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Annex B - Draft Regulatory Impact Assessment on Spectrum Trading |
1.1 Radio is used by a wide variety of businesses throughout the economy, including High Street taxi firms, shipping, airlines and national mobile telecommunications networks, and also for non-business purposes. The resulting economic benefits are considerable and fast-growing.
1.2 The use of radio equipment, other than equipment that has been exempted from licensing, requires a licence issued under the Wireless Telegraphy Act 1949 by the Radiocommunications Agency of the Department of Trade and Industry. This requirement is imposed because the use of radio spectrum has to be carefully planned and managed in order to avoid serious radio interference between users of the spectrum.
1.3 At present, licences to use radio equipment cannot be transferred directly between radio users. This means that users have less incentive to transfer, in whole or in part, licences they no longer need to others who may be able to use the spectrum more productively. As a result, radio spectrum, which is a finite resource, is used less efficiently than it might be, which can impose considerable economic penalties. In addition, when businesses, ships or aircraft change hands, the new owner has to obtain a fresh licence, except where the share capital of a company is sold and there is no change in the legal personality of the licensee. This adds to the transaction costs.
1.4 The aim of the proposal is to permit licences to be transferred through the market, within an overall framework of spectrum management. This will provide a mechanism to enhance spectrum efficiency, and hence the economic benefits derived from radio, and to reduce the regulatory burden on business and non-business users of radio when businesses, ships and aircraft change hands.
2.1 The use of radio gives rise to substantial and growing economic and consumer benefits and employment. Spectrum trading is expected to enhance the efficiency with which the finite spectrum resource is used. This will create headroom for further innovation, growth and job opportunities benefiting businesses throughout the economy that depend on radio for communications, manufacturers of radio equipment and radio-based service suppliers and consumers, as well as generating additional employment.
2.2 Spectrum trading will also reduce transaction costs when licensed businesses, ships or aircraft change hands.
2.3 The annual economic benefits from the use of radio to the economy as a whole have been estimated to amount (in 1995/96 prices) to:
£l3bn GDP contribution, increasing at 11% a year in real terms;
2.4 The opportunity costs if new radio services are delayed can be considerable. For example, it has been estimated that, if Personal Communications Networks (a form of mobile telephone service) had been delayed by two years, the costs in terms of consumer welfare would have amounted to £2.5bn a year, with the loss of around 10,000 jobs *11.
2.5 It is difficult to quantity the economic benefits of spectrum trading. Much will depend on the way in which trading develops. For example, trading may be more prevalent for some licence classes than for others; and some of the more complex forms of trading, involving partial transfers of licences and possibly changes in the use made of the spectrum, may depend on securing international agreement to new uses for the spectrum and might not be feasible in several licence classes.
2.6 At the upper end of the range, if spectrum trading, by making available spectrum that would not have become available in the absence of trading, allowed an entirely new service to be introduced more quickly, the benefits might, depending on the nature of the new service, exceed £1bn a year and thousands of jobs. At the lower end of the scale, even if spectrum trading did not expedite the introduction of new services, there would be benefits to licensees from lower transaction costs, for example when businesses change hands. These benefits are estimated to amount to at least £300,000 a year *12.
3.1 The use of radio is ubiquitous throughout the economy, including agriculture, and is also widespread amongst charities and voluntary organisations (e.g. the National Trust, Royal National Lifeboat Institute). All of these could benefit from greater spectrum efficiency so more spectrum is available for their needs and from the opportunity to dispose of or to acquire spectrum licences through the market as an alternative to through the medium of the Radiocommunications Agency.
4.1 The consultative document The Future Management of the Radio Spectrum published by the Radiocommunications Agency in March 1994 and the White Paper Spectrum Management: into the 21st Century (Cm 3252, June 1996) each raised the possibility of reforms beyond spectrum pricing, including the introduction of spectrum trading. Both consultations lasted 4 months and attracted responses from a wide range of businesses, local authorities, emergency services, trade associations and others.
4.2 The 1994 consultation attracted a total of over 400 submissions. 61 of these included views on spectrum trading, about two-thirds of which considered it would not promote greater spectrum efficiency. Concerns were expressed about the need to protect small businesses from excessive prices and the risk of hoarding spectrum. The 1996 consultation attracted 120 submissions. A relatively small number responded specifically on spectrum trading. There was a welcome for measures to make transfers of licences simpler but concerns, similar to those expressed in 1994, about more complex forms of trading.
4.3 These concerns have been reflected in the proposals in the consultative document, which makes clear that spectrum trading would be subject to effective regulation to prevent market abuse at the expense of small firms or consumers and to maintain competition.
5.1 Spectrum trading would involve payments between radio users as licences are transferred and would no impose no additional regulatory burden. Transactions would have to be notified to the Secretary of State in order that any necessary controls may be exercised in the interests of effective spectrum management, competition and fairness to small business and non-business users of radio and consumers. But this process should, generally speaking, be less burdensome than obtaining a licence from the Agency direct, which would be the sole option in the absence of spectrum trading *13. The introduction of spectrum trading would not reduce users' ability to obtain licences direct from the Agency if that turned out to be more convenient than the market.
5.2 The benefits are difficult to quantity but could lie in the range of £300,000 a year to billions of £s and thousands of jobs, depending on how spectrum trading is implemented and used.
Laurence Green,
Radiocommunications Agency Strategy Unit,
Department of Trade and Industry
10N/24.1,
New King's Beam House,
22 Upper Ground,
London SE1 9SA.
Telephone: 020-7211 0566.
Fax: 020-7211 0571.
E-mail: laurence.green@ra.gsi.gov.uk
Date: October 1998
*1 Source: Economic Impact of the Radio Spectrum in the UK by National Economic Research Associates and Smith System Engineering LTD, published by the Radiocommunications Agency, May 1997
*2 Directive 97/13/EC on a common framework for general authorisations and individual licences in the field of telecommunications services, implemented in the UK by the Telecommunications (Licensing) Regulations 1997 (SI 1997/2930).
*3 Published July 1998, available from HMSO or on the Internet at: http://www.dti.gov.uk/converg/
*4 Although television reception licences are granted under the Wireless Telegraphy Act 1949, they do not involve the assignment of individual frequencies and it is not envisaged they would be made tradable.
*5 The Conference of European Postal and Telecommunications administrations
*6 Chapter I of the Competition Bill would prohibit agreements or concerted practices between undertakings or decisions by associations of undertakings which have as their object or effect the prevention, restriction or distortion of competition within the UK. Chapter II would prohibit the abuse by an undertaking or undertakings of a dominant position in the UK. Separate provisions in the Fair Trading Act 1973 would apply to mergers. These would be apt, in some circumstances, to prevent the acquisition of a dominant position. The monopoly provisions of the Fair Trading Act 1973 could apply in certain limited circumstances.
*7 'Administrative pricing is the setting of licence fees by regulation having regard to spectrum management considerations under section 2 of the Wireless Telegraphy Act 1998.
*8 Windfall gains may be defined as gains in value due to factors outside the licensee's control.
*9 It has been estimated, for example, that a two year delay in introducing Personal Communications Network services in the UK would have cost £410m a year in GDP, £2.5bn a year consumer welfare and thousands of jobs (source: The Economic Impact of the Use of Radio in the UK by National Economic Research Associates and Smith System Engineering LTD, published by the Radiocommunications Agency, October 1995).
*10 Source: Economic Impact of the Radio Spectrum in the UK by National Economic Research Associates and Smith System Engineering LTD, published by the Radiocommunications Agency, May 1997. All rates of increase are relative to the previous assessment, which related to 1993/94.
*11 Source: The Economic Impact of the Use of Radio in the UK by National Economic Research Associates and Smith System Engineering LTD, published by the Radiocommunications Agency, October 1995, pages 55-61.
*12 The basis for this calculation is as follows. At present, if a radio-using business changes hands and there is a change in the legal personality of the licensee, the existing licence has to be surrendered and a new one acquired. There is a loss of the unexpired portion of the licence, which can be expected to amount, on average, to 6 months (ie half the interval between the annual fee payments). The benefit may be estimated by analysing the number of transfers of licences and multiplying by half the annual fee. There are also unquantifiable benefits arising from the potential for speedier transactions if there is no need to obtain a fresh licence.
*13 Apart from the special case where the share capital of a company is acquired.
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