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Executive summary

1.1 This consultation document launches the implementation phase of the digital dividend review (DDR). In this document we set out our proposals on the packaging and auction design for the digital dividend cleared award together with our approach on conditions to be included in the licences that will be awarded at auction.

1.2 Two other consultation documents, which we expect to publish shortly will set out our proposals for the auction for the DDR geographic interleaved spectrum and for the beauty contest for the remaining interleaved spectrum for the award of a licence for a band manager with obligations to Programme Making and Special Events (PMSE) users.

1.3 Our aim in designing these awards is to facilitate the release of this important resource in a manner which not only reflects existing consumer demand and the technological advances made in wireless communications over recent years, but also allows this spectrum to change use and adapt to changing consumer demand and developments in technology.

1.4 Experience of spectrum awards in the UK and elsewhere suggests that a well-designed auction can be a powerful tool for encouraging new entry, new services and new technologies. An important part of the proposals set out in this document is our consideration of awarding the DDR spectrum in a manner that can best promote competition and innovation in downstream markets.

Our objective

1.5 Our objective for the DDR is to maximise the total value to society that using the digital dividend may generate over time. It is not our objective to raise revenue for the Exchequer, nor is this a consideration that we can take into account, given our statutory duties.

1.6 Over the past two years, we have consulted on our strategic approach to the release of the DDR spectrum. We have concluded that we should take an approach that puts the market at the centre of decision-making, rather than the regulator.

1.7 This means that for the most part it will be users, not regulations, that decide how, for what, and by whom the spectrum should be used, subject mainly to technical conditions designed to prevent harmful interference.

The cleared spectrum

1.8 This document concerns the release of the single largest group of spectrum bands considered in the DDR, known as the cleared spectrum. This comprises 128 MHz of spectrum that will be cleared of existing uses UK-wide by, at the latest, late 2012.

1.9 This 128 MHz comprises in turn 112 MHz of spectrum that will be released as a consequence of digital switchover; 8 MHz that will be released by clearing aeronautical radar from channel 36; and an additional 8 MHz that will be cleared as a result of the decision by the authorities responsible for UK’s radio astronomy to place channel 38 in the DDR cleared award.

1.10 This spectrum forms two large contiguous blocks. One runs from 550-630 MHz. The other from 806-854 MHz. In addition, we propose to award in the same auction rights to 16 MHz of interleaved spectrum that is adjacent to one of these two blocks, at 790-806 MHz.

1.11 Our research shows that there is a wide variety of potential uses for this spectrum. The most likely uses include mobile multimedia services (Mobile TV), mobile broadband (including two way mobile services), and Digital Terrestrial TV (both in Standard and High Definition).

1.12 Consistent with our wider strategy, this document sets out how we plan to release the spectrum in a way that will allow the widest possible range of technologies and services to take part in the award. It also describes how we propose to make the licences tradable so that the identity of users and the type of use can change over time, reflecting changes in technology and the preferences of citizens and consumers.

Timing of the award

1.13 We propose to award the cleared spectrum as soon as possible. We consider that the auction could begin in summer 2009, consistent with the proposals in this document.

1.14 This timing will give the market the maximum opportunity to make use of the spectrum as soon as possible. It will also mean that providers can begin to offer new services with the minimum delay following the cessation of existing uses. This should help to maximise the benefits to citizens and consumers from potential extra competition and innovation.

1.15 We do not think it is likely to be desirable to delay the award of this spectrum artificially beyond this date. We judge that the market is better placed than the regulator to decide the use of spectrum, and that an auction to this timescale would offer a fair opportunity for participation by the wide range of potential bidders. These parties would be able to take into account in their decisions all the information available to them at the time; and the award design proposed here would help to ensure that these decisions were efficiently reflected in the auction outcome.

1.16 We will however continue to take into account developments at EU level in taking decisions on the timing and other aspects of the award. This is in particular because of the scope for European legislative action which could have a binding effect on the UK.

1.17 At present, the nature and content of further action at EU level is unclear. The European Commission has said that it plans to set out a regulatory road map on the digital dividend in late 2008. Any Commission proposals are likely to be influenced by the outcome of discussions in the European Parliament and Council where the issue of the Digital Dividend is currently being addressed. We will keep these developments under review.

1.18 As set out in the DDR Statement, we strongly support a non-mandatory approach to harmonising the digital dividend in the EU. This will allow Member States to participate to the extent that they wish while not favouring one use of the digital dividend over others.

Detailed proposals

1.19 The table below sets out a summary of our detailed proposals for this award:

 

Table 1.1 Summary of detailed proposals

Available Spectrum	Our proposals for consultation
Spectrum included in the cleared award	The cleared award will include the following spectrum bands: 112 MHz of spectrum cleared on a UK-wide basis as a result of DSO; 8 MHz of spectrum cleared on a UK-wide basis as a result of aeronautical radar ceasing to use channel 36 in March 2009; 8 MHz of spectrum cleared on a UK-wide basis as a result of UK radio astronomy ceasing to use channel 38 in 2012; and 16 MHz of interleaved spectrum in channels 61 and 62. The cleared spectrum comprises two blocks of contiguous spectrum: 550-630 MHz and 806-854 MHz. The interleaved spectrum comprises 790-806 MHz.
Timing	Our proposals
Timing of the cleared award	We propose to hold the cleared award so that the award begins in Summer 2009
Continued PMSE access to cleared spectrum	We consider whether to increase the notice period for ending temporary PMSE access to channels 63-68 from 6 to 12 months. We also consider whether to offer temporary access to channels 31-40.
London 2012 Olympic Games and Paralympic Games	We suggest that rights awarded to the spectrum cleared as a result of DSO in London could begin after the London 2012 Olympic Games and Paralympic Games have been concluded.
Technical licence conditions (TLCs)	Our proposals
Type of TLCs	We propose to define the TLCs for the available spectrum in the form of Spectrum Usage Rights (SURs). The SURs will be tailored to the different transmission network types that are likely to be deployed in the spectrum.
Guard bands	We suggest guard bands will be needed between licences with different SUR types. Winners of licences will be able to negotiate with licensees in adjacent spectrum in order to modify the emission restrictions contained in the guard bands.
Protection of existing DTT services	To prevent interference to existing DTT services adjacent to the available spectrum, we propose to include a clause in every licence in the DDR Cleared Award. The clause would place an onus on the new licensees to plan network roll out to keep interference to existing DTT services to a minimum
Protection of radio astronomy (in UK to 2012; internationally before and after 2012)	To prevent interference to UK radio astronomy in channel 38, the winner(s) of spectrum in channels 37, 38 and 39 will be subject to TLCs which will prevent transmissions within defined geographical areas up to 2012. To prevent interference to international radio astronomy, the winner of spectrum in channel 38 will be subject to emission limits such that the spectrum will mainly be suitable for low power services (although potentially for high power services in the future if international restrictions on emissions were eased). Standard TLCs will be awarded to the winners of spectrum in channels 37 and 39 but network deployments in these channels is likely to be constrained in order to limit the emissions made outside UK borders.
Non- technical licence conditions	Our proposals
Multiplex ownership and interoperability	We propose to include certain restrictions on ownership in relation to use of cleared spectrum to operate new DTT multiplexes. These would reflect the similar regime under the Broadcasting Act (for example preventing religious or political bodies from holding licences for this purpose). We propose to facilitate technical interoperability between any new DTT services in cleared spectrum and existing DTT services.
Licence term	We propose that the licences should have an indefinite duration, with an initial term ending in 2026 during which Ofcom's powers to revoke will be limited. After the initial term Ofcom will have the power to revoke licences for spectrum management reasons on not less than 5 years' notice. This could lead to the licence being terminated the day after the expiry of the initial term or at any time thereafter.
Licence fees	The auction will determine the fees payable, subject to a reserve price. After the expiry of the initial term, if a licensee continues to hold its licence, there may be additional charges. In particular, to incentivise efficient use of the spectrum, we presently expect to charge AIP.
Spectrum trading	All licences in the cleared award should be tradable. All types of trade - partial or total; concurrent or outright - will be permitted.
Non-technical restrictions	The licences will not contain any non-technical restrictions on the use to which the spectrum could be put.
Information provision	The licences should contain provisions requiring licensees to provide us with information about spectrum usage.
Spectrum packaging	Our proposals
Frequency size of lots	Both 5 MHz and 8 MHz lots should be offered across the available spectrum.
Frequency specificity of lots	A mixture of frequency-specific and frequency-generic lots should be offered, grouped into around 35 categories.
Geographic scope of lots	All lots should be UK-wide in geographic scope.
Auction design	Our proposals
Auction format	We propose to use the combinatorial clock auction format (CCA) for the cleared award
Deposits	We propose that the initial deposit payable on application would be in the range £50,000 to £100,000 in this award. Further deposits will be required as the auction unfolds.
Qualification rules	The nature of the rules and penalties relating to collusion and bidder association are likely to be similar to those that we have put in place for other recent spectrum awards. As such, it is likely that we will notify each applicant of the names and associates of all other applicants and set a date by which applicants must notify us as to whether any members of their bidder group are also associates of another applicant. We are also likely to consider whether any members of one bidder group are also members of another bidder group.
Pace of the auction	We propose to retain discretion over the scheduling of primary bid rounds, which includes discretion over the number of rounds per day, together with retaining a level of discretion over round price increases in managing the duration of the auction.
Activity rules	We consider whether to use an ex ante eligibility points activity rule or a revealed preference activity rule for the cleared award and welcome stakeholders comments on this
Switching rules in primary bid rounds	We consider whether to restrict the ability of bidders to switch demand during the auction to different TLC types.
Information made available in primary bid rounds	At the end of each primary bid round, we propose to reveal to each bidder the aggregate demand for lots by category. We may also allow bidders to obtain information about anonymised individual demand in previous rounds.
Base price and additional price determination	We expect base prices and additional prices to be calculated using a second price rule
Limits on supplementary bids	For supplementary bids for packages which had eligibility points above the bidder’s activity in the final primary bid round, the bid amount is likely to be capped at the price that would have applied to that package in the round where the bidder was last eligible to bid for the package concerned.
Competition and efficient use of spectrum	Our proposals
‘Use it or lose it’ conditions	We propose not to impose ‘use it or lose it’ conditions.
Roll-out obligations	We propose not to impose any roll-out obligations.
Access requirements	We propose not to impose access requirements.
Spectrum caps	We propose to cap the maximum volume of spectrum that can be acquired by any one participant in the cleared award at 50 MHz
Sub 1 GHz spectrum for mobile broadband	We consider ways to address competition concerns relating to operators holding large amounts of spectrum below 1 GHz suitable for mobile broadband services. We ask for views on whether a ‘soft’ spectrum cap might be a suitable remedy.

Question 1: This executive summary sets out our proposals for the Digital Dividend Cleared Award. Do you agree with these proposals?

Next steps

1.20 This consultation will close in 14 August 2008. We also expect to hold a seminar on these proposals in early July 2008 for stakeholders during the consultation period.

1.21 During the consultation period, we also intend to engage with key stakeholders on the practical implementation of our proposals on the protection clause

1.22 Subject to the conclusion of this consultation, we believe it to be prudent to plan on the basis of a second detailed consultation focussed on outstanding technical and engineering issues in Autumn 2008.

1.23 Table 1.2 below therefore sets out the current timetable for holding the cleared award.

Table 1.2 Timetable for the DDR cleared award

Service	Subtitling
May 2008	First consultation on detailed award design
Summer 2008	First consultation closes
Late autumn 2008	Second consultation on detailed award design
Winter 2008	Second consultation closes
Late spring 2009	Information memorandum and draft regulations
Summer 2009	Award begins

The full document is available below

• Digital Dividend Review: 550-630 MHz and 790-854 MHz [pdf]
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