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Modifications to Spectrum Pricing

Summary

1.1 This Statement follows the publication of the Modifications to Spectrum Pricing Consultation document (“the Consultation”) on 6th July 2006 concerning proposals for setting Wireless Telegraphy Act (“WT Act”) licence fees.

1.2 The Consultation focused on proposed changes to licence charges (fees) payable under the Wireless Telegraphy Act for Business Radio, Satellite, Community Radio, Fixed Links together with some other minor changes. The Consultation closed on 15 September 2006 and Ofcom received a total of 51 responses.

1.3 The main fee changes proposed in the Consultation were:

To support the reform and rationalisation of Business Radio licences from twenty one licence products to five, Ofcom set out new mechanisms for calculating fees. These fee changes were also designed to support associated changes to introduce more trading and liberalisation as set out in a parallel consultation document on Business Radio Trading and Liberalisation published on the same day.
Satellite Earth Station fees to be updated through revised formulas and increased to be comparable with the level of administered incentive pricing (AIP) paid by other sectors (notably Fixed Links, which mostly use the same spectrum range).
Community Radio licence fees to be simplified to a single rate of £250 per licence per year.
Programme Making and Special Event fees to be increased as the second step of two increases to meet a continuing shortfall in the costs of managing these licences.
Other administrative changes and new fees for new services required.

1.4 The new fee proposed for Community Radio was strongly supported. Satellite Earth Station fee proposals generated quite a degree of discussion and some concerns. There were three responses in relation to programme making which raised some specific objections. In relation to Business Radio, respondents showed some support subject to detailed points and clarifications, but more general concern was voiced about how the changes would be introduced - especially where changes would lead to sharp increases. A fuller analysis is set out in summary below.

1.5 Ofcom has considered all these responses carefully, and whilst it has made some changes to its proposals, Ofcom largely intends to proceed with its proposals as planned. However the timescale for some changes will be longer than originally proposed.

1.6 The following table summarises Ofcom’s proposals, respondents’ comments and Ofcom’s decisions in relation to each of the licence sectors affected.

Table 1: Summary of decisions

Licence sector	Proposals	Responses	Ofcom Decisions
Business Radio	New pricing structures to reflect proposed new simplified licence class structure (see Business Radio Trading and liberalisation consultation document). New classes proposed are: • Business Radio (Area Defined) licence class to cover all national or regional uses. • Business Radio (Technically Assigned) licence class to cover local uses ranging from on-site to wide area uses. • Business Radio Light licence class including three products to cover all self coordinated uses. The new pricing structures for the Technically Assigned and the Area Defined licences will be derived from the current AIP value applied to BR licences – reflecting the opportunity cost of these bands. The new simpler pricing structures will result in a significant proportion of existing licensees paying less or the same and a minority paying more although they will have opportunities to mitigate these increases. These changes reflect the removal of a number of historical disparities and anomalies in fee levels.	Some understanding of why rationalisation would require changes, but concern where changes may lead to immediate large increases. Some doubts whether population is a good method of defining congested areas but no alternatives suggested. Some concerns about whether divisions by grid square are sufficiently granular in some areas which cut across key locations like central London or Bristol. Calls for new licence charges for Common Base stations to be introduced as soon as possible. Requests to phase in pricing reforms over a number of years.	Ofcom has decided to implement pricing proposals largely unchanged but on a longer timescale and to keep some aspects under review. One change has been not to have congestion charging for less popular bands. Otherwise, Ofcom believes that some increases are necessary to introduce a fairer approach to pricing based on value of spectrum used. Ofcom will keep under review whether in future more granular partitioning is needed. We have further clarified our proposals in some areas but made no changes to overall policy (see section 3 for more details). The timetable for introducing the new licence fee for Business Radio is discussed in the Business Radio Trading and Liberalisation statement.
Satellite Earth Stations	Pricing updated to match other AIP-based fees for services using same bands, resulting in higher fees. Introduction of new fee for new licence class - Earth Stations on Trains. Update to ensure current licence charges reflect the opportunity costs of spectrum used. Proposals for new Administered Incentive Pricing licence charges based on values derived from Fixed Links largely using same frequency bands.	Different views on whether AIP should apply to Satellite Earth Station licences. Some suggested it should not apply because there is a parallel market for transponder capacity in space. No strong objections to updated formula proposed but suggestions to use the 14 GHz rather than the 6 GHz band as the benchmark for prices. Some misconceptions about fees increasing much higher than Ofcom has proposed. Suggestions were made for phasing implementation.	Ofcom agrees with the suggestion that fees be based on those for the 14 GHz band. We would point out some of the new fees were heavily overestimated by respondents and we have provided updated examples in this statement. Ofcom believes it is wholly appropriate to implement AIP irrespective of the transponder market. Ofcom is prepared to phase the introduction of high fee increases in two annual steps. Initial implementation is not anticipated to be practical until the latter half of 2007/early 2008.
Programme Making and Special Events	Increase of fees for certain licences to bring fees more in line with external costs (20% overall increase). Change intended to help recover the costs of managing PMSE spectrum by JFMG.	Small number of responses, one raising detailed objections to proposals for increasing fees and one pointing out an anomaly for the calculation of an area covering Wales	Ofcom agrees to resolve the anomaly for the fee covering Wales, but does not accept the reasons for not increasing fees to cover external costs
Public Wireless and Fixed Wireless networks in Channel Isles and Isle of Man	Licence class extended to cover new network licences for the Channel Islands and Isle of Man. To be charged on same basis as other existing network licences (in the Islands and pro rata to the UK).	No concerns raised	Ofcom to proceed with proposals
Fixed Links	Surrender of Fixed Link licences (which allows reutilisation of spectrum) to be rewarded if pre-notified as opposed to charging until next renewal period. New bands to be made available for licence applications, to be charged at same rate as existing self coordinated bands. Removal of link length factor in calculating fees in the Channel Islands and Isle of Man to simplify.	Proposals for rewarding surrender supported and request to implement as soon as possible. No comments on Islands. Further issue (from last fee round) raised about rural discounts	Will implement the mechanisms for licence surrender and for the Channel Islands proposals at suitable opportunity. Ofcom does not currently believe that the added complexity of introducing rural discounts is justified at present.
Radio Broadcasting	Introduction of simplified fee for Community Radio licence class. To provide greater simplicity and to avoid Community Radio services in urban areas (especially those broadcasting on the AM (medium wave) band) being charged disproportionately more for their WT Act licences than services in non urban areas.	Respondents strongly agreed with proposals	Ofcom has decided to implement proposals unchanged as soon as practicable.
Science and Technology	New fee for ground probing radar and for some scientific uses.	No comments received.	Ofcom has decided to implement proposals unchanged.
Maritime	Reduction of the Coastal Station Radio fee for training school use of ship radio on land. To bring into line with new Ship Radio licence charges.	Only one response - general agreement with proposal	Ofcom has decided to implement this proposal as soon as practicable.

Modifications to spectrum pricing [pdf]

Modifications to Spectrum Pricing

Summary

Table 1: Summary of decisions

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