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Executive Summary

Introduction

1.1 This study seeks to measure for Ofcom the economic impact of the use of radio spectrum in the UK for the year ending 31 March 2006. The importance of and increasing demand for radio spectrum makes it important for Ofcom to understand the current uses of radio and its benefits, including the contribution of radio spectrum use to the UK economy. This study is an update of and uses similar methodology to that employed during previous similar studies conducted for and by Ofcom’s predecessor, the Radiocommunications Agency (RA), most recently in 2000 and 2002, while additionally calculating the economic impact of radio spectrum using an alternative GDP effects methodology.

1.2 This current study indicates an estimated economic benefit arising from the use of the radio spectrum of £42 billion in 2005/6, based on calculations of consumer and producer surplus. This compares with an estimated benefit of £28 billion in 2002 (result expressed in 2006 prices).

1.3 The alternative methodology calculated that the estimated net GDP impact of the use of radio spectrum is around £37 billion and 240,000 in employment (see Chapter 12 of this report for further details).

The use of radio spectrum

1.4 This study focuses on the use of the radio spectrum to supply a radio service, including the firms providing those services, the equipment manufacturers and service companies which supply them and the retailers which sell their services. Consumers who benefit from the services thus supplied include both private individuals and business users.

1.5 For the purposes of this study, we have analysed the radio industry in seven sectors:

1. Public mobile, including cellular mobile, paging, public mobile data networks, and public access mobile radio;
2. Broadcasting, including analogue and digital TV, and analogue and digital radio;
3. Satellite links, meaning the operation of satellite links, such as VSATs and permanent earth stations;
4. Fixed links, meaning the operation of radio fixed links, for example to substitute for or supplement cable links in telecommunications infrastructure;
5. Wireless broadband, meaning the provision of WiFi and other wireless access services;
6. Private mobile radio, meaning mobile radio communications services provided for non-public use, such as by emergency services, taxi companies and transport companies; and
7. Other, including non-commercial aviation, amateur radio, citizen’s band and other radio uses (but excluding commercial aviation and Government, including MOD, use).

1.6 The study calculates the benefits accrued by producers (producer surplus) and consumers (consumer surplus), as well as the estimated contribution to UK GDP of the use of radio spectrum. Producer and consumer surplus are defined in more detail in Chapter 3 of the study.

Results

1.7 Table 1.1 presents the results of the study and compares these to the 2002 results (expressed in 2006 prices). The total economic value of the radio industry in 2005/6 is around £42 billion ^(-1-).

Table 1.1: Estimated net economic benefits to the UK economy

	2006		2002
Sector	Value (£ billion)	Percentage (%)	Value (£ billion)	Percentage (%)
Total	42.4	100	28.2	100
of which:
Public mobile	21.8	51	14.4	51
Broadcasting	12.3	29	5.9	21
Satellite links	2.8	7	2.9	10
Fixed links	3.9	9	3.8	14
Wireless broadband	0.3	1	-	-
Private mobile radio	1.2	3	1.1	4
Other	0.1	0	0.1	0

Note: 2002 results expressed in 2006 prices “Other” is defined to include: amateur, citizens’ band, non-commercial aviation, maritime and other equipment and services Source: EE

1.8 Therefore, we estimate that, in real terms, the net economic benefit to the UK economy of radio spectrum has increased by around 50 per cent between 2002 and 2006.

1.9 Table 1.2 below disaggregates these overall figures to show separately the contribution of producer and consumer surplus by sector.

Table 1.2: Estimated consumer and producer surplus

	2006		2002
Sector	Consumer surplus (£M)	Producer surplus (£M)	Consumer surplus (£M)	Producer surplus (£M)
Total	37,783	4,619	27,491	741
of which:
Public mobile	18,964 (-2-)	2,821	13,642	771
Broadcasting	10,579	1,690	6,057	- 137
Satellite links	2,832	- 5	2,903	- 9
Fixed links	3,883	-	3,793	-
Wireless broadband	292	- 1	-	-
Private mobile radio	1,223	-	1,086	-
Other	10	114	10	116

Note: 2002 results expressed in 2006 prices “Other” is defined to include: amateur, citizens’ band, non-commercial aviation, maritime and other equipment and services Source: EE

1.10 As can be seen, the major differences to the results of earlier studies are the large increases in benefits calculated for the public mobile and broadcasting sectors, in terms of both consumer and producer surplus.

1.11 In the public mobile sector, much of the increase can be explained by the additional consumer surplus generated as a result of the very significant 36% increase in the number of mobile phone subscribers since 2002. Producer surplus for the cellular mobile sector also increased significantly, partly as a result of increased average revenue per user and partly as a result of an increased level of data usage associated with enhanced 2G and 3G mobile services.

1.12 In the broadcasting sector, our calculations were significantly influenced by recent data indicating that consumer willingness to pay for broadcasting services (both for television and for radio services) was considerably higher than had previously been recorded. We attribute this increase partly to possible under-recording of consumer willingness to pay figures in previous studies and also to the recent growth and availability of digital television and digital radio services, although very high WTP results were also recorded for the traditional five terrestrial television channels. We note that digital television (DTT and satellite) is now received by over 18 million households in the UK, an increase of more than 70% compared with 2002 ^(-3-). In respect of digital radio, research undertaken in 2004 by Ofcom ^(-4-) indicated that 6 out of 10 people had accessed digital radio and that 40% listened to more radio as a result of having accessed digital radio.

Footnotes:

1.- Hereafter 2005/6 is referred to as 2006

2.- It should be noted that we have calculated a range for consumer surplus in the public mobile sector. This is the mid point, which was used for the total calculations.

3.- Ofcom - Digital Progress Report, 2006 Q1

4.- Ofcom's "Radio Review - Preparing for the Future", December 2004

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