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Digital Dividend Review: geographic interleaved awards 470 - 550 MHz and 630 – 790 MHz

Executive summary

Introduction

1.1 This consultation document sets out our proposals for the award of part of the spectrum freed up for new uses by digital switchover (DSO). We call the spectrum made available by DSO the ‘digital dividend’. The digital dividend has been the focus of our Digital Dividend Review (DDR) since we launched it in 2005 .

1.2 There are two distinct categories of spectrum in the digital dividend: the spectrum that by 2012 will be cleared of television transmissions (the cleared spectrum); and capacity available within the 256 MHz of spectrum that will be used to carry the six digital terrestrial television (DTT) multiplexes (the existing DTT multiplexes) after DSO. We are concerned in this document with the second type, which we call the geographic interleaved spectrum. It is so called because for each channel within this spectrum there are geographic areas where not all of the channels will be used for existing DTT and in those areas these unused channels may be used for other services.

1.3 This document is one of three separate consultations we are publishing on implementing the digital dividend awards. Two other consultation documents set out our proposals on the auction for the cleared spectrum (published 6 June 2008) and on the ‘beauty contest’ for the part of the interleaved spectrum to be administered by a band manager with obligations to Programme Making and Special Events (PMSE) users (to be published later in the summer).

1.4 In our work on the DDR we have found potential demand for digital dividend spectrum for local television. In a statement we published in December 2007 (‘the DDR statement’) we set out our decisions on the strategic approach we would take to the release of the digital dividend. We considered arguments made to reserve spectrum exclusively for local television but decided against this. Among other things, we considered that this might displace other high value uses for the spectrum and would reduce incentives for efficient spectrum use.

1.5 We have also identified other potential uses for the geographic interleaved spectrum, including new DTT services over a wider area, mobile broadband and PMSE. We said in the DDR statement that we had decided therefore to award the geographic interleaved spectrum in lots that would be suitable for local TV but would not restrict their use to this service.

1.6 In the DDR statement we proposed that the spectrum to be awarded would be packaged in geographic lots, based on main TV transmission sites serving major towns and cities. We set out an indicative list of 25 possible locations across the UK where we expected that interest would justify offering such lots and/or where local television operators were already licensed to provide an analogue service. We said we would be prepared to consider other locations where there was evidence of demand.

1.7 We also said in the DDR statement that we would award the first set of spectrum lots for those locations where existing restricted television service licence (RTSL) operators need, prior to DSO, sufficient clarity about their options for future spectrum access. These are channels at the Caldbeck, Winter Hill and Wenvoe transmission sites for Carlisle, Manchester and Cardiff, respectively.

This document

1.8 The geographic interleaved spectrum that we propose to award can cover a substantial area of the UK. In this document we put forward 81 transmission sites for which we might award spectrum. If used for DTT, depending on the technology employed, they could in aggregate cover around 80 per cent of the UK population.

1.9 Use of the spectrum for new DTT services could impact on existing DTT services after DSO. We have had to consider both the level of protection that existing services should enjoy and the desirability of allowing a reasonable level of coverage for new services. The technical licence conditions we propose for the new licences aim to provide a reasonable balance between maximising the economic value of the spectrum and minimising the potential disruption to reception of existing DTT multiplexes.

1.10 In our studies of these transmission sites we have found that there are channels available that offer a range of options for coverage. There are those that provide good all round geographic coverage over a wide area. Others provide more limited directional coverage but are still potentially commercially significant. We have categorised these respectively as ‘large’ and ‘medium’ spectrum lots in our list of sites for award. At each of the 25 sites we identified in the DDR statement we could offer both categories of lots. At the other candidate sites we propose to offer ‘medium’ or ‘small’ lots (which provide a smaller or more localised coverage area).

1.11 We are proposing spectrum awards designed to meet the needs of different types of potential interested bidders.

1.12 We have identified 81 transmission sites and channels that could be included in the phased awards (see Table 6.1). In light of expressions of interest that we are seeking (see paragraphs 6.48-6.54) we will finalise the list before inviting applications to take part in the auctions.

1.13 We have considered which auction formats would be most suitable for the awards. Our proposals are:

1.14 In this document, we set out the auction process and main rules that we propose for the initial phased awards and invite stakeholders’ comments on them. We will take the comments received into account in finalising the award process and the rules. Draft award regulations will set out the rules in full and be subject to a separate, statutory consultation.

1.15 The wireless telegraphy licences that we award following the auctions will contain both technical and non-technical conditions. The technical conditions we propose are designed to protect the existing DTT multiplexes from harmful interference from new services after DSO. Since we see provision of DTT as the most likely use of the spectrum we are proposing to include technical conditions appropriate to DTT as basic technical conditions (see paragraphs 8.8-8.16). These may not be suitable for other new non-DTT services and if, after a licence award, the licensee wishes to provide other services we will consider variation of the technical conditions. Our proposed non-technical conditions cover, among other things, multiplex ownership and interoperability (to apply when the spectrum is being used as a DTT multiplex, see paragraphs 9.7 to 9.24). The spectrum rights conferred by the licences will be fully tradable. The licences will have an indefinite term with an initial period ending in 2026, during which time Ofcom’s powers to revoke will be limited.

1.16 It is important that the geographic interleaved award promotes both competition and efficiency in the award and use of the geographic interleaved spectrum. We believe that our overall award process will go a long way towards this. We have also considered whether there is a case for us to go further in terms of putting in place general safeguards or other interventions to secure these goals. We conclude that one general intervention may be appropriate, namely an information provision that may help to facilitate an efficient secondary market. We do not consider that there are any specific issues that require intervention or remedy in respect of the geographic interleaved spectrum.

Summary of proposals

1.17 The table below sets out in summary form our proposals for this award.

Table 1.1 Summary of proposals for the geographic interleaved awards

Available Spectrum Our proposals
Spectrum included in the geographic interleaved awards The geographic interleaved spectrum is the spectrum that will be available on a geographic basis within the 256 MHz of spectrum (470-550 MHz and 630-806 MHz) that will be used to carry the existing DTT multiplexes after DSO. It is proposed that channels 61 and 62 (790-806 MHz) will be awarded with the cleared spectrum. We propose that the remaining 240 MHz will be awarded by auction on a geographic basis, as detailed in this document.
Timing Our proposals
Timing of spectrum awards We propose a series of awards:
  • the initial phased award of ‘medium’ lots in late 2008 or early 2009 of lots for Caldbeck, Winter Hill and Wenvoe, i.e. sites which cover locations where there are existing RTSL operators that are subject to DSO by early 2010;
  • a combined award of ‘large’ lots in the locations identified as being most suitable for aggregation, including the 25 sites identified in the DDR statement (entries 1 to 25 in the list in Table 6.1). This award would take place soon after the award of the cleared spectrum, which is scheduled to begin in summer 2009.
  • possible phased awards of ‘medium’ and ‘small’ lots in early 2010 and in early 2011 ahead of the latter stages of the DSO timetable, subject to evidence of demand. This timing is designed to help those wishing to develop local TV services to arrange funding.
Lots to be included in the awards Our proposals
Lots to be defined by channel and geographic coverage We propose that packaging of spectrum will be in 8 MHz lots (channels).
We propose that the spectrum will be for geographically defined coverage areas.
The first award will be of lots for Caldbeck, Winter Hill and Wenvoe.
We propose that the combined award of ‘large’ lots will include the indicative list of 25 locations set out in the DDR statement.
The lots included in the phased awards will be finalised in light of expressions of interest we receive. This document includes a list of 81 candidate transmission sites and channels that could be included in the phased awards (see Table 6.1). In light of expressions of interest we will finalise the list before inviting applications to take part in the awards in early 2010 and in early 2011.
Annex 6 sets out the transmission sites and channels that may be included in each award and the phasing of awards.
Technical licence conditions (TLCs) Our proposals
Type of TLCs We propose to define the TLCs for the available spectrum in the form of block edge masks suitable for the provision of DTT. Where a licensee wishes to provide a service other than DTT we will consider varying the licence. This may require a TLC in the form of spectrum usage rights (SURs) and a ‘protection clause’ to protect the existing DTT multiplexes.
Balancing new DTT services with protection of existing DTT services We propose that new DTT services should protect the best DTT coverage and recognise both where analogue aerials are directed and regional and national ITV boundaries. This is the ‘median option’ described and analysed in paragraphs 5.30 to 5.52.
Non- technical licence conditions Our proposals
Multiplex ownership and interoperability We propose to include certain restrictions on ownership in relation to use of geographic interleaved 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 geographic interleaved spectrum and existing DTT services.
Licence term We propose that the licences will have an indefinite term with an initial term ending in 2026. During the initial term we will not have the power to revoke for spectrum management reasons.
We would have the power to revoke the licence for spectrum management reasons at any time after the initial term, subject to giving the licensee five years notice. The notice may be given during the initial term which could lead to the licence being revoked at the end of the initial term.
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 We propose that all licences in this award will be tradable. All types of trade - partial or total; concurrent or outright - will be permitted.
Non-technical restrictions We propose that the licences will not contain any restrictions on the use to which the spectrum could be put, other than technical licence conditions.
Auction designs Our proposals
Auction formats For each stage we propose the following auction formats:
  • a single unit ascending bid auction for each lot for Caldbeck, Winter Hill and Wenvoe;
  • a combinatorial clock auction or simultaneous multiple round auction for the award of ‘large’ lots in the locations identified as being most suitable for aggregation – we express a preference for the former.
  • a single unit ascending bid auction for each lot in the phased awards of ‘medium’ and ‘small’ lots.
Main rules for the ascending bid auction of lots for Caldbeck, Winter Hill and Wenvoe Our proposals
Qualification and activity rules We are proposing that the nature of the rules and penalties relating to collusion and bidder association should be similar to those that we have put in place for other recent spectrum awards. As such, we would 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 would also consider whether any members of one bidder group are also members of another bidder group.
Deposits We propose to require deposits at a number of points in the process:
  • Applicants pay an initial deposit on the day designated for the submission of applications. Subject to the outcome of this consultation, we propose to set the level of the initial deposit at £10,000.
  • Before the auction starts we will require bidders to increase their deposits so that they are at least equal to the reserve price.
  • During the ascending bid stage we may ask bidders to make additional deposits to cover the amount of their bids.
Reserve price Each lot available for award will carry a reserve price, below which it will not be sold. We propose to set for each lot a reserve price of £25,000.
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.
Information policy There is a range of options for releasing information in the ascending bid stage of the auction. We consider that full transparency would make for an efficient auction, with bidders receiving after each round full information on the bids all other bidders have made.
Payment terms We propose to issue a licence to the winning bidder on full payment of its licence fee, i.e. the price determined through the auction process or reserve price where applicable.
Unsold licences If a licence remains unsold at the end of the auction, either through an absence of bids or default, we will choose whatever course of action we consider appropriate at that time in accordance with our statutory duties.
Competition and efficient use of spectrum Our proposals
‘Use it or lose it’ conditions We propose not to impose any ‘use it or lose it’ conditions.
Roll-out obligations We propose not to impose any roll-out obligations.
Open access conditions We propose not to impose any open access conditions.
Information provision We propose to include a licence condition requiring licensees to provide certain information regarding their use of the spectrum, which we would then publish in order to facilitate spectrum trading.
Spectrum caps We propose not to impose any spectrum caps in respect of the geographic interleaved spectrum, either on a standalone basis or linked to the general safeguard spectrum cap of 50 MHz suggested for the cleared award.
Question 1. The executive summary sets out our proposals for the digital dividend geographic interleaved award. Do you agree with these proposals?

Next steps

1.18 This consultation closes on 21 August 2008. We are planning to hold a seminar on our proposals during the consultation period. More information about the next steps is set out in section 11 of this consultation.



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