Summary of Responses to Consultation Document "Implementing Spectrum Pricing" Issued by the Radiocommunications Agency in May 1997

Issued by the Radiocommunications Agency, an Executive Agency of the Department of Trade and Industry October 1997

Contents:

• Introduction

• Section 1: Overview Summary

• Section 2: Issues Arising from Responses to Proposals in the Fixed Services Sector

• Section 3: Issues arising from Responses to Proposals in the Private Business Radio and Public Mobile Communications Sectors

• Address

• Annex

Introduction

The Radiocommunications Agency issued a consultation document "Implementing Spectrum Pricing" on 29 May 1997. This invited comments by 5 September 1997 on how a system of administrative pricing of spectrum might be introduced in the areas of fixed services (point to point links ); private business radio and public mobile communications. The consultation document formed part of a continuing dialogue between the Agency and industry users and others on issues associated with the pricing of the radio spectrum, taking forward proposals contained in the Agency’s consultative document "The Future Management of the Radio Spectrum", published in March 1994 and the White Paper "Spectrum Management: into the 21st Century", published in June 1996.

Comments were received from just over sixty organisations from a wide cross-section of leading players and users in the radio industry, including manufacturers and suppliers, trade associations and public sector organisations. A list of all respondents is given in the Annex. The Agency is grateful for the effort that has gone into responding to the consultation document. All the points made will be carefully considered and the offers of assistance in developing the proposals are welcome.

This paper provides a summary of the responses received by the Agency on the scope of proposals contained in the consultation. It should be noted that inclusion of an opinion does not necessarily imply endorsement by the Agency.

The Agency acknowledges that a number of issues, which are outlined in this document, require additional consideration. It will be continuing its consultations with users and industry in order to refine further the administrative pricing proposals.

The full responses, except for material requested to be kept confidential, will be made available on the Agency’s Internet site (www.radio.gov.uk).

Contents

Section 1 : Overview Summary

Need for new fee regime

• There was agreement from respondents that the Agency needed to break away from constraints imposed through cost recovery in order to introduce fairer prices that reflect the scarcity and value of the spectrum being used. The existing fee regime, it was widely recognised, does not provide the Agency with the tools it requires to manage radio spectrum and to meet the demand of a dynamic and growing industry, present in the UK.

• The proposals in the consultation document were recognised by many respondents as a logical progression towards a more effective market based form of spectrum management. There was concern that the proposals should not be viewed in isolation; and that the Agency should make clear its long-term spectrum management objectives and link these to its spectrum pricing objectives.

• There was broad-based support from both the public and private sectors for the introduction for administrative pricing. However, the proposals to concentrate initially on just three sectors (fixed point-to-point services, private business radio and public mobile communications), were believed by some to be too limited.

• There existed a clear understanding of the need to use market-based mechanisms as a means of promoting good spectrum management practice; and recognition that, in some areas, the Agency faces difficulties in addressing anomalies caused though historical allocations.

• It was considered important to ensure equitable treatment for all services. The development of spectrum pricing could provide increasing transparency in the valuation of radio spectrum for different users. The proposals for spectrum pricing were regarded as a starting point for the evolution of a robust system of pricing radio spectrum in the future. This should be carried out in full consultation with the industry.

• The three year transitional period, from the existing fee regime to one in which the full increase in fees would commence was considered by some to be too short; particularly where a major increase in fees was envisaged. Some respondents considered that the three year transitional period would penalise organisations who have made large scale investments under the existing scheme.

Pricing

• Movement by the Agency towards greater transparency in its licensing procedures and processes, was welcomed by the radio industry and users alike. This development would, it was thought, be assisted through further development of spectrum pricing values expressed in terms of the Spectrum Tariff Unit (STU)¹ to express licence fees. This would enable pricing comparisons across different parts of the spectrum.

• Views were mixed on the concept of a uniform charge per STU. Some believed that this would allow the existence of a level playing field. Others argued that there was a need to take into account other factors such as competition, choice, spectral efficiency, quality of service and self-management of spectrum.

• There was concern, that under the proposals the main burden of spectrum price increases would fall on the mobile telephone companies and larger users of fixed links. There was perceived to be a need, within this group, for the Agency to justify proposed increases on the grounds of the promotion of spectrum management objectives. Mobile telephony operators claimed that existing commercial drivers oblige them to make optimal use of current spectrum allocations; and that the emergence of spectrum pricing would not provide any further incentive to maximise the use of current assignments.

• Concern was expressed on the illustrative licence fee increases for mobile communications contained in the consultation document. Many operators believed that, in heavily congested areas, the proposals would lead to fee increases which they would be unable to pass on to customers. Some Common Base Station operators pointed to tight operating margins in their businesses, which would be unable to sustain the increases suggested in the consultation document.

• Greater uniformity in the price of spectrum between mobile and fixed services was advocated by some, who noted that the illustrative prices in the consultation document did not offer reasonable parity, between sectors, for the price of radio spectrum.

Congestion

• It would be crucial to demonstrate congestion in order to justify increases in fees. The design and application of methodologies for both defining and measuring the existence of congestion ( or otherwise) was regarded as critical to the success of spectrum pricing and confidence in its future application.

• The Agency’s initial scoping of congestion outlined in the consultation document, was regarded as giving insufficient resolution to define areas in which there is congestion.

Spectrum management

• Spectrum management should be designed to support clear and explicit spectrum management objectives, linked to the Agency’s spectrum strategy.

• There was concern that spectrum pricing should not be regarded as a substitute for the use of other spectrum management tools available to the Agency.

• Some respondents were critical of some current spectrum management practices. It was felt that Agency resources should be transferred to the management of services suffering from particular problems.

Further consultation

• The Agency should consult further with industry in order to give further definition to its proposals in terms of scope and timing and many respondents declared their willingness to work with the Agency, in order to assist further development of the proposals.

¹ The Spectrum Tariff Unit (STU) is a calculated figure based on the value of MHz of spectrum covering 1 km².

Contents

Section 2: Issues Arising from Responses to Proposals in the Fixed Services Sector

1. National Channels

Some responses pointed out that major users with national channels enjoy an unfair competitive advantage as they pay considerably less than those who are charged on a "link by link" basis.

2. Fixed Link Pricing Model

There was general approval of the formula outlined within the consultation document but with some reservation about the use of a factor for the transmitted effective isotropic radiated power (eirp). Some commented that fees in the fixed link area were markedly lower than those proposed for the mobile spectrum.

3. The Reference Base for the Definition of Congested Areas

Many felt that the 100 km squares used in the consultation document gave insufficient resolution. (NB The Agency has already undertaken further work on defining the congested areas more precisely. It has refined the model and based it on 25 km grid squares for the 7.5 GHz band and 20 km grid squares for the 13 GHz band; and will be discussing this further work with users.)

4. Review of Agency Assignment Procedures

It was considered that the Agency should review its assignment procedures. (NB The Agency is currently reviewing the assignment procedures used for some frequency bands and will be discussing this further with a view to obtaining further input about particular concerns. The move to a new assignment system, currently planned for April 1998, will involve the deployment of the latest propagation models and topographic data bases.)

5. Self-Management Discounts

Operators of self-managed bands felt that the fees they paid should be discounted to reflect the costs they incurred in managing their frequency bands.

Contents

Section 3: Issues Arising from Responses to Proposals in the Private Business Radio and Public Mobile Communications Sectors

1. Specific Pricing Issues

(a) Uniform price /Spectrum Tariff Unit (STU): Need for modifiers
The development of a uniform charge for all mobile spectrum based on a standard rate per STU across the mobile sector received wide acceptance as a transparent and equitable methodology. However, some responses argued that there was a need for a greater degree of pricing flexibility. They proposed that the standard charge should be varied by the incorporation in the pricing algorithms of additional parameters to take account of technical and commercial differences between the various mobile services.

(b) How spectrum pricing should be applied
The limitation of fee increases to certain sectors proposed in the consultation document was viewed by some as unfair. In the interests of fair competition it was thought that administrative pricing proposals should also apply on a comparable basis to related services, such as paging.

(c) Market convergence of fixed and mobile sectors
It was believed that the convergence of fixed and mobile telecommunications systems would lead to changes in the characteristics of the telecommunications market. In particular, it was noted that cellular/PCN operators are providing local area mobility services in conjunction with other fixed public telecommunications operators and thus competing with radio fixed access services. Care should be taken to ensure that spectrum pricing did not distort competition.

(d) Auctions
Where licences are auctioned, fees for competing services that are set administratively should be at a level that does not distort competition. Reference was made in this connection to the possible auction of UMTS spectrum.

2. Congestion

The determination of congestion is a critical aspect of the implementation of spectrum pricing. There remained general concern that more work needs to be done in this area. Specific issues relating to congestion that require further consideration by the Agency included:

(a) Criteria for determining congestion by geographical area
The designation of certain geographical areas in the consultation document as being congested or non-congested was thought by many to be insufficiently transparent, particularly where a frequency band supports allocations for a number of services. It was widely held, that the Agency should determine and make known its objective congestion criteria for exclusive and shared channels, based on information relating to the availability of radio spectrum.

(b) Criteria for determining congestion by frequency bands/channel occupancy
It would be necessary to determine the congestion ( or otherwise ) of frequency bands on a radio service basis. Special consideration needed to be given to the formulation of common congestion regions/bands across services enabling common charging mechanisms to operate on a national or regional basis.

(c) Monitoring
Monitoring was recognised as a major tool in providing data that could be used to scope congestion by region and frequency band. Channel occupancy criteria levels also needed to be considered in this process to provide information on the maximum loading of shared channels and on the possibility of setting a utilisation floor to define the minimum acceptable loading of a scarce and valuable resource.

3. Valuation of Spectrum

The validity of earlier economic criteria, which had underpinned the proposed application of spectrum pricing was challenged by some who requested greater transparency and openness in the valuation of spectrum. Some respondents proposed alternative approaches, whilst others emphasised the need to consider different valuations for congested and non-congested areas when setting charges for national channels.

4. Competition Issues

(a) Choice and business viability
It was suggested that spectrum pricing might erode the competitiveness of some businesses, particularly those in an environment of very strong competition and with high demand substitutability. Particular attention was drawn to CBS and PAMR services.

(b) PCN/Cellular
The consultation document proposed a uniform charge for mobile communications, including cellular and PCN. It was argued that the introduction of a uniform value would unfairly disadvantage PCN operators and took no account of the superior propagation characteristics of 900 MHz spectrum. It was further argued that account should also be taken of the fact that PCN operators are new market entrants and should be given continuing transitional relief.

(c) Public mobile data operators
Differences in frequency band charges might affect competition between similar services on different bands. This was a matter of concern for public mobile data operators, some of whom operate in bands currently designated as congested and some in bands designated as non-congested.

5. Spectrum Usage Constraints

Some respondents felt that there were additional factors that should be taken into account in valuing spectrum and setting fees. These included: propagation characteristics; interference; international coordination agreements; the cost of moving incumbents from occupied spectrum; the cost of moving frequencies if required to do so by regulation; topography; and the unavailability of alternative, more spectrally efficient technology.

6. Spectral Efficiency

It was argued that some operators already using spectral efficient technology were not able to improve their spectrum efficiency and so would not be in a position to respond to pricing signals. These operators requested that future fees should reflect existing high levels of spectrum efficiency and also take full account of the beneficial effects their spectrum efficiency brings to other users.

7. Quality of Service

Some users who share private business radio spectrum maintained that fees should be reduced to reflect what they regarded as a poor quality of service and to take account of spectral efficiencies achieved by sharing arrangements.

8. Self-Management Arrangements

Many organisations within self-management arrangements expressed disappointment that the consultation document did not propose a discount for such activities. They believed that the absence of a discount would compromise the ability to take full advantage of the flexibility offered by self-management.

Contents

Address

Radiocommunications Agency
New King’s Beam House
22 Upper Ground
London
SE1 9SA

Tel: 020 7211 0211
Fax: 020 7211 0507

October 1997

Contents

Annex

List of Respondents to "Implementing Spectrum Pricing"

A.C.T. COMMUNICATIONS

ADVANCED RADIO TELECOM

ASSOCIATION OF CHIEF POLICE OFFICERS IN SCOTLAND

BRITISH TELECOM PLC

CABLE AND WIRELESS COMMUNICATIONS

CABLE AND WIRELESS PLC

CASTLE TRANSMISSION INTERNATIONAL

CELLNET

CHIEF AND ASSISTANT CHIEF FIRE OFFICER’S ASSOCIATION

CHIEF AND ASSISTANT CHIEF FIRE OFFICER’S ASSOCIATION ( SCOTTISH DISTRICT )

CIVIL AVIATION AUTHORITY

COGNITO LTD

COMCIR (RADIOCOMMUNICATIONS )

COMMUNITY TRANSPORT ASSOCIATION

COUNTY LANDOWNERS ASSOCIATION

ELGY GROUP RENTALS

ENGLAND ELECTRICAL

EREWASH COMMUNITY TRANSPORT

FEDERATION OF COMMUNICATIONS SERVICES

FEDERATION OF THE ELECTRONICS INDUSTRY

HIGHPOINT COMMUNITY REPEATERS LTD

ICO GLOBAL COMMUNICATIONS

INSTITUTE OF ELECTRICAL ENGINEERS

IONICA PLC

ISLE OF ANGLESEY COUNTY COUNCIL

JOINT RADIO COMPANY

JOINT RADIO TAXICAB ASSOCIATION

LOGANAIR

MERCURY PERSONAL COMMUNICATIONS LTD

MIDLANDS ELECTRICITY PLC

MOBILE RADIO SUPPLIERS ASSOCIATION

MOBILE RADIO USERS’ ASSOCIATION

MOTOROLA

NATIONAL AIR TRAFFIC SERVICES LTD ( AIR NAVIGATION SERVICES)

NATIONAL BAND THREE LTD

NATURAL ENVIRONMENT RESEARCH COUNCIL

NATIONAL FARMERS UNION

NATIONAL RADIO USERS LIAISON GROUP

NORMCALL COMMUNICATIONS LIMITED

NORTHAMPTONSHIRE POLICE

NTL LTD

OFFICE OF TELECOMMUNICATIONS

ON-SITE COMMUNICATIONS ASSOCIATION

ORANGE PLC

PARTICLE PHYSICS AND ASTRONOMY RESEARCH COUNCIL

QNL (UK) LTD

RAC MOTORING SERVICES

RADIO CONTACT SERVICE

RAM MOBILE DATA

SCOTTISH TELECOM PLC

SEEBOARD

SOUTH COAST COMMUNICATIONS LTD

SOUTHERN ELECTRIC

SURREY COUNTY COUNCIL

TELECOMMUNICATIONS ADVISORY COMMITTEE

TELECOMMUNICATIONS MANAGERS ASSOCIATION

TRANSCO

UK MAJOR PORTS GROUP LTD

UK PAGING INDUSTRY ASSOCIATION

VODAFONE GROUP SERVICES LTD

WANDSWORTH BOROUGH COUNCIL

YORKSHIRE DALES RESCUE PANEL

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