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Setting prices for licences

The WT Act 2006 permits two different ways of setting the prices for different parts of the radio spectrum:

1) Administrative Pricing

Administrative pricing involves the spectrum manager in setting the level of licence fees as a surrogate for market forces (in other words, setting the fee to reflect the opportunity cost associated with use of the spectrum). Most licence fees are set by administrative pricing rather than auctions. Licence fees are set by regulations (Statutory Instruments). The WT Act 2006 requires consultation as a step in making regulations. Administrative pricing may include such variants as:

• Incentive pricing – where an attempt is made to set prices to promote particular aspects of efficient use.
• Regulatory pricing (cost based pricing) – where fees are set unrelated to market considerations, e.g. to recover spectrum management costs.

2) Auctions

The WT Act 2006 also permits auctions to be used to determine prices. Auctions are used selectively and are only planned for new national and some regional services e.g. Broadband Fixed Wireless Access and 3G auctions.

Auctions offer important advantages of:

• Economic efficiency – a well-designed auction ensures that licences are awarded to operators that value them most and can generate the greatest economic benefit.
• Fairness – a selection by administrative pricing criteria is more subjective and less transparent.
• Being less unfavourable to new market entrants – comparative selection tends to favour incumbents with established track records.

3) Pricing Regulations

As stated earlier the WT Act permits Ofcom to set fees for WT Act Licences. Regulations detailing the new licence fees to be charged are made from time to time. Before this is done Ofcom initiates a consultation exercise, setting out the fees to be charged and the reasoning behind the fee level for each relevant licence class, seeking comments from those affected by the changes.

There is also a statutory requirement to publish a notice of proposed charges and allow at least one month for representations to be made concerning the proposed changes. Once the month’s deadline has passed (and subject to no objections being raised or reasonable objections overcome) Ofcom may make a Statutory Instrument, allowing Ofcom to charge the new fees levels. Ofcom also publishes a Regulatory Impact Assessment (RIA), which briefly describes the issue that has given rise to a need for legislation, the risks, costs and benefits of the proposal and who is affected.

The overall responsibility for the fees setting exercise lies with the Spectrum Markets Team and any queries on this section should be addressed to them. All notices and documentation relating to the consultation and fees setting exercise will be published on the Ofcom website. Ofcom’s objectives for pricing were set out in the Spectrum Pricing Consultation issued on September 2004. http://www.ofcom.org.uk/consult/condocs/wireless/

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