Introduction

Spectrum is used to produce services which are supplied by firms for commercial reasons and distributed into a market place, and to provide public services such as defence and emergency services which are usually provided free at the point of delivery by a public body.

In the UK public sector spectrum use accounts for just under half of all spectrum use below 15 GHz – this represents the vast bulk of valuable frequencies. The breakdown of public sector spectrum use is shown in Figure 15.1.

In other countries too, military use of spectrum, particularly for radar and communications, accounts for most of public sector use. In the presence of international military alliances, such as NATO, military spectrum allocations are often harmonised internationally.

In most jurisdictions, commercial and public sector spectrum allocations are managed in a broadly similar way by the same independent agency or government department. A major exception is the United States, where spectrum used by the Federal Government is managed by the National Telecommunications and Information Administration (NTIA), part of the Department of Commerce, while spectrum allocated for commercial purposes and to state and local government is managed by the independent communications regulator, the Federal Communications Commission (FCC). Any major transfer or re-alignment of spectrum use may face the additional handicap of negotiations between these two organisations.

Historically, public sector organisations, especially national defence departments, were accorded high priority in spectrum use. Under the command-and-control regime, they were allocated spectrum for an indefinite period.

A reminder of the problem

At the start of this book we said that spectrum needs to be managed to avoid the interference between different users becoming excessive. We noted that the key purpose of spectrum management is to maximise the value that society gains from the radio spectrum by allowing as many users as possible while ensuring that the interference between different users remains manageable. Then we observed that the current “command-and-control” approach was unlikely to achieve this objective and was becoming more difficult to manage as an ever expanding range of applications arose. Instead, we noted how increasingly spectrum managers were turning to economic management methods to achieve their duties.

Key conclusions

We made the following conclusions.

• Technological advances. The advance of technology is having some impact on spectrum management. Multi-modal radios are gradually reducing the advantages of international harmonisation, making it easier for regulators to allow the use of market forces. Technologies that provide “underlays” (UWB) or “overlays” (cognitive radio) might require radical changes to spectrum management, but in practice cognitive radio may be best enabled simply by providing spectrum owners with sub-leasing capabilities while UWB can be accommodated as an increased noise floor for existing owners.

• Division of spectrum. While there are many alternative methods of dividing access to spectrum, all can be accommodated as a subdivision within the current overall process of division by frequency. For example, after a division by frequency, it is possible to further subdivide by time, angle, polarisation, geography or use. The regulator could choose to make this division themselves, or they could provide the licence holder with the freedom to do so, perhaps through the flexible type of licence envisaged under trading. Hence, major changes to spectrum management caused by technology look unlikely.

• […]

Creating property rights: economic aspects

Moving to a regime for secondary trading (as well as primary auctioning) of spectrum requires, as well as a clear technical definition of rights, a clear economic definition. As an illustration, spectrum licences in the UK have traditionally been held on an annually renewable basis, the licensee having further unspecified protection based upon a “reasonable expectation” of longer tenure. This lack of specificity would clearly create major and avoidable uncertainty in a spectrum market, and deter both transactions and the collateral investment necessary to put the spectrum to work. It is thus universally recognised that a trading regime requires a detailed specification of rights.

In principle, these rights can be embodied either in a tradable licence to use spectrum, or to install spectrum-using apparatus, or as directly owned property. In practice the tradable instrument in most jurisdictions is a transferable licence, and our discussion below is based on this approach, although we sometimes speak of “trading spectrum” rather than “trading licences”.

This chapter discusses some of the issues in the definition of licence conditions (construed as above). Section 8.2 sets out some of the basic economics of property rights. Section 8.3 considers key issues in how rights should be defined from an economic or commercial point of view. Issues concerned with technical (interference-related) aspects of property rights were dealt with in Chapter 7.

Introduction

Following the initial assignment of spectrum rights and obligations to users, whether by auction or other means, circumstances may change causing initial licence holders to want to trade their rights and obligations with others. Today this is not possible in many countries. However, in a few countries secondary trading – the trading of spectrum rights after the primary assignment – is possible. The possibility to trade radio spectrum is argued by many commentators to be a critical factor in the promotion of more efficient radio spectrum use. Furthermore, it is increasingly recognised that the flexibility afforded by trading is helpful for innovation and competitiveness.

Spectrum trading is a powerful way of allowing market forces to manage the assignment of radio spectrum rights and associated obligations and it is a significant step towards a market-based spectrum management regime. The trading of radio spectrum rights has been discussed as a policy option for many years and dates back to the seminal contribution of Coase [1]. It is widely accepted by economists and increasingly by spectrum policy makers that appropriately supervised market forces can be superior to the widely used but more inflexible command-and-control methods.

Trading of spectrum is made much more powerful when it is combined with policies aimed at promoting liberalisation in use; that is allowing users to choose the use to which a frequency band is put – subject perhaps to some constraints regarding the interference that can be caused (see Chapter 7).

Introduction

This chapter starts by considering whether market mechanisms could be used to determine the appropriate amount of spectrum commons. It then addresses two possible approaches that the regulator might use to make this decision, namely (1) the “total spectrum needed” approach and (2) the “band-by-band” approach.

The use of market mechanisms to determine the amount of spectrum commons

The standard market mechanisms are difficult to apply directly to unlicensed spectrum. Because there is no single user body, it is not possible for the unlicensed users to directly buy the spectrum under auction or trading.

A possibility is for a third party (the “unlicensed spectrum manager”) to buy spectrum and to make it a private commons. Users wishing to access this would pay the unlicensed spectrum manager by some mechanism. The difficultly is in envisaging an appropriate mechanism. Ideally, the payment should reflect the level of usage, but for many unlicensed devices keeping account of the amount of usage and periodically returning the information would impose such a major increase in complexity and hence cost, that much of the revenue opportunity would be lost in subsidising devices. An alternative is to impose a royalty-like fee on the manufacture of each device, with the fee level coarsely reflecting the expected usage (e.g. a garage door opener would pay less than a W-LAN node). This is more plausible as similar mechanisms are used today to collect royalty payments on patents.

Every smart-card vendor has its implementation of the ISO 7816 file structure and application selection process: these form the vendor's native operating system and, as we have seen in Chapter 6, they can be used to create a multi-application card scheme.

To gain the full benefits of portability, a high-level language and post-issuance downloading of applications, you need a multi-application operating system like JavaCard or Multos. But there are several operating systems that sit between these two extremes, and which may offer advantages in some situations.

IBM MFC

IBM developed its first multi-function card (MFC) 1 in the early 1990s. It has since been developed to extend the cryptographic support and add new features. One of its most important features, however, is the ability to support applications in E2PROM, which can be updated or downloaded after the initial issuance, using a scripting protocol.

IBM stopped supplying smart cards directly in 1999, but it has licensed the MFC to several manufacturers, and also develops tailored versions for specific schemes. It is now used by the French multi-application payment and e-purse card Monéo 2.

Advantis

Spanish card technology and systems supplier SERMEPA developed its ‘TIBC’ operating system in 1994 in order to run the ‘Visa Cash’ electronic purse product; TIBC was licensed to several card manufacturers and is still widely used in Spain and Latin America.

This chapter covers the key features of a smart card, its manufacturing process and the components of a smart-card system. It can be skipped by those who are already familiar with the technology and whose main interest is in advanced card types, and in particular in combining applications within a single card.

Appendix B also lists some further reading on smart-card technology in general.

What is a smart card?

Common features

A smart card is a card incorporating one or more integrated circuits within its thickness (see Figure 3.1). Smart cards are also often called chip cards or integrated circuit (IC) cards – these terms are interchangeable.

As we will see, the terms cover many cards that are not really ‘smart’ in the sense of being programmable, but the smartness comes from the way they are used as a part of a system.

Most smart cards meet the ISO 7810 standard (bank card size and thickness), but there are other standard card shapes, such as the ID-000 shape used by mobile telephone SIM cards. And some devices known as smart cards are not card-shaped at all – although this does raise a number of issues, as we will see in Chapter 6.

There are two main categories of smart cards, usually characterised as memory and microprocessor (or microcontroller) cards. The name microcontroller is technically more accurate since the chip includes memory, the serial interface and, possibly, more than one processor.

Smart cards are a thriving industry!

How do we know this to be the case? Well, if we look at the landscape of a typical industry sector, we see in smart cards the same characteristics we would witness in any other established and mature market.

For instance, companies have been created and thrive financially, based solely on the technology itself. These companies compete fiercely for a market share and brand leadership. Aggressive actions, such as mergers and acquisitions, and rigorous oversight of intellectual property rights are commonplace in the quest to increase both the industry and shareholder value. Dedicated industry analysts have built careers by following market movements and advances in the technology, and by prognosticating its future potential.

Trade shows and events have been established in every region of the world, dedicated to the exhibition of the technology and the sharing of information and industry best practices. These highly specialised gatherings not only showcase the latest in smart-card technology, but carefully articulate its relevance to critical sectors such as government, financial, retail, transit, healthcare and mobile telecommunications.

Industry associations have emerged to develop standards for smart cards and the applications that depend on the technology. In addition to developing standards, these birds-of-a-feather organisations have become valuable forums for information exchange between technology providers and end-user communities.

Magazines, periodicals, newsletters and websites cater exclusively to the smart-card industry. At the time of writing, a Google search on ‘smart cards’ resulted in 92 500 000 possible sites to explore.

The basic structure of a reader for contact cards was described in Chapter 3. This chapter considers the specific requirements of different sectors and of multi-application cards.

Reader type

In Chapter 3 we saw that readers may be manual or motorised, partial or full insertion, chip only or hybrid.

Motorised readers have specific advantages in multi-application environments too: the terminal can execute both ‘warm’ and ‘cold’ resets (see Chapter 8), allowing it to switch between applications without giving potentially confusing messages to the user or card-holder.

Many smart cards carry a magnetic stripe as well. This can be read when the card is inserted or when it is withdrawn; the former has advantages if some form of fallback is required, but reading a magnetic stripe on entry is often less smooth than reading on exit, and so gives slightly lower success rates. In retail environments where reliable reading of both chip and magnetic stripe cards is very important, special readers have been developed (see Figure 7.1) that combine a long reading slot for swiping with a ‘park’ position for reading the chip.

Contact readers must also have limit switches or other methods for detecting when a card is in place; these are used not only for powering up the card but also for detecting when a card has been inserted wrongly or not removed at the end of the transaction; in these cases it is often desirable for the terminal to emit a warning tone or signal.

Technology

It will be clear from the rest of this book that the availability of technology is no longer a limiting factor preventing the deployment of multi-application smart-card schemes. However, further technology developments will continue to appear and some of these will be distinctly helpful by allowing a wider range of applications, or by making existing applications work better or at lower cost.

Microcontrollers

At the chip level, semiconductor technology as a whole continues to advance in line with Moore's Law: doubling the number of gates per chip every eighteen months. In the case of microcontroller chips, the 0.12–0.15 μm technologies that are regarded as leading-edge in 2006 are believed to be close to the limit for E2PROM; however, flash memory is being used to grow total memory sizes into the megabyte range, and this technology will be used increasingly in combination with E2PROM to provide the memory sizes required by the telecommunications industry today, and probably for multi-application cards in the near future.

In 2000, I forecast that smart-card microcontrollers would be using 0.1 μm processes by 2005; this turns out to have been optimistic, but this level is now regularly used for DRAM products and should be achievable by 2007 for microcontrollers, moving to 0.07 μm or less by 2010.

Memory sizes for microprocessor cards, currently mostly in the range 4–128 kB, are likely to rise over the next few years to 32 kB–8 MB, with a wider range of combinations of memory types, perhaps configurable at a relatively late stage in the manufacturing process.

Of the many skills needed to operate a bus company, airline or train service, ticketing and card issuance would not normally rank highly on the list. But transport operators are increasingly turning to cards to protect their revenue and to make passengers' journeys smoother.

Existing public-transport card schemes

Most existing public-transport schemes in cities, towns and rural areas are based on trains and buses for long-distance travel, combined with buses and trams for local journeys. These are often linked together under the auspices of a local transport authority or consortium, and may offer some form of common ticketing system and fare structure.

Revenue management

The business case for existing public-transport operators to convert their ticketing schemes to smart cards is often very strong, and is based on improving revenue management and reducing operating costs.

Each operator, particularly in a group or consortium, wants to ensure that it receives the revenue to which it is entitled and this demands a shared pool of information about passenger journeys as well as costs. With older forms of ticketing (paper or magnetic stripe tickets) this could only be achieved with great difficulty, if at all; the cost of collecting the data was very high. It was also difficult to check the cash collected by on-board staff. With a smart-card ticket, the card forms part of the data collection system and a full record of all transactions can be collected. This enables revenue to be shared more accurately, and thus encourages common ticketing schemes.

For many of the card schemes discussed so far, the card has as much marketing as operational value for its issuer; it ties the consumer to the issuer and provides a channel for delivering services and differentiation. This chapter is concerned with a group of applications where the card-holder is already a member of a defined group, and the aim of the card is often to raise barriers around the group and prevent infiltration or abuse of the privileges of the group.

These include not only employee card schemes, schools and universities, but also holiday camps and clubs, prisons and detention centres. Athough they are often referred to as campus cards, the scope may be much wider than a physical campus or group of sites.

Sometimes principles that apply to public schemes must be completely rewritten for this environment: for example, employees may accept the storage of personal data or a biometric on the card as a condition of employment. Laws governing payments in legal tender may not apply to canteens or on-site vending machines.

For this reason it is often difficult to mix campus cards with open applications: for example, several banks have found it difficult to act as a card issuer for an electronic purse on a university card, since they are subject to regulation that imposes high standards and costs, and that makes it difficult to meet the rapid turnaround required to address lost cards in a university environment.