Wireless Telegraphy (Licence Charges) (Amendment No.2) Regulations 1998: Compliance Cost Assessment

1.1 The purpose of these Regulations is to set the levels of fees to be paid from July 1998 in relation to Public Mobile Operators (PMO) using powers under section 1 of the Wireless Telegraphy Act 1998 (the 1998 Act). They also seek to introduce a new licence class, with a new fee regime, "On -Site Private Business Radio", using the same powers. Future changes to other licence classes and fees are intended to be implemented in 1999 and 2000, as part of a rolling programme of restructuring of fees and licence class rationalisation. These regulations are part of the program set out in the original Compliance Cost Assessment for the 1998 Act.

1.2 The reason for changing the fees is to provide incentives to use spectrum more efficiently and to remove distortions in the current cost - based fees for licences. The 1998 Act enabling these changes was granted Royal Assent on 18 March 1998 and will become law on 18 June 1998. Under the 1998 Act, powers have been granted to ensure licence fees reflect the value of the spectrum used, rather than the administrative costs associated with the grant of the relevant licences. By rationalising licence class structures the Radiocommunications Agency (RA), acting on behalf of the Secretary of State, is helping to meet the commitment for better regulation by developing a range of licence classes which are easier for customers to use.

1.3 The effect of the fee changes will be to encourage more efficient use of the radio spectrum, encourage migration from the most congested to less congested spectrum and encourage the use of more spectrally - efficient equipment. These changes are specifically aimed at addressing the largest spectrum pricing distortions of the existing fee scales based on RA costs. The most marked distortion arises from the fact that some on-site users of private business systems pay many times more for equivalent amounts of spectrum than do public system operators.

Following detailed discussions with the operators of public mobile radio telecommunications (the Cellular and PCN operators), it was agreed that their licence fees should be increased in 1998 by 120 % of fees that would have been payable under existing regulations (the increases would represent between 0.2 -1.6 % of their revenue). The changes are as follows:

Class of licence	Variable Sums 1997 / 98	Variable sums 1998/99	Increments	Renewable
Cellular Analogue	£ 1,800 per 25 kHz channel	£ 3,960 per 25 kHz channel	Nil	Yearly
Cellular Digital	£14,400 per 200 kHz channel	£31,680 per 200 kHz channel	Nil	Yearly
Digital Cellular PCN	£10,800 per channel	£23,760 per channel	Nil until sixth anniversary of licence issue	Yearly
	£12,600 per channel	£27,720 per channel	On sixth anniversary of licence	Yearly
	£14,400 per channel	£31,680 per channel	On seventh and each subsequent anniversary of issue of licence	Yearly

For Cellular and PCN licence fee changes, full consultation has been undertaken with the operators. The industry have accepted that the charges are fair and that the procedures for determining the revised fee structure have been open and transparent. There has also been wider consultation with representatives of the mobile radio industry and user groups about these and longer term proposals. A series of consultation documents have been issued, and views canvassed have been taken into account in determining these proposals. A paper specifically addressing the changes made by these regulations was issued by RA in March. None of the few respondents have challenged the new spectrum pricing principles. Some individuals have expressed concern about the scale of changes. No representative body has opposed the changes and all have accepted the principles.

The proposals would result in a combined increase in fees for all the operators of £8.69 Million. It is estimated that this would equate to an increased weekly cost to operators of between 3 and 8 pence per customer per week at current customer levels, if passed on.

Under the existing regime of the Private Mobile Radio (Standard) Class, the charge was based on the number of mobiles in use, starting at £140 per 10 mobiles. This fee scale covers any type of use and any number of systems, irrespective of being on-site, wide area or use anywhere within the UK. This long established method has resulted in a considerable distortion in that on -site users of PBR (for example high street shops) were in effect paying many times more for an equivalent amount of spectrum than users of wide area (e.g. taxi companies) and national PBR systems. Following consultation with the industry, it is aimed to introduce pricing proposals which are more proportionate to the extent of each system’s use of spectrum. The new On -Site class will have a simple flat rate fee of £100.00 per system per site. In future regulations, more differentials may be included (for example congestion factors) and other new classes of private business radio will be introduced to replace the current range of classes.

The proposals would not result in any significant overall change in the fee licences income from Private Business Radio. There are currently 13,278 licensees operating 23,729 on-site systems. These are all wide - ranging business users such as industrial and commercial sites or leisure or amenity complexes. They include a small number of charities, such as those who manage access to sites of public interest, and some health authorities. 75 % of licensees are single system site holders, who will each benefit from at least a £40.00 reduction in fee, with some having larger savings. The remainder cover multiple on - site systems and a mix of on - site, wide area and/or UK wide systems (each having all their systems currently charged together in one licence fee). We estimate from a statistical sample of the multiple and mixed system users that just under half of them would benefit from a reduction in fees and the remainder (i.e. 14 % of all licensees) would face an increase. The increases will, for smaller multiple site (i.e. those licensees with two or three sites), range from £60 - £160. However, in a few cases where the licensee has several hundred sites, the increase could be as high as £17,000. This reflects the new rationale of Spectrum Pricing that those who use the most spectrum pay most for its value and quantity. The increase would also reflect the degree to which cost - based pricing previously distorted fees in favour of larger users of Spectrum to the detriment of smaller users of Spectrum.

7. Implications for holders of current Private Mobile Radio (Standard) class licences

Licences which currently only include on-site systems will be revoked at the time they are due to be renewed and be replaced by licences under the new class. Licences which currently include a mix of types of system will be varied to exclude the on-site systems and new licences will also be issued under the new class. (Fee collection dates for holders of more than one licence will normally be harmonised at the current renewal dates). Licences for other types of private system will be unaffected this time, but it is intended to revoke and replace many of them when further new arrangements are introduced in the next regulations.

RA regularly revises its spectrum strategy and carries out extensive monitoring of radio use. RA also publishes an annual spectrum strategy document which provides information on forthcoming proposed changes to spectrum use. The views of customers and the radio industry are sought in public consultation exercises and the results are published.

Wireless Telegraphy Regulations 1998: Compliance Cost Assessment