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Summary

Spectrum is a vital resource for the UK economy, including the aeronautical and maritime sectors

1.1 The civil aeronautical and maritime sectors are significant contributors to the UK economy and their ability to operate safely and efficiently is dependent on access to radio spectrum. Their use of VHF radiocommunications, radar and other radionavigation aids together occupies about 7% of spectrum below 15GHz[^(-1-)].

We need to create strong incentives to ensure that spectrum is used efficiently

1.2 Generally, the use of spectrum for one purpose denies its availability to other users. Spectrum is a finite resource, and the evolution of new spectrum-reliant services means that there is ever-growing pressure on this resource to meet the demands of cirizens and consumers.

1.3 It is neither feasible nor desirable for Ofcom to try and determine, on behalf of citizens and consumers, exactly how spectrum should be used, or how much spectrum should be allocated to a particular application. Ofcom’s approach is, instead, to create clear incentives for decision makers (users, government and society at large) to use spectrum efficiently. In particular, we seek to ensure that users can determine their need for spectrum in light of the cost which this imposes on society.

The contribution that price signals can make has long been recognised

1.4 Since 1998, the Radiocommunications Agency and subsequently Ofcom have set about achieving this by applying a system of Administered Incentive Pricing (“AIP”), along with using auctions to allocate released spectrum, and making spectrum licences liberalised and tradable. All of these measures are aimed at enabling users to take decisions about their use of spectrum, in light of its value to other uses and users.

1.5 AIP is intended to apply market disciplines to the holding and use of spectrum rights, by requiring users to consider their spectrum needs in light of the AIP fees payable. AIP is already paid by most private sector users of spectrum, except where upfront fees have been set at auction. Many public sector users, including the Ministry of Defence (“MOD”) and the emergency services, also pay AIP.

We are taking forward a spectrum management strategy developed since 1998 and endorsed by government

1.6 In 2004 the Government commissioned a major review of spectrum holdings from Professor Martin Cave. The review considered what action could be taken to release the maximum amount of spectrum to the market and increase opportunities for the development of innovative new services.

1.7 One of Professor Cave’s key recommendations, set out in a wide ranging report[^(-2-)] published in December 2005 (the “Cave Audit”), was that AIP should be extended to the civil aeronautical and maritime sectors where it has the potential to help increase efficiency of spectrum use now or in the medium to long term.

1.8 The Government, in its response to the report published on 22 March 2006[^(-3-)] , agreed that “there is a strong case for introducing pricing to civil aeronautical spectrum where current use imposes an opportunity cost”. The Government also reported that, subject to consultation, Ofcom with the Maritime and Coastguard Agency (MCA) would extend AIP to cover certain maritime radionavigation and communication systems, on a similar timescale as that proposed for introducing AIP for aeronautical services.

1.9 In June 2006, Ofcom commissioned consultants Indepen and Aegis to consider how AIP might be applied to the aeronautical and maritime sectors. The consultants’ report[^(-4-)] was published by Ofcom in March 2007, without detailed comment from Ofcom. A number of key stakeholders provided detailed comments to Ofcom, which we have considered alongside other inputs in drawing up our initial proposals. Since then, in addition to discussion with the Department for Transport (“DfT”), the Civil Aviation Authority (“CAA “) and the Maritime and Coastguard Agency (“MCA”), we have held stakeholder workshops to explain the issues and seek feedback from interested parties.

We now need to consider the practical implications of this strategy for the aeronautical and maritime sectors

1.10 The Cave Audit and the Indepen report looked, in different ways, at the case for pricing this spectrum, but not directly at the potential effects on users. Assessing the impact of any proposed fees is an essential part of Ofcom’s job in implementing this strategy.

1.11 The aeronautical and maritime sectors are complex, encompassing very large international businesses, smaller businesses, individuals, and organisations with charitable aims (such as the RNLI). We need to understand the impact throughout the sectors and this will require considerable input from stakeholders. In particular, we are seeking input from spectrum users, based on the opportunity costs indicated in this document, but we will also wish to consider carefully the views of the UK bodies responsible for air and maritime regulation and industry sponsorship: the CAA, the MCA and the Department for Transport.

1.12 We are therefore issuing this initial consultation, in which we set out the principles of our approach, and the implications of indicative opportunity costs for potential fee levels in one category of licence (VHF radiocommunications in both sectors), in order to enable stakeholders to consider what we need to take into account before proposing fee rates for any bands.

We are proposing a phased approach

1.13 We are proposing a two stage approach, with pricing of VHF radiocommunications channels being taken forward before any pricing of radar and aeronautical radionavigation aids. It is possible that aeronautical and maritime VHF channels may attract AIP fees from 2009. Radar and aeronautical navigation aids will not attract AIP fees before 2010.

1.14 The reason for this two stage approach is that we believe the pricing regime for Business Radio, which was set out in Ofcom’s statement Modifications to spectrum pricing[^(-5-)] published in January 2007, provides an effective and reasonable template for pricing maritime and aeronautical VHF channels. If, following responses to this consultation and our consideration of those and other evidence available, we conclude that this template is suitable, it should be a relatively simple task to design a pricing matrix to apply to maritime and aeronautical VHF channels. We are setting out initial proposals framed on this basis.

1.15 In contrast, the task of devising an appropriate methodology for apportioning fees to radar and aeronautical navigation aids is much more complex, and Ofcom is proposing to work closely with stakeholders (including the DfT, the CAA and the MCA) before making any formal proposals. In this consultation document we are setting out proposed reference rates for these spectrum bands (expressed as a rate per 1 MHz of national bandwidth). However, we have not attempted to articulate how these reference rates should be translated to fees for specific licences.

The purpose of this consultation is to assist stakeholders in expressing views on how the policy of extending pricing to these sectors should be implemented

1.16 After considering responses to this consultation exercise, Ofcom expects to consult more formally on specific fee proposals for maritime and aeronautical VHF radiocommunications channels before making the necessary Regulations to implement those fees. This second consultation will also set out Ofcom’s considered view on the appropriate level of reference rates to apply to radar and aeronautical radionavigation aids. At that time we also hope to explore in more detail some of the factors which Ofcom would expect to take into account when deriving individual licence fees, for radar and aeronautical navigation aids, from those reference rates.

1.17 In making those further proposals, Ofcom needs to be informed by the views of stakeholders (spectrum users, government and sector regulators). This initial consultation is intended to set out a proposed framework and some reference points to enable stakeholders to respond on an informed basis, providing insights on the possible impacts of different approaches. In light of responses, Ofcom will develop an Impact Assessment in relation to any fees we propose.

Some maritime and aeronautical uses of spectrum will not attract AIP fees

1.18 We have no plans to apply AIP fees to ship radio licences, and we are not minded to charge fees to aircraft either. We are inviting views on whether charities whose objective is the safety of human life in an emergency should receive a discount. We are not proposing to charge fees for maritime and aeronautical distress channels.

We think there is scope to improve the information for future policy decisions if DfT pays for reserved spectrum, and also, potentially, if DfT recognises the opportunity cost of some other spectrum

1.19 We also consider that the DfT, as the government department responsible for these sectors, could usefully face some incentives to ensure that spectrum allocations, and obligations to use spectrum, are decided efficiently.

1.20 The Cave Audit recommended that the Government should “make a clear commitment to the principle of paying AIP charges on its spectrum holdings”, and the Government’s response gave this commitment. In the case of aeronautical and maritime bands, we consider that this principle could be applied to any unused spectrum that DfT wishes to reserve for the civil maritime and aeronautical sectors. Whether, and when, to apply this principle is a matter for Government to decide.

1.21 Additionally, there are some aeronautical and maritime uses for which we are not proposing to set licence fees based on AIP, because we do not currently see an efficiency benefit from doing so. Examples are airborne-only radionavigation uses, and the allocations for EPIRBs and distress communications channels. While decisions by individual users would not, in the current circumstances, affect the use of the spectrum, there is potential, in the longer term, for Government’s policy decisions to result in changes that could improve the efficiency with which the spectrum is used. We therefore see efficiency potential in arrangements that would ensure Government took the opportunity cost of the spectrum in airborne-only radionavigation use (but not EPIRBs or use of VHF distress channels) into account. It is for Government to consider whether this would be appropriate, and if so, to devise the precise arrangements for this to happen: one option would be for DfT to make payments in respect of this spectrum, but there may be other ways of securing the objective of informing future policy decisions.

Where we propose fees, we will consider whether timing should be phased

1.22 Where the introduction of AIP fees can be expected to have a significant effect on businesses, we would expect to phase in any such fees over a number of years. Ofcom recognises that the ability of some spectrum users to pass on costs may be constrained in the short term variously by contractual and investment commitments, business plans and the market environment, and sector regulation.

Footnotes:

1.- See Chapter 1 to Independent audit of spectrum holdings – An independent audit for Her Majesty’s Treasury December 2005 at http://www.spectrumaudit.org.uk/pdf/20051118%20Final%20Formatted%20v9.pdf

2.-See footnote 1

3.-See Independent audit of spectrum holdings - Government response and action plan March 2006 at http://www.spectrumaudit.org.uk/pdf/Governmentresponse.pdf

4.- http://www.ofcom.org.uk/research/radiocomms/reports/spectrumaip/aipreport.pdf

5.- See Statement at http://www.ofcom.org.uk/consult/condocs/pricing06/statement/statement.pdf Regulations implementing these new fees for Business Radio were held pending the introduction of Ofcom’s new electronic process for managing spectrum licences.

The full document is available below

• Applying spectrum pricing to the Maritime and Aeronautical sectors [pdf]
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