipment can largely be synchronised with the sales of subscriptions. Where the receiving equipment is kept on the books of the operator, deposits can be charged; alternatively, the receiving equipment can be sold to the subscriber. In either case, the operator's receipts can be used to finance its own purchases of equipment.
 
 
 

- consumer benefits
 

Because of the comparative cost advantages of MMDS operations, they are better suited than either cable or satellite to satisfy a number of consumer interests.

As the MMDS operator's capital requirements are lower than its cable and satellite counterparts and as its revenues begin flowing more quickly, it can pass on to its customers the benefits of these financial savings through lower subscription prices. Thus more subscribers can afford MMDS transmitted signals than those carried by other technologies. MMDS operators are better able to service all classes of society.

To the extent that rapid satisfaction of consumer demand is a social goal, then MMDS is the preferred technological option. This choice is inherent in the policies adopted in Hong Kong where the cable franchisee has been granted the right immediately to establish MMDS operations pending construction of the cable network.

Also, since an MMDS operators can be profitable while offering programs at lower break-even points than competitors using the alternative technologies, they can carry lower added value programs, such as educational and other public service programs.

Alternatively, because of their lower prices for transmission services, MMDS operators can afford program producers an opportunity to spend more money on improving the quality of their product.
 

- freedom of speech
 

Diversifying control of the instruments of transmission is one method for protecting freedom of speech. No doubt there are ways, however tortuous, of promoting this general interest even where the state exercises monopoly control over the signal distribution system. But the mere existence of alternative vehicles of expression limits the likelihood of arbitrary exclusion of marginal ideas or their spokesmen. In so far as MMDS is less expensive than alternative technologies, it better serves the general interest by facilitating the launching of a greater number of signal carrying services.

Also since cost of access to the media directly influences opportunity for expression, the general interest is, all other things being equal, best served where the cost of carrying television signals is minimised. As MMDS operators enjoy lower break-even points than operators of alternative technologies, they can pass this benefit on to suppliers of programming by charging lower prices for carrying their signals.
 

- encouragement of competition
 

To the extent that competition is viewed as being at least a priori positive, the ease of access to the market for delivering televisions signals is a goal which serves the general interest. The larger the investments required for entry to the market, the greater the constraint on access. Delivery of television signals by satellite and by cable involve such large investments as practically to exclude all but the wealthiest companies from entering the competition. On the other hand, MMDS operations can be launched with quite small amounts of capital and development can be financed through positive cash flows generated in large part from customer deposits for or purchases of receiving equipment.
 

- environmental impact
 

The major environmental impact of MMDS is the visibility of antennas. While this may be a disadvantage relative to cable (at least where cables are laid underground), there is of course no disadvantage relative to satellite communication which also requires antennas. On the other hand the laying of cable entails noise and visual pollution during the building and repair of the system, as well as often significant degrees of traffic congestion.
 
 
 
 

A SUGGESTED APPLICATION FOR MMDS IN EUROPE - EDUCATIONAL TELEVISION

Because education is generally recognized as a very significant contributor to economic growth and social development, it a virtually undisputed goal. All means of improving the delivery of educational services thus merit serious consideration. The advantage to be gained by distributing educational programs through television is that it costs more to transport students to the classroom than it does to televise the programs to the students. In France for example, it is estimated that some 20 to 30 % of corporate spending on continuing education is devoted to the cost of transporting employees to the classroom.

The principal impediment to increased use of television for delivering educational programs is that the cost of time on existing television distribution services is prohibitive. In France, the number of hours per year of educational programs on television has in twenty years fallen from over one thousand to less than one hundred. Given the small number of VHF and UHF frequencies allocated for television, these rare commodities have been employed for the gain of the highest possible margins, that is for broadcasting entertainment programming by national networks.

Among the alternative technologies only MMDS offers promise of a rapid and effective solution to the challenge of increasing educational television.

DBS is simply too expensive. The announced annual rental of a transponder on the French satellite TDF 1 is FF 70 million. Also DBS receiving equipment remains expensive, when it is available at all. Just how daunting these problems have been is manifested by the fact that, more than a year after their attribution, none of the TDF 1 channels (other than La Sept) are yet in operation .

Cable where it even exists in Europe is rarely profitable. It would probably take a decade for all the countries of Western Europe to be adequately cabled. For instance in France after almost ten years of efforts only some two and a half million of the possible twenty million households are hooked up and only 243,000 of these have actually subscribed to a cable service. Furthermore existing and planned cable systems generally provide for a quite limited number of channels; in France most systems have been designed to accommodate no more than twenty channels.

Under these circumstances cable operators can hardly be blamed if they choose to concentrate their efforts on programming which will attract the largest audiences and consequently generate the highest advertising revenues. Educational television does not fit into that category.

MMDS however is well suited to educational television. As already noted the investment required in fixed capital and working capital is relatively low. A study conducted with respect to the Paris Region has indicated that an investment of two million French Francs would suffice to launch a one channel educational television station transmitting five days a week twelve hours a day.

In the project as proposed, the MMDS operator would obtain a license for the appropriate frequencies and would rent out antenna time to providers of educational services. The latter would not only determine program content, they would also prospect for their customers, issue their own invoices and handle their own collections. Access to programming could be restricted by the use of encoding/decoding equipment. Such equipment might not be necessary where the provider of educational services enjoyed other means of ensuring payment, for example withholding of a diploma.

If antenna time were to be invoiced at FF 1,000 per hour, break even income would be achieved at one third utilisation of total annual antenna time.

Informal discussions with potential customers of the MMDS operator, in particular with suppliers of continuing educational in France, have served to confirm that a transmission cost of FF 1,000 per hour is eminently reasonable. The number of additional students needed to recover the FF 1,000 per hour for transmission costs of course varies according to the price per hour charged for the educational program. However as a general rule the smaller the potential audience, the higher the charge for the program; a post-doctoral course in computer engineering would be marketed at a much higher price per hour than a beginner course in English. Actually the most important financial consideration from the viewpoint of suppliers of educational programs would be the cost of converting classrooms into studios (FF 600,000).

Over and above the cost advantage of MMDS as compared to alternative technologies, there is the speed with which MMDS operations can be put into service. In a matter of a few months after attribution of frequencies, operations could be begun.
 
 
 
 

CONCLUSIONS

It would be opportune for European authorities to undertake the appropriate procedures to implement frequency reallocations with a view to granting licenses to MMDS operators. Where cable and satellite systems have already been launched MMDS might be restricted to the provision of services not optimally delivered by such existing systems; for example, MMDS might well be used for providing educational television. But where cable does not yet exist, such as in the countries of Eastern and Southern Europe, MMDS should be given serious consideration as a substitute delivery system.