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Summary

This consultation concerns Ofcom's approach to setting licence charges for wireless telegraphy act licences^(-1-) and the use of "Administered Incentive Pricing (AIP)" in these charges (which are often also referred to as fees). It follows a study by Indepen, Aegis and Warwick Business School commissioned by the Radiocommunications Agency to review current AIP levels and the underlying methodology to value spectrum. This study's final report was published by Ofcom on 2 March 2004^(-2-), including recommendations regarding the application of AIP.

Roadmap to this consultation document

The purpose of this consultation document is largely three-fold;

• it sets out the approach Ofcom intends to take to continue the use of AIP for setting annual fees for wireless telegraphy act licences;
• it makes proposals for updating the level of fees in the Licence Charges Regulations^(-3-) in 2005 for all licence classes (including those where AIP is not appropriate and for new types of radio use); and
• it initiates a broader discussion on longer term applications of pricing to some licence classes (primarily broadcasting and business radio).

Continued use of AIP

Ofcom's current approach to spectrum pricing is based on its legal powers in the Wireless Telegraphy Act 1998. An update of the reviews of this approach since 1998, together with a summary of Ofcom's continued use of AIP for spectrum pricing, is set out in section 1. Further details on the rationale for AIP and the economic arguments for spectrum pricing are given in section 2. Implementation issues related to our pricing proposals are highlighted in section 3.

Pricing proposals per licence class

This document sets out Ofcom's pricing proposals for wireless telegraphy act licences in 2005. Details of the specific proposals per licence class are contained in sections 4 to 7. To aid navigation of the document, the licence classes are split as follows:

• Mobile applications (section 4)
• Fixed applications (section 5)
• PMSE (section 6)
• Other applications (section 7)

These sections also include some minor changes to licence class structures which will be named in the Licence Charges Regulations.

Broader discussion on broadcasting

The document sets out how pricing proposals for future years are being developed. Section 8 includes a discussion on future options for applying AIP to TV broadcasting spectrum.

Proposed changes

The changes to spectrum fees proposed by Ofcom are outlined in exhibits 1-4 below. In summary, for many licence classes Ofcom is proposing there should be no change. Significant changes are proposed in the following key areas:

• fixed links, where we propose to increase the level of AIP;
• programme making, where we propose to increase fees to cover direct costs;
• national and regional business radio fees, where we aim to unify fees for similar classes to help the introduction of spectrum trading.

The approach to setting AIP fees follows the recommendations from the Indepen report of March 2004. Ofcom agrees with the basic approach outlined by Indepen; that the opportunity cost of spectrum should follow a least-cost alternative method, iterated over time. Indepen were asked to make recommendations about spectrum uses where AIP should apply, and in many cases Ofcom agrees with their recommendations. Finally the consultants were asked to give illustrative examples of how values should be calculated using the methodology. Ofcom agrees with some of the values, but in other cases has modified the models in the light of further analysis since the Indepen report.

Exhibit 5 summarises options for pricing in Broadcasting. The proposals in this document should be seen as a preliminary consultation on the introduction of AIP to spectrum used for broadcasting. Further consultation will be held before any proposals on broadcasting are taken forward to implementation.

 

Exhibit 1: Summary of Ofcom pricing proposals for mobile applications

Licence class	Proposal for 2005	Longer term proposal	Comments
Public wireless networks (2G public mobile networks)	No proposed changes to fee level.	Review of current fees in 3 years.
Business radio (Private Business Radio, Public Access Mobile Radio, Common Base Stations, National Paging, 5.8GHz wireless access)	No major changes to fee levels. Ofcom proposes to remove the “step-in” arrangements and “choice and diversity” modifiers. These measures will start the process of removing differential fee rates, and support a more liberalised approach to spectrum licensing. A new flexible fee apportionment approach is proposed for national and regional licences to support partitioning of licences through trading.	Introduction of a population and coverage based approach to the definition of congestion and fee calculation for wide area licences following introduction of “MASTS” assignment tool. Rationalisation of licence classes to introduce more flexible and use neutral categories to better support a more liberalised approach.	The Ofcom consultation “Spectrum Liberalisation” sets out proposals to reduce or remove certain restrictions on spectrum use.
Scanning telemetry	No proposed changes to fee level.	To be reviewed in light of changes to business radio.

 

Exhibit 2: Summary of Ofcom pricing proposals for fixed applications

Licence class	Proposal for 2005	Longer term proposal	Comments
Point-to-point fixed links	Ofcom proposes a revised algorithm, which will increase overall fees by about 25% but will affect each user according to the efficiency of the links.	Review of current fees in 3 years.
Satellite services	Ofcom proposes an increase in minimum fees for permanent earth stations to ensure that direct costs are covered. Extend differential pricing formula for network licence class to include new Earth Station on Vessels and Aircraft Earth Station use. Introduce new class for earth stations working to Non-Geostationary Satellites and non-fixed satellite service.	Longer term consideration of role of AIP in shared bands also taking account of possible introduction of Recognised Spectrum Access (RSA).	Separate consultation process on RSA possibly in 2005 or 2006.
Fixed Wireless Access (FWA)	No proposed changes to fee levels.	To be reviewed in three to five years time, in the light of possible further release of spectrum in this band.	Ofcom is exploring options for making additional FWA licences available in the 3.6-4.2 GHz and 10 GHz bands. The 3.4-4.2 GHz band will become tradable in 2004.
Point to point security CCTV services	Licence class name change (formerly ‘point to multi-point services 31Ghz – 31.80 GHz) but no changes to fees.

 

Exhibit 3: Summary of Ofcom pricing proposals for PMSE

Licence class	Proposal for 2005	Longer term proposal	Comments
Programme making & special events	Fees will increase by 20% (averaged across fee categories) to meet the direct costs of external contractors.	Fees will increase by a further 20% (averaged across fee categories) in 2006 to complete this process.	Ofcom does not propose to implement AIP pending decisions to be made on the future management of the sector.

 

Exhibit 4: Summary of Ofcom pricing proposals for other applications

Licence class	Proposal for 2005	Longer term proposal	Comments
Aeronautical and maritime communications	No proposed changes to fee level. Minor structural changes in maritime licence classes.	Consider if AIP could apply to encourage efficiency.
Aeronautical and maritime radar	No proposed changes to fee level.	Consider if AIP could apply to encourage efficiency.	Use of AIP is dependent upon result of current studies.
Government & emergency services	Comparative prices being set. New fee for Airwave network to be introduced based on methodology for the public networks.
Science & technology	No proposed changes to fee levels. Abolish unspecified operational radio use licence class and review all non-operational development licences.

 

Exhibit 5: Summary of Ofcom pricing proposals for broadcasting

Licence class	Proposal for 2005	Longer term proposal	Comments
Broadcasting – TV	No proposed changes to current fee levels.	Ofcom presents outline proposals on options for the application of AIP to TV broadcast spectrum. Further consultation on these options will be conducted as required in 2005 or 2006. Update cost-based fees where appropriate in 2006.
Broadcasting – radio	No changes proposed to current fee levels. The current class will be widened to include Community Radio, at same fee rates as national and local radio . Verification that all current classes are included in the regulations.	Ofcom will continue to keep potential application of AIP to sound broadcasting under review. Update cost-based fees where appropriate in 2006.

 

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Footnotes:

1:-Wireless telegraphy act licences are granted by Ofcom under section 1 of the Wireless Telegraphy Act 1949

2:- 'An economic study to review spectrum pricing', Indepen, Aegis Systems and Warwick Business School , February 2004, www.ofcom.org.uk/research/industry_market_research/ m_i_index/spectrum_research/independent

3:- The current legislation is the Wireless Telegraphy (Licence Charges) Regulations 2002 (S.I. 2002/1700), as amended by S.I. 2003/2983 and S.I. 2003/2984)

The full document is available via the link at the top right of this page.

• Spectrum Pricing - A consultation on proposals for setting wireless telegraphy act licence fees [pdf]
  Full print version

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