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Summary

Introduction

1.1 This consultation seeks views on proposed reforms to how public sector spectrum holdings are managed so as to enhance the benefits that their use generates. For the purposes of this document, these holdings are taken to include spectrum used by civil aviation and maritime operators, whether these are public or private sector.

1.2 The proposals form part of the wider programme to implement the findings of the Independent Review of Spectrum Holdings (the ‘Independent Audit’) led by Professor Martin Cave. The Audit examined spectrum use in the public sector and made a series of recommendations, which the Government and Ofcom have accepted, for reforming the way in which public sector spectrum holdings are managed to achieve greater efficiencies and benefits for UK citizens and consumers. The response from the Government and Ofcom can be found together with the Audit, supporting documents and information about the implementation programme at www.spectrumaudit.org.uk.

New opportunities – sharper incentives

1.3 The theme of the proposals in this document is the creation of new opportunities to promote release or sharing of public sector spectrum holdings and the introduction of sharper, more effective incentives to take advantage of these. This has the potential to enhance spectrum efficiency and make significant amounts of spectrum available for release to or sharing with commercial operators.

1.4 The aim of the proposals is to put in place a market-based framework for public sector spectrum holdings that:

• secures optimal use of public sector spectrum holdings by maximising spectrum efficiency and opportunities for releasing and sharing spectrum;
• reduces regulatory barriers and simplifies processes enabling faster access to spectrum; while
  
  
  • preventing harmful interference; and
  • ensuring compliance with international obligations (eg EU directives and decisions, ITU Radio Regulations and treaty obligations relating to defence, maritime or aeronautical matters);
• ensures that safety and national security remain paramount and recognises the statutory duties and functions of public sector bodies relating to national security and safety.

1.5 This work complements other initiatives including pioneering technical trials sponsored by Ofcom and supported by the Ministry of Defence (MOD), Civil Aviation Authority (CAA) and Maritime and Coastguard Agency (MCA) to define safety criteria for different wireless communications systems and technologies to share spectrum with radar. Recent trials at Oban and Loch Ewe have yielded useful data to progress this work.

Radio spectrum is a valuable and finite resource

1.6 Spectrum underpins 3% of UK GDP and its value to the economy has grown by 50% in real terms since 2002 to over £40bn a year^(-1-). Demand from commercial operators for certain frequencies, especially those suitable for mobile applications, already exceeds availability and this trend is forecast to continue into the medium term^(-2-). There is also demand from the public sector that has not yet been precisely quantified but is described in the Government’s Forward Look: A Strategy for Management of Major Public Sector Spectrum Holdings (the “Forward Look”)^(-3-). The MOD, which is the main public sector spectrum user holding about a third of the spectrum below 15 GHz, is carrying out a detailed survey of its future requirements.

1.7 Spectrum is an essential input to both the commercial and public sectors. It is widely used in the telecommunications, broadcasting and transport industries and also by the emergency services, military and science. Public sector spectrum holdings amount to nearly half of the total spectrum below 15 GHz. Although valuing these holdings is difficult, it has been estimated that they could have a market value between £3bn and over £20bn^(-4-) depending on the methodology used. It is important that such substantial holdings are managed and used as efficiently as possible and that full advantage is taken of opportunities for commercial users to access them. Failure to do so risks holding back innovation, competition and growth in wireless services to the detriment of citizens, consumers and businesses. The Government has committed in the Forward Look to releasing a “significant proportion” of the MOD’s spectrum holdings between 2008 and 2010 and the MOD expects to publish its Military Spectrum Implementation Plan, which will identify opportunities to share or release spectrum and how its spectrum holdings will be shared or released to the market, in spring 2008.

1.8 Spectrum trading and liberalisation play a key role as they promote spectrum efficiency by allowing spectrum to be transferred to those users and applications that can generate the greatest benefits. Ofcom is already progressively making commercial spectrum holdings tradable and more flexible in line with its general approach to managing spectrum as set out in its Spectrum Framework Review^(-5-) and other documents.

1.9 Extending spectrum trading to the public sector could generate substantial benefits for citizens and consumers. Although spectrum has certain characteristics that distinguish it from other assets, for example vulnerability to interference, there is no reason in principle why public sector bodies should not acquire and dispose of it through the market just as they routinely acquire and dispose of other assets and resources, such as land, buildings and vehicles.

1.10 Many public sector bodies use spectrum to support services that protect safety of life or serve the Government’s overall defence and security needs. The proposals in this document are intended to secure spectrum efficiency objectives while maintaining the operational effectiveness of essential services and ensuring that national security and safety remain paramount.

General approach to management of the radio spectrum

1.11 One of Ofcom’s principal statutory duties is to secure optimal use of the radio spectrum to promote the interests of citizens and consumers. Ofcom considers that market mechanisms, such as trading, liberalisation, administered incentive pricing (AIP) and auctions are more likely to achieve this than ‘command and control’ methods based on regulatory and administrative decisions and has been applying and extending market mechanisms to spectrum use in the commercial sector.

Management of public sector spectrum holdings

1.12 The application of market mechanisms to public sector spectrum holdings has so far been limited. Government users, such as the MOD, emergency services and radio astronomy, pay an amount for spectrum that is comparable to the fees charged to commercial users for similar spectrum. However, public sector spectrum holdings are not tradable; and aviation and maritime spectrum licence fees are not based on incentive pricing. The Independent Audit recommended, and the Government and Ofcom agreed, that market mechanisms should be comprehensively extended to public sector spectrum holdings in line with Ofcom’s general approach to spectrum management as illustrated in Figure 1 below, which is illustrative only as some elements are subject to consultation .

Figure 1: Application of market mechanisms

*Subject to consultation

1.13 In this diagram, ‘phase 1’ trading and liberalisation refers to the initial selection of frequency bands commenced in December 2004 combined with liberalisation by individual licence variation; ‘phase 2’ refers to the extension of trading and introduction of more flexible licences in the Business Radio Sector; and ‘phase 3’ relates to the selective introduction of technology and application neutral licences, also known as ‘Spectrum Usage Rights’ (‘SURs’).

Recognised spectrum access

1.14 The extension of spectrum trading to public sector spectrum holdings that this document proposes would be facilitated by the selective introduction of recognised spectrum access (RSA). RSA is a relatively new spectrum management instrument that was introduced by the Communications Act 2003^(-6-) (the ‘Communications Act’) and can be granted to persons or for uses of spectrum that do not require to be licensed under the Wireless Telegraphy Act 2006 (the ‘WT Act’). Spectrum trading consists of the transfer of rights or obligations under a licence or RSA. Without RSA, Crown and certain other bodies that are not subject to licensing could not engage in spectrum trading. RSA would enable them to do so while also providing greater clarity and certainty about their rights and obligations in relation to spectrum.

The new framework

1.15 Spectrum trading and liberalisation are key components of the proposed new framework, supported by AIP and budgetary and operational targets for government departments. Ofcom considers that spectrum efficiency will be best promoted by enabling public sector spectrum holdings to be traded so that the bodies concerned can interact directly with the market instead of returning spectrum to Ofcom to award or being granted new assignments administratively.

1.16 This document proposes that we should start the introduction of these changes by applying them first to the 406.1 – 430 MHz, 2.7 – 3.4 GHz and 3.4 – 3.6 GHz bands. The precise timetable will depend on progress in resolving the matters referred to in paragraph 1.18 below.

1.17 This document discusses various issues. These include:

• the proposed approach of extending trading and RSA;
• how to introduce trading and RSA including whether to phase their introduction and the frequency bands likely to be of greatest interest to commercial operators;
• how public sector bodies can best engage with the market to release and share spectrum;
• some principles underlying the processes for award, trading and converting public sector spectrum licences and RSA.

1.18 Some complex issues will need to be resolved to apply the proposed new framework. This is partly because existing arrangements for using some of these bands rely on shared access by multiple public and private sector users. For example, the 2.9 – 3.1 GHz band is allocated jointly for defence, civil aeronautical and civil maritime use and the MOD, CAA and MCA each have an interest. Other bands are allocated exclusively to defence but the MOD has yet to finalise a detailed survey of its use that will enable it to assess the possibilities for release and sharing. Ofcom is actively supporting the MOD, CAA and MCA in this work.

1.19 The legislation is sufficiently flexible to accommodate various options and Ofcom expects to consult further when there is greater certainty on these matters.

1.20 Meanwhile, Ofcom believes that this preliminary consultation will be of interest to a range of stakeholders in the public and commercial sectors and will enable them to express their views on the overall approach that is being proposed so that these can be taken into account in preparing detailed arrangements and regulations for further consultation.

1.21 Related initiatives that have been completed or are under way include:

• adoption of the presumption that public bodies will acquire spectrum through the market save in exceptional circumstances;
• introduction of RSA for radio astronomy;
• a substantial collaborative programme of work sponsored by Ofcom and with full participation by the MOD, CAA and MCA to define safety criteria for sharing in radar bands;
• consultation later this year on the application of AIP to selected frequency bands used for aeronautical and maritime applications;
• a detailed analysis by the MOD of its current and future expected spectrum requirements and publication in 2008 of its Military Spectrum Implementation Plan, which will identify opportunities to share or release spectrum and its plans for sharing or releasing its spectrum holdings to the market;
• a review by the CAA with the MOD and Ofcom of aeronautical navigation aids including radar and landing systems;
• formulation by autumn 2007 of options for the future management of spectrum used by the emergency services;
• setting specific and demanding targets for release of spectrum by government departments as part of the outcome of the comprehensive spending review (CSR).

Next steps

1.22 Following this consultation, Ofcom intends to issue a regulatory statement announcing its conclusions and consult further in greater detail. Subject to satisfactory progress of discussions between the public sector bodies concerned in defining their future spectrum management arrangements and spectrum requirements, Ofcom would expect to publish the further consultation by the end of 2007 and proceed during 2008 to implement any changes that it may decide to make following these consultations.

1.23 The implementation of any proposals to extend trading or RSA would require Ofcom to make various regulations, for example to specify the frequency bands in which they will be introduced and the possible procedures for trading and conversion. As required by section 122 of the WT Act, Ofcom would publish a Statutory Notice in advance of making these regulations, giving at least a month to comment.

Footnotes:

1.- Economic Impact of the Use of Radio Spectrum in the UK by Europe Economics for Ofcom http://www.ofcom.org.uk/research/radiocomms/reports/economic_spectrum_use/

2.- Demand for Spectrum from Non-Government Services 2005-2025 at http://www.spectrumaudit.org.uk/010905.htm

3.- http://www.spectrumaudit.org.uk/pdf/Forward_Look_2007.pdf

4.- Independent Audit of Spectrum Holdings final report, page 2: http://www.spectrumaudit.org.uk/pdf/20051118%20Final%20Formatted%20v9.pdf

5.- http://www.ofcom.org.uk/consult/condocs/sfr/

6.- The relevant provisions are now contained in the Wireless Telegraphy Act 2006.

The full document is available below

• Spectrum Framework Review: the Public Sector [pdf]
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