Costs of new tech

GPS World, July, 2008 by Jason Kim

The U.S. government has announced that it will not support civil use of the P(Y) signal after December 2020 (see EXPERT ADVICE, page 8). For the economic aspects of this decision, Alan Cameron (AC) talked with Jason Kim (JK), senior analyst at the Department of Commerce, working within the National Executive Committee for Space-Based Positioning, Navigation, and Timing.

AC: Give us first the basic groundwork for this decision.

JK: As you know, semi-codeless has never been explicitly authorized for use, it's really exploitation of military signals. The SPS Performance Standard and the Federal Radionavigation Plan state that the U.S. government will continue to provide stability for P(Y) until such time as the second coded civil signal becomes operational, or words to that effect. This refers to GPS modernization, L2C coming online now (though it's not fully operational), and L5, which is coming in the future. The plan was always that we would be able to end the use of semi-codeless technology because new capabilities would be equal to or better than the semi-codeless exploitation techniques.

We looked at the issue of there not being a specific authorization for semi-codeless access, and the need for some kind of public commitment to that. We plan to issue an updated version of the SPS Performance Standard sometime this summer; it won't contain this vague reference to P(Y) stability, in fact it won't refer to semi-codeless at all. A separate document, a DoD Federal Register announcement, will be the long-term commitment to protecting semi-codeless access to P(Y) code through 2020, or whatever decision we make about the final transition date. That will be a free-standing document, the first time we will formally acknowledge and commit to protecting the codeless and semi-codeless user base that has grown over the years.

AC: What did you find concerning economic impacts?

JK: We tasked the Aerospace Corporation to interview a representative set of semi-codeless manufacturers and service providers about normal product upgrade cycles, depreciation cycles, and amortization that the user base would go through. We talked about Galileo and other GNSS systems that are coming online, and how people are going to want to upgrade their equipment anyways, and of course as GPS is modernized and new capabilities come online, what's the time horizon for the user base that's out there today, doing surveying, mining, construction, agriculture? What's their normal upgrade cycle, what kind of timeline would we need to transition them away from the current semi-codeless access to newer equipment?

Of course this equipment is very expensive, it's thousands of dollars, so we're very concerned about making sure that we didn't set a time limit that was too short.

We also talked about the overall value of semi-codeless technology in terms of economic productivity benefits. We got examples of how semi-codeless and the centimeter-level of precision that it affords have really revolutionized industries like agriculture, changing the entire way they operate. They can run their equipment at night so they have twice as much time to get things done, and they use automated software to guide the machinery, so they don't need a highly skilled person to run the tractor. They can use machinery that has low horsepower because it's running for a longer period of time to get the job done, they're running 24 hours.

One thing the Commerce Department was interested in was, worst-case scenario, if we took away semi-codeless too early, say within five years instead of 12, what worst-case impacts would we be looking at? We did some rough estimates on the economic value of semi-codeless use. We picked the year 2012 just as an arbitrary date that would represent too early of a time for taking away semi-codeless.

Through the interview process, we identified at least 200,000 semi-codeless receivers in the field today, that's the installed base, through U.S. manufacturers telling us how many they had sold over time. It's a very, very conservative number that's really closer to 300,000 or more worldwide. Using the 200,000-unit number with an average incremental benefit of $8,500 per receiver in the year 2000, we placed the economic value worldwide at $1.3 to $1.7 billion per year -- the value that would be lost if you took away semi-codeless today.

For the year 2012, using some growth rates and extrapolating, your estimate would be between 373,000 and 0.5 million users worldwide, and the economic benefit to be lost worldwide would be $3.6--$4.8 billion. In the U.S., it would be $1.1--$1.9 billion.

It's a significant chunk of change that would be affected if we didn't act properly to protect the semi-codeless user base and allow them a natural migration towards re-equipage with modernized GPS capabilities, plus any foreign GNSS they wanted to take advantage of.

The 2012 impact estimate was just an exemplary worst-case scenario to show that there really is an important user base out there. We determined that most users won't be motivated to switch from the legacy semi-codeless capability to a new capability until the new capability is totally operational. It just doesn't make sense. Of course you can buy equipment today that has the new capability built-in, in addition to the old capability, and that can switch over to L2C-only when semi-codeless access ends. We expect a natural market-driven tendency to introduce that kind of equipment as capabilities come online. Of course nobody would be motivated to completely switch or stop using semi-codeless until the modernized capability is (a) fully operational, or (b) proven equal to or better than the legacy.