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13|06|05

Speech to FCS Spectrum Forum, 10 June 2005

Millee Banerjee, Ofcom board Member

I am delighted to be addressing you this morning and thank the FCS for inviting me to speak. The FCS provides an invaluable service to the communications industry, bringing groups together to debate common issues of interest, making representations to the Government and Ofcom and facilitating networking through seminars and meetings throughout the year.

I intend to outline Ofcom’s strategic vision for the future of spectrum management. Looking to the future there are a number of factors to consider including how the UK is taking a lead in Europe on this issue and the opportunities that arise for the UK communications market as the way that we manage spectrum evolves.

The Future of Spectrum Management

Wireless technology and wireless applications are changing at an extraordinary rate. Some of the most dynamic and innovative parts of our economy are fuelled by wireless innovation; and many of our aspirations for the future of our economy and our society rest on continuing development and change in the wireless field.

But 100 years since the first WT Act in 1906 we are still managing the wireless spectrum in essentially the same way. The centrally-planned, ‘command and control’ approach is looking rather old-fashioned in our new world of rapid technology innovation, booming demand for capacity, a de-regulatory agenda in many parts of the world and the increasing role of market mechanisms in the management of this very valuable resource.

It is widely agreed that 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. However right from the beginning of its life, Ofcom decided that Spectrum would be one of its key strategic priority areas, with Telecomms Strategic Review and Public Service Broadcasting as the other two areas.

We had our own thoughts but clearly we needed to consult widely and our approach is being set out in a number of linked publications including most recently the Spectrum Framework Review (SFR) consultation in November 04, the UWB consultation in January 05 and the SFR Implementation Plan consultation launched in January 05.

Together these set out an agenda to reshape our system of spectrum management to enable us to respond to the needs of stakeholders and deliver the benefits of wireless innovation to the general public.

The Spectrum Framework Review

The founding principles of the SFR are:

1. Spectrum should not be limited by 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;

3. Rights of spectrum users should be clearly defined and users should feel comfortable that they will not be changed without good cause;

4. There should be continuous care and attention to ensure that interference resolution is dealt with as carefully and efficiently as it has always been.

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.

Firstly, by trading which allows industry players to acquire capacity when and where they need it and to dispose of unused capacity.

The principal features of the trading regime will be:

Spectrum licensees can transfer their rights (and associated obligations) to third parties
Minimum controls over transfers, again ensuring that interference resultion is dealt with efficiently
Transfer process will be as quick and automatic as possible - initially each one manually registered with Ofcom but ultimately e-enabled

First licence classes became tradable in December 2004 – including some Private Business Radio, Fixed Wireless Access and fixed links and there will be progressive roll-out to other licence classes over the coming years. (As new spectrum becomes available it should be tradable.)

We hope that the industry will develop a variety of trading transaction types - but Ofcom is not concerned with the commercial details of trades.

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 only 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. There have also been other limitations on spectrum access.

We believe that such limitations are unnecessary and that spectrum should be available for its most valuable use. Licensees should be able to change the use of their spectrum with minimum constraints and compatibility with other users, neighbours or others affected by harmful interference. It is essential that spectrum users continue to have access to good quality spectrum without unreasonable threat of interference and, of course, Ofcom continues to devote resources to interference resolution on the ground.

What Ofcom is doing to reflect these changes - in practice

So how are we going to apply this new approach?

Currently the balance of civil spectrum is 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 by allowing the implementation of trading and liberalisation where possible.

By making more spectrum available - Ofcom’s approach will make more spectrum capacity available – we have published a list of a dozen bands to be made available over the next three years. 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 awards.
Auctions – Even though we expect spectrum licences to become tradable, it nevertheless helps in finding the most valuable use for “new” spectrum to award it via a market-based mechanism such as an auction. 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. The Ofcom proposal is that the auction price should pay for rights for an initial period and that administrative incentive 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.

In parallel with the implementation of trading and liberalisation, I wish to reassure you that Ofcom will continue to take a significant role in interference management in the same way that we and the RA have done in the past.

We are closely monitoring progress in spectrum trading and if anticompetitive behaviour occurs we can use existing competition law to address it. Trades are also vetted to ensure that the necessary technical work has been done to show that the quality of the spectrum will be maintained for other users.

I now want to briefly touch upon opportunities for UK companies as a result of changes in the spectrum market and illustrate how the UK is leading on spectrum issues in Europe.

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. Opportunities will increase for these organisations to to add value in the future by acquiring blocks of spectrum and ‘retailing’ it to those who need it. Their role will be particularly important in serving the needs of small users of the radio spectrum who would find it hard to acquire and manage spectrum for themselves.

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.

Leading in Europe

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 and rapid access to appropriate spectrum for both new and established services is recognised as a key requirement.

Ten ‘breakthroughs’ to achieve the Lisbon 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 liberalisation will facilitate optimal use of spectrum and encourage innovation in a whole range of wireless applications. This will benefit European consumers through increased competition and faster access to new services.

We have been engaging with colleagues in Brussels and in Member States on the value of a new approach to spectrum management. Ofcom's Kip Meek chairing the European Regulators Group, the chairmanship of the EU Radio Spectrum Policy Group and possible key role in the next ITU World Radio Conference all contribute to cementing the UK’s position in Europe on spectrum issues. The upcoming UK presidency also offers further scope to promote this vision of spectrum management.

Wireless communications is truly a global business. The ability to communicate seamlessly across continents is one of the wonders of our age. Manufacturers and operators are multinational companies and seek common approaches across different markets. International cooperation is clearly critical to unlocking the full potential of wireless services as we move towards connecting the second billionth mobile customer.

We believe that a common approach to standards, interoperability, our approaches to research and our regulatory environments are helpful in encouraging the emergence of seamless services at the lowest possible price. The GSM standard itself is a good example of what can be achieved by the industry and regulators working together. However mandatory harmonisation of specific technologies using specific spectrum bands is becoming increasingly outdated. Sometimes in the past mandatory harmonisation has held back innovation and competition by denying spectrum to new services.

Obviously harmonisation can deliver benefits, not least interoperability and economies of scale. The challenge for regulators is achieving these benefits while enhancing flexibility and the ability of the international system to respond to changing demand. The introduction of market mechanisms provides this opportunity. The benefits of harmonisation will be reflected in spectrum valuations and spectrum will tend to migrate to higher value harmonised applications on an industry-led basis instead of being imposed by regulators.

This future vision of spectrum management will take some years to evolve as market mechanisms are introduced gradually across Europe. During this interim period Ofcom will continue to play an active role in international negotiations and harmonisation activities. Through such negotiations we will emphasise our belief that industry players are best placed to develop standards; and that the introduction of trading and liberalisation is the best way to ensure that spectrum is available for innovative applications and technologies.

The European Commission agrees that it is important to take a technologically neutral approach when it comes to usage of spectrum bands, as long as the avoidance of interference is ensured when spectrum assignments are made. We are confident that there is an emerging consensus in Europe that this is the correct way forward; and that the introduction of trading and liberalisation will allow the market to make far better judgements about spectrum use than regulators ever can.

I’ve tried to set out the main elements of this new regime and the way it is being introduced. There remains much work to be done, but the overall direction is clear. We appreciate that these major changes to the way that we manage spectrum management are of concern, to both large and small users. However we are confident that the proposed solutions will give better access to spectrum across the board.