If you choose to implement encryption at the physical layer, it might be because:
- Either you need for some reason to support anything which could compose the link layer 2, you want your encryption scheme to be independent and transparent to potentially unsecured upper layers.
- Some requirement make it unavoidable to work as close to the physical as possible.
The only current use-case I could imagine for such purpose would be radio-communication, and mostly military grade radio-communication. For instance, there are systems obfuscating the communication as to appear as electromagnetic blank noise while being actual communication (trying to avoid detection and localization issues). Such encoding does not process bytes, it directly processes the electromagnetic waves so it needs to be located at the physical layer.
In all case physical layer encryption would bring quite a high complexity, and therefore higher cost, so most chances are that its usage is limited to military & co. As far as I know for civilian usage using a standard physical layer with encryption implemented no lower than layer-2 is usually sufficient.