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Spectrum Framework Review Statement

1.1 Introduction

One of Ofcom’s key statutory duties is to ensure the optimal use of the radio spectrum under its management^(-1-). Radio spectrum is a major asset to the UK, contributing some £24bn to the economy each year and underlying many aspects of our lives. Radio communications is critical to areas such as air travel, emergency services, cellular telephony, sound and television broadcasting, defence and our utilities. Ofcom has been considering carefully its management of this vital resource and published the “Spectrum Framework Review” for consultation in November 2004. The responses have now been analysed and taken into account in publishing this Statement. Summaries of the responses, our reaction to the issues raised and a summary of the changes made in moving from the consultation document to this statement can be found in the Annexes. Note this Statement applies only to spectrum under Ofcom's management ^(-2-) .

1.2 The reasons for regulating spectrum

If access to the spectrum was completely unregulated there would likely be intolerable interference in many areas. For example, some broadcasters might set up transmitters on the same frequencies and engage in ‘power races’ where each would try to drown out its competitors, resulting for the most part in nobody being able to receive a signal. Indeed, this is exactly what happened in the US in the 1920s.

The role of the spectrum manager in outline is to ensure that no two users transmit on the same frequency at the same time and sufficiently close together that they interfere with each other. To do this, the spectrum manager does not give out “spectrum” but instead provides the right to transmit on a particular frequency over a particular geographical area. Such a transmission right is sometimes referred to as “access to the spectrum” and users will sometimes refer to having bought “spectrum at auction”. There is often an international dimension to this as radio signals do not stop at international borders.

Spectrum has been managed in the UK for around 100 years. The general approach adopted world-wide during this period has been for the spectrum manager to decide, often in accordance with an agreed international framework, on both the use of a particular band and which users are allowed to transmit in the band. This approach was appropriate while there were relatively few uses and users so that the spectrum manager could have as good an understanding of the best use of spectrum as the market itself and hence could sensibly control all aspects of spectrum usage.

However, in recent years, as demand has started to exceed supply in some areas, this centrally managed approach to spectrum, sometimes termed “command & control”, has started to become problematic. Where spectrum is scarce the use of “beauty contests” meant that Government had to choose between competing would-be service providers. In the US, such decisions were increasingly subject to legal challenge leading initially to the use of lotteries to overcome this problem and then eventually to the use of auctions. Other countries have followed the US lead. Auctions are useful tools in deciding who can use the spectrum, but they need to be combined with the ability to change use, which we term "liberalisation" to help decide the use that spectrum can be put to.

1.3 The changes to spectrum management

In outline, there are three different ways to manage the radio spectrum in order to determine what use it should be put to:

The regulator manages the radio spectrum in a similar fashion to the way it has been managed for the last 100 years. This is often known as “command & control” and until recently has been used for around 95 per cent of the spectrum;
The market manages the radio spectrum within the boundaries of terms in the licences as set by Ofcom. This is known as “market mechanisms” and was strongly recommended in the Review of Radio Spectrum Management (the "Cave Report") that the Government commissioned on spectrum management in 2001. It is currently being introduced in the UK;
Nobody controls who uses the spectrum, but power constraints or other mechanisms restrict usage to reduce the probability of interference. This is known as “licence-exempt use” or sometimes “spectrum commons”. Around 5 per cent of the spectrum in the UK is currently set aside for licence-exempt use.

A key decision for Ofcom to make is the balance between these different approaches. We are setting in place mechanisms that will change this balance over the next five years as shown in Figure 1.1 in simplified and illustrative form.

Figure 1.1: Current and future balance of spectrum use

As a light-touch regulator our preference is to move away from central management, allowing market forces to prevail and increasing the use of licence-exemption. We have considered carefully the role for licence-exemption. This is a key area for innovation and growth, with recent examples including WiFi and BlueTooth. However, in order to avoid interference in this unmanaged area, transmit power levels need to be kept low, normally restricting services to ranges of less than around 100m. Our calculations show that if there were 800MHz of spectrum available for licence-exempt use then every person could have 100Mbits/s short range services – more than enough to allow simultaneous high definition TV, browsing and on-line gaming. With around 600MHz of spectrum already available for licence-exempt use, of which over 400MHz has only very recently been made available, a small additional expansion is all that is needed to create significant benefits, although we have not identified specific frequencies yet. Expanding beyond this would result in unused spectrum. This is an area we need to keep under careful review as applications and demand grows.

We believe that market forces should be allowed to prevail where this is in the best interests of citizens and consumers. This is based on the belief that firms have the best knowledge of their own costs and preferences and a strong incentive to respond to market signals and put resources to their best possible use. The increased reliance on market forces is a trend across many areas such as fishing quotas and even pollution rights. It has been strongly advocated in spectrum by Professor Martin Cave and others, and successfully implemented to varying degrees in Australia, New Zealand and recently in the US. Allowing the users of the radio spectrum to decide on the best use for it will result in the spectrum being used for the most valuable purposes, and will make it much simple, cheaper and quicker for new applications and technologies to emerge. In a recent report for the EC, Analysys consultants suggested that the benefits in the EU of trading and liberalisation could be €9bn per year.

We believe that when there is sufficient spectrum available for licence-exempt use, market forces should be allowed to prevail where possible through the introduction of appropriate market mechanisms. The areas where there are difficulties in the full application of market mechanisms are:

Where signals cross international boundaries, in particular satellite transmissions and low frequency signals;
Where international mobility is critical, for example maritime and aeronautical applications including communications and radar; and
Where there are legally binding EU harmonisation measures in force.

These areas will continue to require some degree of management for the foreseeable future. However, we will aim wherever possible to deregulate and release market pressure. We are also considering the possibilities simplifying licensing in areas such as maritime although technology and usage restrictions will continue to apply.

1.4 The role of trading and liberalisation

As set out above, the key change that we will make is to increasingly allow market forces to prevail wherever this is judged to be in the best interests of the citizen-consumer. The key mechanisms we will use to achieve this are:

Trading of spectrum between users so that they can buy, sell, aggregate and disaggregate spectrum holdings; and
Liberalisation of spectrum use, so that increasingly users can change the technology or type of use that they make of the spectrum they hold.

Our proposals for trading are now well advanced. We implemented trading in some licence classes at the end of 2004 and plan to progressively extend trading to almost all suitable licence classes by the end of 2007.

We have also published a statement on spectrum liberalisation. This is a more complex issue than trading - spectrum users have been packed in tightly by spectrum managers over the years, with many users sharing spectrum, and inappropriate liberalisation could cause intolerable interference. Some restrictions on the use of spectrum are therefore essential. There are two mechanisms by which Ofcom will implement liberalisation:

The first relies upon licence variation to implement changes requested by users. Ofcom will consider all such requests in the light of its statutory duties and other factors, in particular we will consider whether the request can be granted without resulting in unacceptable interference to other users.
The second mechanism involves Ofcom varying existing licences to make them less usage and technology specific. This would allow licensees to make certain types of change to their use of spectrum without needing the prior consent of Ofcom. Ofcom has already identified a number of such changes that are likely to be possible in 2005. However, the more general use of this approach raises some challenging technical questions, which are discussed in this document.

1.5 Technologies which might co-exist with licensed use

In general, Ofcom will make every effort to encourage the emergence of new technologies as long as they help achieve the objective of optimal spectrum usage.

A new technology, ultra-wideband (UWB), has been proposed and allowed in the US. UWB transmits at low power levels but across a wide bandwidth. It can be used to provide a range of potentially valuable services, such as in-home wireless entertainment systems. In a separate consultation document we have proposed the introduction of UWB across the EC and we are working within Europe to achieve this goal.

A different type of co-existence is cognitive radio. A cognitive radio looks for momentarily unused parts of the spectrum, makes use of the spectrum and then vacates it before the licence holder wishes to use it. We see many technical and commercial problems with cognitive radio which might result in interference and so do not propose to make it licence exempt. However, under trading legislation we will allow licence holders to agree cognitive access with third parties if they wish to do so.

Technologies like UWB raise the question as to whether spectrum should be divided differently. At present, spectrum is divided by frequency. However, UWB might be simpler to introduce if spectrum was divided by power. We have examined different methods of dividing the spectrum and concluded that it is most appropriate for the regulator to continue to divide by frequency, but with more generic allocations. Users, or band managers, can then sub-divide using other methods as appropriate.

1.6 Many users of the radio spectrum will be affected

These changes represent a significant change in the way that radio spectrum is managed. Users, particularly of fixed and mobile systems, will have new opportunities opened up for them. Equally, this will be a significant change for those already using spectrum and there needs to be appropriate transitional arrangements to recognise existing investments. Increasing use of trading and liberalisation could lead to major changes in the services delivered using radio spectrum. It is not Ofcom’s role to predict possible developments, but by way of illustration, here are some of the things that might happen:

An operator acquires some spectrum previously used for fixed applications and deploys a WiMax mobile data service, providing multi Mbits/s mobile laptop coverage across major parts of the country;
Cellular operators gain more spectrum, enabling a raft of new applications like interactive gaming and personal broadcast services at low cost;
Emergency services gain temporary access to spectrum when they need it to enable video from the helmet of fire-fighters and emergency medical workers, resulting in many lives saved; and
Consolidation occurs in the private mobile radio market, resulting in a low-cost but higher capacity service, reducing operating costs for taxi companies, despatch riders and many others.
What actually happens may be very different from this. Importantly, changes will be based on real market need rather than the regulator’s assumptions.

1.7 Our vision for spectrum management

Our vision for spectrum where market forces can be applied can be summarised as:

The Ofcom Spectrum Vision

Spectrum should be free of technology and usage constraints as far as possible. Policy constraints should only be used where they can be justified;
It should be simple and transparent for licence holders to change the ownership and use of spectrum; and
Rights of spectrum users should be clearly defined and users should feel comfortable that they will not be changed without good cause.

We will achieve this by:

Providing spectrum for licence-exempt use as needed, but our current estimates are that little additional spectrum will be needed in the foreseeable future, growing to 7 per cent of the total spectrum;
Allowing market forces to prevail through the implementation of trading and liberalisation where possible. We will fully implement these policies in around 72 per cent of the spectrum; and
Continuing to manage the remaining 21 per cent of the spectrum using current approaches.

Inevitably, there will be circumstances when we cannot fully achieve this vision. In these cases we will explicitly explain why we have departed from it.

1.8 Linkage with other publications

This Statement sets out the general principles that we will use to manage spectrum. Other publications provide more detail on a range of specific aspects. We have already published the following consultation documents:

A consultation on UWB, a topic mentioned briefly in this document but deferred to a separate consultation document in order to provide an appropriate level of detail; and
The Spectrum Framework Review Implementation Plan, setting out our proposals on how we will move from the current position to the end point set out in this document.

We will be following these with a number of publications in specific areas such as spectrum usage rights, licence exempt usage in rural areas and publications related to the auction of particular bands.

Footnotes:

1.- Ofcom does not manage the entire spectrum. Some is managed by organisations such as the MoD.

2.- In the case of shared spectrum, owned by other Government departments but where Ofcom administers part of the shared use, we would encourage the owner of the spectrum to apply these principles as far as possible, or apply them ourselves where sharing conditions allow.

Spectrum Framework Review Statement [pdf]