Messari: Can decentralized wireless networks (DeWi) reshape the telecommunications industry?

Original Title: 《The Telecom Cowboys of the Decentralized Wireless Movement》

Author: Sami Kassab

Compiled by: Guo Qianwen, ChainCatcher

Key Takeaways

1. DeWi aims to incentivize operators to deploy and maintain telecom hardware in exchange for token rewards, fundamentally changing the construction, operation, and ownership of communication networks.
2. Compared to traditional providers, DeWi networks reduce capital and operational expenditures, optimizing unit economics; DeWi eliminates the costs of acquiring spectrum licenses and ends uniform charges to end users.
3. As of October 2022, over 14 DeWi networks (including cellular, WiFi, IoT, Bluetooth, and hybrid networks) are supported by an ecosystem of enterprise deployers, service providers, and markets.
4. The most direct opportunity for DeWi is in the 5G cellular network market, where Helium and Pollen Mobile are leading.

Over the past few decades, advancements in hardware and telecom infrastructure technology have led the world into an interconnected era—where 25 trillion bytes of data are generated daily. Meanwhile, thanks to mobile phones, 66% of the global population uses the internet, up from just 7% in 2000. As internet connectivity and access increase worldwide, even more data is created.

Emerging technologies—such as autonomous vehicles, IoT, smart cities, and augmented reality—have created a greater demand for higher bandwidth and lower latency networks, but traditional wireless (TradWi) network operators are unable to meet these demands.

A new generation of telecom innovators is pioneering the decentralized wireless (DeWi) movement—deploying and operating networks using crypto-economic protocols. The coordination capabilities of blockchain technology can accelerate the development of the next generation of wireless networks. Networks are no longer built by a single, centralized telecom participant but are constructed collaboratively by millions of independent individuals who deploy and operate wireless infrastructure in a trustless, permissionless, and programmatic manner.

Due to high capital and operational expenditures, along with logistical and regulatory hurdles, the deployment of wireless networks has traditionally required the involvement of large companies—leading to a few companies monopolizing the pricing space and the market no longer being free. In the U.S., three companies—AT&T, Verizon, and T-Mobile—account for 98.9% of the wireless market. In Q2 2022, these companies generated a combined annualized revenue of $270 billion.

About every ten years, traditional telecom companies deploy new wireless networks, a process that includes:

• Raising hundreds of billions of dollars in debt to cover capital and operational expenditures
• Purchasing spectrum licenses from the government
• Contracting with manufacturers to build proprietary hardware
• Finding property owners willing to host towers and radios
• Mobilizing thousands of field technicians to install and maintain complex equipment

Disrupting a Long-Sleeping Trillion-Dollar Industry

The digital age has brought about a booming global telecom market, valued at $1.7 trillion, which is expected to grow at a compound annual growth rate of 5.4%. By 2028, the global telecom market is projected to reach $2.7 trillion. However, insufficient competition, dissatisfaction among large customers, and users' higher demands for bandwidth connectivity—all point to a pressing need for disruption in the industry.

The top-down approach of traditional telecom companies to building networks is no longer suitable for the construction of next-generation wireless networks. Compared to older networks, the new generation of wireless requires more radios and antennas, which is not economically feasible for telecom companies. Additionally, the evolving models of traditional telecom companies often lead them to prioritize coverage in densely populated areas, leaving rural areas with sparse coverage. If users happen to live in areas where traditional networks are insufficiently covered, they are left with no options.

Through DeWi's open-access deployment model, DeWi networks can reach areas that TradWi providers deem economically unfeasible. DeWi also empowers individuals to improve their own network connections. For example, a restaurant owner can deploy their own DeWi device to solve connectivity issues for themselves and their customers.

While DeWi is unlikely to completely replace TradWi, the two can coexist and form a symbiotic relationship.

Why Choose DeWi?

In recent years, the telecom industry has undergone three major transformations that have made the adoption of DeWi a reality: eSIMs becoming mainstream, the opening of wireless spectrum, and advancements in blockchain technology and wireless hardware.

eSIMs Become Mainstream

Last month, Apple released the iPhone 14, a highlight of which is the removal of the physical SIM card slot. The latest iPhone uses its digital alternative, eSIM, configured by scanning a QR code. This is significant for the development of DeWi cellular networks as it reduces the cost of switching carriers to nearly zero. Additionally, the iPhone 14 has six eSIM slots, allowing users to install a DeWi eSIM alongside their existing traditional carrier's eSIM, using two cellular networks simultaneously.

It is estimated that by 2021, 350 million eSIM-enabled devices will enter the global market. By the end of 2030, approximately 14 billion eSIM-enabled devices are expected. Apple's recent endorsement of eSIM may accelerate this trend.

Opening of Wireless Spectrum

Spectrum refers to the radio frequencies over which wireless signals propagate. In the U.S., the spectrum is regulated by the Federal Communications Commission (FCC) and is divided into two types: licensed spectrum and unlicensed spectrum.

Licensed spectrum is auctioned off by the FCC to the highest bidder, meaning it is purchased for the exclusive use of specific network operators. Since the auctions began, spectrum license sales have contributed over $250 billion to the U.S. Treasury, costs that are ultimately passed on to consumers by telecom companies. Unlicensed spectrum is available for anyone to use, including WiFi, Bluetooth, and LoRaWAN.

The Citizens Broadband Radio Service (CBRS) band was previously reserved for the U.S. Navy, but in 2020, the FCC authorized public use of the CBRS band. This is significant because it allows new entrants to deploy 5G networks without having to purchase expensive spectrum licenses.

As early as 1985, the FCC opened the WiFi band for public use, fundamentally changing the way humans communicate and operate. Anyone can purchase a WiFi router and create their own wireless connection. Just as Wi-Fi transformed the internet, CBRS could fundamentally change cellular networks.

Advancements in Blockchain Technology and Hardware

Human behavior is driven by incentives. Before blockchain, large-scale collaboration among individuals globally was difficult to achieve. However, with the emergence of crypto-economic protocols, individuals are incentivized to work towards a common goal in a trustless and programmatic manner. Additionally, advancements in wireless technology have made hardware cheaper and more accessible. For instance, plug-and-play hardware allows ordinary people to easily deploy DeWi hardware.

The DeWi Movement

A new era of innovation has arrived—using token incentives to develop physical infrastructure networks in the real world, known as Proof of Physical Work (PoPW), Token-Incentivized Physical Infrastructure Networks (TIPIN), or EdgeFi.

Escape Velocity is a fund investing in decentralized infrastructure networks, segmenting the physical infrastructure space into the following areas: decentralized wireless (DeWi) networks, sensor networks, server networks, and energy networks. While all these networks have significant potential, the DeWi track has garnered attention the earliest.

DeWi aims to incentivize operators to deploy and maintain telecom hardware in exchange for token rewards, fundamentally changing the construction, operation, and ownership of communication networks. The costs associated with building and maintaining the network are shared among participants on the supply side, leading to a more cost-effective way to build networks.

Origins of DeWi

In July 2019, Helium launched the DeWi movement, inventing the LoRaWAN network for IoT applications. The LoRaWAN network grew from 15,000 hotspots in January 2021 to over 900,000 hotspots today, achieving great success and proving that token incentives can be used to establish distributed infrastructure networks. The LoRaWAN network is the largest IoT network in the world, operating in over 182 countries.

Recently, Nova Labs—the company behind Helium—announced plans to transform Helium into a decentralized platform capable of deploying any type of telecom network. This strategic shift will turn Helium into a "network of networks," allowing the rapid growth process of the LoRaWAN network to be applied to many other types of networks, including 5G, WiFi, VPN, and CDN.

With the success of the Helium LoRaWAN network, many projects have been inspired to adopt similar models, leading to the launch of new DeWi networks. Currently, there are over 14 DeWi networks, including cellular, WiFi, LoRaWAN, Bluetooth, and hybrid networks.

• 5G Networks (Cellular): Two prominent participants are Helium 5G and Pollen Mobile networks, which leverage the recently relaxed CBRS spectrum. Compared to other network markets, the market opportunity for cellular networks is the largest.
• WiFi Networks: Aimed at creating a globally shared WiFi network that anyone can connect to at a low cost. WayRu and WiFi Dabba are two early projects in this space.
• LoRaWAN Networks (IoT): LoRaWAN is a long-range, low-power wireless communication protocol. It is suitable for transmitting small packets of data over long distances—such as sensor data—making it the preferred network for IoT devices. In addition to Helium, Foam and Mesh+ are also involved in related developments.
• Bluetooth Networks: This network, powered by low-energy Bluetooth, is suitable for low-power and short-range use cases. Nodle is a Bluetooth mesh network that connects IoT devices to the internet using smartphones and low-energy Bluetooth routers.
• Hybrid Networks: Hybrid networks combine different wireless technologies into one solution to provide decentralized internet connectivity. Althea and World Mobile Token are two examples in this area.

How Does DeWi Work?

DeWi networks use a novel token distribution mechanism that rewards participants for completing verifiable work in the real world. Such an incentive system can set the economic flywheel in motion, allowing the network to be built without the need for a centralized entity.

The economic flywheel provides rewards to users, incentivizing them to acquire and deploy network hardware:

Hardware operators are rewarded with inflationary tokens for purchasing, deploying, and maintaining hotspots or radios. These rewards act as subsidies, allowing them to see immediate returns on their hardware investments. Before the network can achieve sustainable profits from demand-side users, these rewards can support participants in building the network.

As the wireless network develops, more operators and product builders join the network. Additionally, DeWi improves unit economics (compared to TradWi) by providing certain subsidies to hardware operators, allowing the protocol to offer lower data transmission rates, thereby attracting more end users.

Once the network's coverage grows to a sufficient extent, allowing end users to pay for data transmission, the revenue for hardware operators will significantly increase. In addition to profits generated by the network, operators also earn based on the data flowing through their hardware. This economic mechanism creates a feedback loop that ultimately attracts more hardware operators and investors.

Value is typically captured through a "burn-and-mint" BME token or work token model. The BME model and work token model influence supply, theoretically increasing token prices as the utility of the network rises, further attracting more hardware operators and creating a virtuous cycle.

The network effects generated by the DeWi economic flywheel essentially solve the cold start problem. The protocol leverages rewards to incentivize participants to become suppliers to the network, thereby expanding network coverage for end users. Thus, the protocol relies on initial momentum for adoption, enabling it to compete with centralized telecom companies. Operators, as suppliers building the network, are more likely to ensure the quality of the network.

Compared to TradWi network deployments, DeWi's greatest advantage lies in reducing capital and operational expenditures. Building a network in the traditional way requires a centralized entity—spending billions to acquire spectrum licenses, purchasing proprietary hardware from vendors, leasing land for deployment, and paying thousands of field technicians to install and maintain equipment, as well as maintaining large backend infrastructure for planning, onboarding, billing, and customer support—all of which costs are ultimately passed on to consumers.

With DeWi, both capital and operational expenditures are shared among the various operators participating in the network, who purchase commoditized off-the-shelf hardware that can be installed with ease. For example, setting up a LoRaWAN hotspot is as simple as plugging in an Ethernet and power cable, taking less than five minutes. However, cellular radios are a bit more complex for the average person and require additional time and knowledge.

For individual deployments, DeWi operators can deploy hardware on assets they own without paying real estate costs. For commercial deployments, operators must pay third parties. However, DeWi allows operators to enter into automatic revenue-sharing agreements based on the income generated by each hardware device. In TradWi deployments, operators must pay landlords a fixed fee. DeWi's revenue-sharing model is not only more efficient but also allows property owners to verify the income generated by hardware on their properties, thus validating revenue sharing.

In summary, DeWi reduces capital and operational expenditures, eliminates spectrum costs, and ends uniform charges to end users, achieving higher unit economics than TradWi.

Current State of the DeWi Ecosystem

Hardware Manufacturers

Nova Labs is the first manufacturer capable of building Helium networks with LoRaWAN mining machines, but the goal of Nova Labs has never been hardware business. In January 2021, Helium passed HIP19, allowing the Helium community to approve third-party manufacturers to produce and sell hardware through protocol governance. This not only further decentralizes the network but also allows it to grow rapidly.

Today, there are over 65 Helium hardware manufacturers. Many Helium hardware manufacturers have expanded to produce hardware for other DeWi protocols (such as Pollen Mobile). Due to the openness of the ecosystem, any hardware manufacturer can participate, bringing healthy competition to the market.

Enterprise Deployers

Enterprise deployers are centralized entities operating on top of DeWi networks, acting as partners to the network, deploying and managing large-scale hardware professionally. These entities provide expertise in hardware procurement, installation, optimization, and management. Additionally, they collaborate with other business partners, including property owners and hardware manufacturers, for large-scale hardware deployments.

Hexagon Wireless is currently one of the largest independent enterprise deployers outside of the protocol, deploying hardware for Helium and Pollen Mobile networks. Hexagon is committed to accelerating the development of the DeWi movement and plans to invest in DeWi applications and tools across verticals such as financial services, fleet management software, and wireless coverage services. Other enterprise deployers include Noble Networks and LongFi Solutions.

Service Providers, Tools, and Marketplaces

An ecosystem composed of tools, service providers, and marketplaces has emerged. Tools like Hotspotty and Airwaive can serve as coordination tools for the DeWi community. Hotspotty assists with location optimization, hardware monitoring, hardware management, and payment management. Airwaive is a marketplace connecting network operators with residential or commercial building owners willing to host DeWi hardware.

Since 2017, global mobile data traffic has increased by 570%. Currently, 59% of the world's network traffic comes from mobile devices. Hexagon Wireless states that cellular networks may bring in more profits than LoRaWAN. They believe the market opportunity for cellular networks is expected to be 88 times that of IoT networks. The 5G market already has significant demand. Therefore, DeWi's most direct opportunity lies in the cellular network market.

By early 2022, Helium was the only protocol focused on the 5G market. As of now, four other protocols have begun to compete for this massive opportunity: Pollen Mobile, XNET, Karrier, and REALLY.

Next-Generation Wireless Networks

Next-generation wireless networks, such as 5G, require deployment methods different from traditional deployments. In the past, macro-cell radios were installed on large towers or utility poles to provide extensive geographic coverage for cellular networks. However, they can only provide low-frequency coverage, while 5G networks differ from older cellular networks in that they require higher frequency bands to increase bandwidth.

In contrast, small-cell radios are essential for the future of 5G networks. Small cells are low-power radios—about the size of a pizza box—that can provide high-frequency coverage. The small size of the hardware means it can be installed in more convenient locations, such as rooftops, lamp posts, and building sides.

However, unlike macro base stations, small base stations have a coverage range of only about 100 yards to over a mile, and high-frequency signals are difficult to relay between buildings. This means that to achieve coverage equivalent to macro base stations, more small cells need to be installed—both indoors and outdoors—adjacent to each other.

The FCC estimates that 80% of 5G deployments will use small cells. This presents both a challenge and an opportunity—traditional telecom companies cannot build small cell networks because their deployment models require comprehensive coverage rather than covering the last mile or a corner indoors. Building small cell networks nationwide would lead to massive capital expenditures and high logistical demands, making it economically unfeasible for TradWi operators. Small cell networks will require individual and point-to-point deployments, which is where DeWi comes in.

DeWi can provide a more economically viable solution for building 5G networks, allowing users around the world to collaboratively build the network, which is much faster than traditional network construction. At the same time, DeWi will not replace TradWi; rather, the two complement each other. The macro coverage of TradWi and the small cell coverage of DeWi enhance each other, allowing 5G to reach more users globally.

The Future of DeWi Cellular Networks

DeWi cellular networks have three different positioning models: as neutral hosts, crypto carriers, and private networks.

The neutral host model allows multiple mobile network operators (MNOs) to use all the infrastructure of the DeWi network, but this may require collaboration for data offloading—when users are in areas without operator coverage, MNOs can roam onto the DeWi cellular network. Additionally, MNOs can pay for data offloading during network congestion to avoid a decline in service quality. DeWi's small cell networks are likely to be used to enhance the macro networks of traditional MNOs.

An alternative to the neutral host model is the crypto carrier route. Nova Labs defines a crypto carrier as "an innovative mobile operator model that can reach users, using crypto economics to lower costs and increase user benefits." Last month, Nova Labs announced its own crypto carrier, Helium Mobile. Notably, crypto carriers are similar to mobile virtual network operators (MVNOs), referring to service providers that do not operate infrastructure.

Nova Labs' crypto carrier combines Helium's 5G network with T-Mobile's network. When Helium Mobile users are in areas without DeWi coverage, the crypto carrier switches to T-Mobile's network.

The final option is a private network. Pollen Mobile initially provided internal connectivity solutions for the off-road autonomous vehicle technology company Pronto. Pronto's vehicles require reliable internet connectivity in remote areas, so the team built its own private cellular network, which is the origin of Pollen.

Private cellular networks are becoming increasingly popular as they provide businesses with flexible coverage, lower latency, and higher bandwidth connections. They also offer end users better security and privacy. Although the market size for private 5G networks was $1.4 billion in 2021, it is expected to reach $34 billion by 2030, with a compound annual growth rate of 49%.

Currently, the biggest opportunity for DeWi seems to be in the neutral host model. GigSky and Dish have announced that they will utilize Helium's 5G network for data offloading. This means that their customers can seamlessly roam on Helium's CBRS network as long as they have coverage. While Pollen Mobile was initially a private network, the company has indicated its intention to develop a neutral host model for data offloading. Additionally, a project initiated by former traditional telecom executives, XNET, has announced its intention to pursue a neutral host line.

Conclusion

Although the DeWi field is still in its infancy, it has the potential to reshape the telecom industry. An increasing number of protocols want to enter DeWi, indicating significant opportunities in the future. At the same time, many newer DeWi projects are backed by former traditional telecom executives, further strengthening the legitimacy of DeWi.

Given the current landscape, DeWi cellular networks are unlikely to replace traditional mobile network operators, but at least in the short term, they will coexist with them.