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27|01|05

IEE Appleton Lecture 13 January 2005

Peter Bury
Director, Strategic resources, Ofcom

Introduction

I am most honoured to be invited to give this lecture.

Sir Edward Appleton was one of the great pioneers of radio communication - he was a theorist of radio propagation, discoverer of the properties of the ionosphere and winner of the Nobel Prize for Physics in 1947.

The achievements for which we remember him were theoretical - indeed he remarked in his acceptance speech at the Nobel Prize ceremony that during the war “scientific workers had had to devote their whole time to the applications of existing scientific knowledge. But, with the return of peace, there has been a great change, and fundamental research, is now again receiving the attention it deserves”.

The 20th century was a great period for theoretical advances in the science of radio communications. From Marconi’s first primitive transmission in 1895 to the ubiquity of radiocomms activities at the Millennium - we have achieved astonishing technical advances.

It is a tribute to Appleton and scientists like him that we have been able to make such extraordinary progress. Could even he have conceived just how far the science of radiocomms would bring us?

He was a great scientific pioneer and this lecture honours his achievement. But my feeling is that the greatest compliment to pay him is to discuss how we can make sure that advances in radiocommunications technology deliver their full benefits to the citizens and consumers of this country and the world.

My talk will therefore be about transforming the way spectrum is managed, so that we can make our regulatory regime appropriate for the 21st century.

History - how we got to where we are

Scientific advance is a continuing process. But the administrative, regulatory and legal arrangements which determine how the radio spectrum can be used have been much less open to change.

Just 100 years ago the first WT Act, in1904, was designed to ensure government control of the new medium and the avoidance of interference.

The principles established in 1904 were of a Government monopoly of radio transmission and reception. Licences would be awarded at the discretion of the Minister. Among the implications of this are:

We might characterise this regime as ‘Command and Control’. This has been a model which has not served us too badly over the years, especially while radiocomms technology was in its main development phase.

Command and Control has some advantages:

But there are significant disadvantages as well:

What is changing in our environment

100 years after the first WT Act we are in a different world.

For the new millennium we need a new approach to spectrum management which reflects and recognises these changes and adapts the principles which we have used until now to the new circumstances in which we find ourselves.

What Ofcom is doing to reflect these changes

Ofcom’s approach builds on the foundations laid by the DTI/RA. The creation of a new organisation gives a renewed impetus to re-energise this mission and drive it forward.

Our approach is being set out in a number of linked publications:

Together these set out an agenda to reshape our system of spectrum management for the new century, respond to the needs of stakeholders and deliver the benefits of wireless innovation to the general public

Principles

The founding principles of the SFR are:

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

These are the principles we want to apply. But 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. (Examples might be legacies from the past; constraints from international agreements)

Policy goals

We have had a long history of using spectrum to achieve policy goals. The history of the mobile phone industry illustrates this.

Broadcasting is another example, where for good reasons spectrum continues to be used for policy purposes: I’ll return to that point later.

The new approach is based on the presumption that the market is wiser than the regulator in finding the optimum use of resources - including spectrum. Where policy goals are at stake, it would generally be wiser to achieve them explicitly rather than to use the spectrum assignment process as the means to the end.

So how do we get the market to work in managing spectrum? The answer is twofold.

First, Trading.

Once spectrum is in use it needs to respond to changes in the economic viability of the various uses it can be put to. (Example - Paging)

Trading allows licensees to acquire capacity when and where they need it and to dispose of un-needed capacity. Critically it overcomes the problem we see today where licensees will retain capacity simply because of the obstacles they face to re-acquiring it in the future.

The principal features of the trading regime will be:

Spectrum Pricing is a key lever to ensure that spectrum is not retained without economic reason.

It should be calculated on the basis of the current application and revised regularly - a 3-5 year cycle depending on the band - to ensure it continues to reflect the current value. Ofcom has recently published an update to the incentive pricing fees to reflect such changes.

The second plank of a market regime is Liberalisation

What we mean by Liberalisation is removing constraints on what people can use spectrum for. The full benefits of trading will come with liberalisation

Most licences have traditionally specified what application is permissible - either directly or through technical characteristics which are so narrow as to allow only one possible use.

We believe that this is unnecessary - spectrum should be available to be used for the most valuable use. The key issue is compatibility with other users - neighbours or others affected by harmful interference

So if we’re making it easier for users to change the use of their spectrum how will we manage it?

What Ofcom is doing to reflect these changes - in practice

The rest of this talk is about how we are going to apply this new approach; some obstacles which are still in the way; and how we may be able to overcome them.

We start the new century with the balance of civil spectrum heavily weighted towards the command-and-control model.

Our objective is to change this balance in favour of market forces by the end of the decade as follows:

Making more spectrum available

The Command and Control approach tends to limit the amount of spectrum available for new applications. Some is sterilised by less-then-viable applications. Other bands are reserved far in advance for technologies which may or may not be successful.

Ofcom’s approach will make more spectrum capacity available - the list of a dozen bands to be made available over the next 3 years is published on the Ofcom website.

Where spectrum is unused we want to get it into productive use as quickly as we can. And we want to do this in ways which are consistent with our strategic approach to spectrum management: with minimal technology and application constraints; liberalised; and tradable as soon as possible after award.

Some examples will illustrate some of the ways in which spectrum can become under-used; and some ideas of how it might be made more productive:

In our Implementation Plan we identify these and a number of other bands which we expect to make available to the market during the next 3 years.

But I should talk about two other very significant sources of spectrum which we expect to become available:

Auctions

Setting out the likely roadmap of future spectrum awards helps potential licensees to determine when and for what they should bid and what the relative value is likely to be.

Our expectation is that most of these awards will be done through auction. Auctions have a special value in setting a market price at the very beginning of spectrum being made available.

There have already been a number of auctions of significant spectrum capacity: 3G (2000), 28GHz (2001); 3.4GHz (2003);

Lessons have been learned from these experiences to refine the technique of awarding through auctions. Two particular issues are worth flagging:

Is spectrum pricing consistent with an auction approach? The Ofcom proposal is that the auction price should pay for rights for an initial period and that pricing should then take over as the incentive to encourage spectrum to be used in the most economically efficient way.

UWB and cognitive radio

The final element of the proposals to modernise the landscape of spectrum regulation is to accommodate novel ways of band sharing.

UWB is a particularly interesting opportunity to share capacity - if power is low enough then there may be no discernable interference and more than one application can share the same bandwidth:

Sharing by time - cognitive radio. We think it should be left to individual spectrum holders to agree with others whether they would permit such sharing. (NB this is the essence of trading - the forms of trading can be formulated to suit the needs of the spectrum and the users).

Transition issues

I’ve painted a picture of a new approach to spectrum management. It’s based on introducing market forces much more into the picture:

The new approach to spectrum management is not going to appear overnight. There are significant transitional issues to be overcome before these arrangements for market forces, trading, liberalisation and new spectrum awards are fully in place.

Incumbent rights in spectrum.

Generally speaking we propose incumbents will remain in place with new rights to trade and change use. However the mobile operators are a special case and Ofcom is currently consulting on the right approach to the spectrum they use.

Defining spectrum rights

There is still work to be done in fully defining spectrum rights. Initial classes are being liberalised, but there remain some complex issues which are still to be completed, eg defining the rights associated with mobile phone applications

Harmonisation

Harmonisation has achieved a lot in the past and continues to be beneficial for certain services:

But harmonisation can stifle innovation and limit change. Key objectives to improve the effectiveness of harmonisation are that it should be

A flexible approach to harmonisation is likely to be necessary to achieve the €9bn benefits of spectrum trading liberalisation calculated for the EC by Analysys. The approach to harmonisation of the 2.6GHz band is currently an open question in Europe which we need urgently to answer.

Broadcasting - a special case

Broadcasting is still used to achieve public policy. The transitional challenges here are significantly greater:

In Radio Ofcom has announced how we might make more capacity available for DRadio; but it is too early to consider an all-digital future for radio in any detail, if only because of the size of the legacy population of analogue receivers.

In TV, we have a clear plan to achieve switchover. As digital technology increases the capacity available for broadcasting, spectrum rationing becomes less necessary in choosing who is able to broadcast.

Opportunities

The transition issues are non-trivial - but there are significant opportunities

The new vision for spectrum management is based on market forces, trading, liberalisation and an expansion in the spectrum available for use.

Like all market liberalisation measures, the exact consequences are hard to predict. But the new environment will be shaped by new players, new services and new legal relationships.

It is particularly interesting to consider the emergence of a new class of business -spectrum management organisations which can take on the task of providing spectrum to users on a commercial basis. There are one or two such organisations already - opportunities will increase for them to add value by acquiring blocks of spectrum and ‘retailing’ it to those who need it.

And we believe that entrepreneurial companies of all kinds, with ideas about profitable innovation using wireless spectrum, will find the new environment supports their ambitions.

Conclusion

The EU’s Lisbon agenda set the target of making the EU the most dynamic and competitive knowledge-based economy by 2010. ICT is central to this fundamental European objective,

Ten ‘breakthroughs’ to achieve this agenda were identified by the Dutch Presidency in 2004: a new and flexible model of spectrum allocation was recommended as one of them.

The UK is leading the way in creating a new environment for spectrum regulation which supports this agenda. We believe that a flexible and liberal regime for spectrum management, based on market forces rather than command-and-control, will greatly help competition and innovation in a whole range of wireless applications. I’ve tried to set out the main elements this new regime and the way it is being introduced There remains much work to be done, but the overall direction is clear.

Appleton was convinced that his purpose was to bring the benefits of science to the public. His field was at the boundary of scientific knowledge of radio at the time. But he would have been delighted to see not only the sustained rate of scientific discovery since his time; but also the degree to which its benefits have been made available to the public. My purpose today has been to illustrate how we can create the regulatory conditions which give incentives for continuing scientific research and development in radiocommunications; and which also deliver these benefits ever more successfully to the public.


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