The Economics of Receiver Sensitivity and Spectral Efficiency

We have asserted textbook style categories for Low-Power, Wide-Area (LPWA) connectivity Blog 1: Categories of LPWA Modulation Schemes.  Then we went back to basics to get some framework and vocabulary in place to discuss these various schemes in Blog 2: Back to Basics – The Shannon Hartley Theorem, where we introduced the critical concepts of spectral efficiency (η), Eb/No, and how a point of diminishing returns can be reached in the quest to reach the Shannon Limit.  In Blog 3:  Chirp Spread Spectrum (CSS): The Jell-O of Non-Coherent M-ary Modulation, I confirmed that CSS can be treated more generally as Non-Coherent M-ary Modulation (NC-MM).

And then in Blog 4: “Spreading” – A Shannon-Hartley Loophole?, we discussed in more detail technologies that use links with very low spectral efficiency (η << 0.1) and the capacity implications with three concrete examples:  the Sigfox® technology, LoRa™, and Ingenu’s RPMA®.

In this blog, we will set the stage with a description of a public network business model including how the fundamentals of coverage and capacity fit into building that business.  Given that framework, I will then go onto discuss how the three technologies highlighted below (the Sigfox technology, LoRa, and RPMA) compare on the economics of coverage (building the network), capacity (monetizing the network), and capacity scalability or cell splitting (growing a successful network.)

Setting the Stage: The Public Network Business

The public network business requires two general components: a carrier, and applications that may benefit from that network.  Let’s define these roles and look at a public LPWA network from these points of view:

• The carrier owns and operates the LPWA network. The carrier invests in building this network, and charges applications for the use of this network.  The successful carrier business profits by the revenue (connectivity fees from the applications) exceeding the expenses of running the LPWA network (tower rental, backhaul expenses, construction costs, human resources, etc.)
• Applications are benefitted by the connectivity that the LPWA network provides. For an application to participate in an LPWA network, there must be a positive return-on-investment (ROI) of this connectivity.  In other words, the value provided by the LPWA connectivity must exceed the connectivity fees paid to the carrier.    Moreover, if given a choice, the application will want to maximize their ROI by selecting the LPWA network that minimizes their connectivity fees.

The LPWA business begins with the carrier.   Typically, the carrier must invest in building the network prior to revenue being realized.  Let’s introduce a few key terms to bridge the LPWA economics to the LPWA technology:

• Coverage – a metric of how much network infrastructure is required to reliably cover a region. Most of the expenses associated with running a carrier are proportional to the amount of network infrastructure required (e.g. tower rental, backhaul expenses, construction costs) particularly as the geographic extent of the network becomes large.  The number of square miles (or square kilometers) covered, on average, by a piece of network infrastructure (e.g. tower) represents the initial investment a carrier must make to build this network.
• Capacity – a metric of how many devices, on average, may be supported by a piece of network infrastructure. The capacity metric is relevant to the revenue side of a successful carrier business.  The amount of revenue per tower to the carrier will typically be directly proportional to the number of endpoints served by that tower.

From a carrier’s point of view, investment in coverage is a slight “dip in the road” in terms of outward cash-flow; capacity represents that “road up the mountain” in turns of how profitable that network may be based on number of devices supported.

Coverage

To build a network economically means that each piece of infrastructure must cover large amounts of area with high probability.  This means that the range of the link must be as high as possible, which, in turn, means the receiver sensitivity must be a good as possible.

In the figure below, we show the amount of typical reliable coverage that can be expected with the three approaches based on the analysis in Section 2.3 of How RPMA Works:  The Making of RPMA.  Naturally, the cost of a carrier covering a large region is far lower if each tower is capable of covering the large area shown for RPMA.

Capacity

It is important for a technology to allow for connection of a sufficient number of endpoints per piece of networking equipment to make long-term economic sense. There are costs to delivering LPWA connectivity including the infrastructure cost, the deployment cost, and any maintenance costs.  These costs need to be shared among a tremendous number of devices such that each device’s share of the burden is very low. Keep in mind, these are typically low-value devices that can only bear minimal networking expense. If you take a look at the figure below, you will see that RPMA supports a factor of 60x to 1300x more data per piece of networking infrastructure (which equate to more 60x to 1300x more devices) relative to LoRa (exactly where in that range depends whether we are talking uplink/downlink and the particular regulatory domain). The Sigfox technology numbers are similar. Not surprisingly, the 60x to 1300x reduction in the per device connectivity cost is the difference between making the economics of the network work at all, and being able to make the economics of the network work easily.

The Sigfox technology is argued to serve only very low-bandwidth devices and thus, capacity is not an important attribute for the low-end devices they serve.  There are two main problems with this argument:

• Low-usage devices tend to justify only low connectivity costs. If the Sigfox technology is constrained only to low-usage devices, the carrier requires more of these devices to build a business.  Whether the endpoint distribution is fewer high-usage devices, or more numerous low-usage devices, capacity is being consumed, and as such, it is an important figure of merit to understand if there is any economic value to be split between carrier and application.
• Even if there is some minuscule amount of economic value to be split between application and a carrier employing Sigfox technology, an RPMA carrier will always be able to undercut the connectivity costs due to the tremendously unfair capacity advantage. An RPMA carrier will be in a position to offer more link capability at a small fraction of the cost, and that RPMA carrier will remain massively profitable.

Note the number of devices supported on average per piece of network infrastructure as shown below and imagine the amount of revenue per endpoint for the Sigfox technology and LoRa.  In our opinion, these numbers will not support a profitable carrier business model if you assume reasonable connectivity cost per endpoint as revenue.

An additional headwind LoRa in particular faces is the lack of selectivity (discussed in more depth in Section 2.10 of How RPMA Works:  The Making of RPMA.) where endpoints that are deployed on private LoRa networks actually consume capacity on overlapping public networks – far more capacity, as a matter of fact, than had they actually been connected to the public LoRa network.

Capacity Scaling (Cell Splitting)

 What happens when a tower is at capacity based on the number of devices shown above?  As a carrier, you would probably like to add more tower locations to continue offering robust connectivity.  The cellular industry has a term for this called “cell splitting” and it can be done effectively.  However, not all technologies allow for offloading capacity by adding towers.  All the technologies in the LAN category share this aspect including the Sigfox technology and LoRa.  Due to lack of support for transmit power control (among other things), once a critical density of endpoints is reached, the system simply ceases to work robustly.

By contrast, RPMA has been built from the ground up as an LPWAN solution. It was not easy or fast to do this. It took considerable investment because a new technology had to be developed from scratch, along with a whole new type of chip to inexpensively implement the new technology with minimal cost and power.  The most important thing now is that RPMA is done, commercialized, and networks and endpoints are rapidly being deployed! We believed (and we still strongly believe) that with LPWA device counts in the 10s of billions or more, an investment in a purpose-built technology was well worth it.

In future blogs, we will explore additional topics such as sunsetting, NB-IOT looming technical issues, standardization, RPMA commercial progress, and development of RPMA technology.  If you would like an advanced peek into many of these topics please take a look at the document How RPMA Works:  The Making of RPMA.