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Implementing Spectrum Pricing (1997)

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THE PURPOSE OF THIS DOCUMENT

This document seeks comments on proposals by the Radiocommunications Agency (the Agency) on how a system of administrative pricing of spectrum might be introduced. Comments should be sent by 5 September 1997 to:

The proposals are subject to Parliament passing the necessary legislation and approving the regulations which would then need to be made. The fees quoted in this document are illustrative and are not intended to be firm proposals - the exact levels of fees to be set out in regulations in due course will need to be determined closer to the date of the initial implementation of the proposals (which is expected to be during 1998).

Section 1 provides essential background to the proposals including the initial scope of administrative pricing. Section 2 identifies the areas on which comments are particularly requested. Section 3 defines the framework of licences which the proposals follow. Section 4 sets down the basic principles which underpin the detailed proposals. Annexes A and B and Annexes D and E show how it is proposed to apply these principles in the areas of fixed point to point links and mobile communications (existing fee scales are at Annexes C and F ). Section 5 deals with related aspect of the overall approach to spectrum management, including the role of regulation and monitoring.

Please note the following.

The provisions of the Data Protection Act apply to information in electronic form.

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SECTION 1 : INTRODUCTION

The importance of radio

1.1 The use of radio by a wide range of businesses makes a substantial and growing contribution to the economy (£13bn a year to GDP in 1995/96, growing at an annual rate of 11%). Radio is key to the development of an advanced communications infrastructure and multi-media services. Radio is essential to the growing demands for mobility; and is an effective and flexible way of introducing new services. Demand for spectrum is growing as new services come onstream and existing services expand. Effective management of the finite spectrum resource is crucial if growth and innovation are to be sustained.

Proposed new legislation

1.2 The Government has introduced to Parliament draft legislation (the Wireless Telegraphy Bill) to reform the basis on which fees are set for licences to install or use radio transmitting equipment. Under current legislation, licence fees have to be set by reference to the Agency's fully allocated costs, which bear little relationship to the value of the spectrum. This gives users little incentive to improve spectrum efficiency; contributes to spectrum shortages that impose substantial penalties on users, prospective users and the economy; and distorts the market for radio-based services.

1.3 The principal aim of the proposed legislation is to provide a fairer and more rational basis for pricing spectrum that takes into account the value of the resource that is used and provides incentives for spectrum efficiency. This is referred to generally as 'spectrum pricing'. There are two variants: administrative pricing, where fees are determined by regulation, and auctions, where fees are set directly by the market. This consultative document relates to the implementation of administrative pricing, and seeks to illustrate how a new pricing structure could be introduced to give effect to the intentions of the new legislation. It does not deal with spectrum auctions which will be the subject of a separate statement in due course. The proposals in this document are subject to Parliament passing the necessary legislation and approving the regulations which would then need to be made.

1.4 Responses to public consultations in 1994 and 1996 showed strong support in principle for the reform of spectrum pricing and for the introduction of administrative pricing but expressed a number of concerns about the detailed proposals for its implementation. Following the 1996 consultation, the Agency established two joint Agency-user working groups on administrative pricing dealing with mobile communications and point-to-point fixed links to address these concerns. The revised proposals in this document take account of the views expressed in the responses to the consultation and by the working groups. The Agency is grateful to all those who have contributed suggestions and ideas during the development of these proposals.

The scope of these proposals

1.5 Under the proposed legislation increased prices through administrative pricing would be used as a spectrum management tool only where necessary to promote spectrum management objectives including the optimal use of spectrum. The proposed legislation would require the Secretary of State, in setting fees, to have regard to various factors, including spectrum congestion and the promotion of competition.

1.6 Accordingly, increased prices for spectrum would be introduced selectively and would not be applied to all sectors of radio use nor in all areas of the country. In line with the earlier proposals it is intended that the sectors in which increased spectrum prices would be introduced initially are:

Fixed Services (point-to-point links)

Private Business Radio

Public Mobile Communications

1.7 The following sections of this document describe the basic approach. The detailed proposals in relation to fixed point to point links are explained in more detail in Annexes A and B. Annexes D and E deal with the other two sectors which together account for most land mobile communications. In accordance with earlier proposals it is not intended to apply increased prices to paging systems at this stage.

1.8 The current estimate of the additional income that will be generated by these proposals at the end of the transitional period is £75 m - which is a slight overall reduction from the earlier forecasts. The fees quoted should, however, ben seen as illustrative and are not intended to be firm at this stage. The exact level of fees (to be set out in regulations in due course) will be determined closer to the date of implementation of the proposals (which is expected to be during 1998). They will need to take full account of all relevant information available at the time and reflect points made during this consultation as well as the views of Parliament. Moreover, it is intended that the new pricing structures and levels will be introduced progressively over a 3 year transitional period to give users time to adjust to the new approach. The document describes the position which the Agency hopes to reach by the end of that transitional period. How the new fees will be phased in over the transitional period will be determined at the time and in the light of the responses to these proposals. Some of the proposed changes will also require significant development of the Agency's information systems.

Other sectors of radio use

1.9 As previously proposed, increased spectrum prices would not be introduced at this stage in the following sectors:

1.10 Consideration is, however, being given to applying increased prices to users of private business channels in the aeronautical and maritime sectors, as previously suggested. This will not extend to the main internationally recognised channels in these sectors. The Agency will be consulting users in these sectors separately on the basis of the pricing principles set out in this document.

1.11 For these sectors referred to in paragraph 1.9 the introduction of administrative pricing would enable the Agency to adopt a more flexible approach to fees. Instead of being constrained simply by a cost-based system, the Agency would be free to place increased emphasis on the amount of spectrum used. Nevertheless, in the interests of ensuring fairness between different groups of customers the Agency would still, in respect of these sectors, seek to generate an amount of income from each sector which was broadly related to an appropriate share of the Agency's total costs - normally this would mean at least covering direct costs plus a contribution to central costs - but in a way which gave the Agency greater freedom to adopt realistic pricing policies which supported the overall objectives of spectrum management. Accordingly, for these sectors, the new pricing powers would be likely to have little impact on the overall levels of fees charged. Applying the pricing principles set out in Section 4 could, however, result in changes to the fees for different licence products within a sector. Any such changes would be introduced progressively as part of the Agency's continuing programme of adjusting fee levels and charging structures to take account of developments in the use of radio. The Agency would consult those affected on any proposals for change in the usual way.

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SECTION 2 : REQUEST FOR COMMENTS

2.1 Comments are invited on any aspect of the proposals in this document.

In particular, views are sought on the following points.

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SECTION 3 : LICENSING CONCEPTS

RULES project

3.1 In parallel with the development of proposals on spectrum pricing, the Agency has been undertaking a major project to rationalise and unify its licensing processes and procedures (the Radiocommunications Agency Unified Licensing and Executive System - RULES - project). This has involved a fundamental internal review of:

3.2 Under the RULES project the Agency has evolved a new approach to classifying the product range for licences authorising use of radio into a matrix of 3 distinct types of authorisation of product within a portfolio of licence classes, which are in turn grouped within business sectors. This approach provides a framework for logical fee calculation, licence processing and documentation.

Business sectors

3.3 The Agency manages spectrum in 10 broad business sectors. Although there may be new demands to be accommodated within each sector, there is not expected to be much change to this basic list of sectors. The Agency reports on its activities on a sector by sector basis which are as follows:

Licence classes

3.4 The Wireless Telegraphy Act 1949 refers to the grouping of licences by class. The Agency is progressively refining its various classes to the number in each sector that can each be supported by one set of documentation (i.e. application form, guidance notes and licence format). One proposed change is that there will be emphasis on use rather than technology in each class. For instance it is proposed to consolidate various licence classes covering private radio systems (e.g. private mobile radio and private paging) but to produce two new licence classes covering wide area uses and on-site uses. Any distinctions as to use within the class (e.g. voice or data communication or paging) will in future be recognised in distinctive licence products.

Licence products

3.5 The number of ways that radio spectrum can be accessed continues to grow as new techniques and technologies evolve. In the past, the Agency has been pressed to try to create a new licence class for each new approach. In future it is aimed to accommodate these differences within distinctive licence products within a class. Normally each licence product will have access to an identified part of the spectrum and this will make clearer to users the terms under which they are operating. There will be a common approach to similar features of each type of product (eg how spectrum is charged and recorded on the licence, the relevant standards.)

3.6 There are three basic types of licence products;

Pre-packaged licence product

3.7 Where specific frequencies are agreed for the use of all licence holders accessing a type of use, the licence requires no further technical processing by the Agency. Licence issue then becomes a routine activity and is easy to process quickly. Often such spectrum is agreed for similar use throughout the world (eg ship radio licence) or specifically in the UK (eg Short Range Business Radio licence). The Agency intends that licence documentation should be simple to compile and issue quickly, with only basic information being recorded about the licence holder and identification codes where appropriate (eg ship's name and call sign). There is a simple fee or fee scale for such use since normally many users are sharing the same pre-packaged spectrum.

Customised licence product

3.8 The majority of detailed licensing work undertaken by the Agency involves the assigning and/or clearing of specific transmitting stations to operate at a specific UK location (eg fixed link terminal, satellite ground station, wide-area private business radio base station). The Agency issues licences either for each fixed station or for links between stations, which permit the use of a specified frequency at the identified location for the specified purpose. The licence is thus customised for the particular usage. Any change to technical parameters, usage or location requires the specific prior authorisation of the Agency. This is necessary to avoid interference to other similar systems of other users which occupy the same channel (or adjacent channels). Currently, customised licence fees are calculated on a number of different bases. It is proposed to rationalise this approach and to adopt the common principles set out in Section 4 for all customised licence products.

Spectrum licence product

3.9 In the case of some major radio-based networks, the Agency does not assign specific frequencies for a particular station but, instead, provides a block of spectrum to the user. The licenceholder then plans the location of stations within the network and the use of channels by those stations within the block of assigned spectrum. Licences are issued which are spectrum specific rather than based on frequencies at specific stations. The licence conditions usually require station details to be notified to the Agency to ensure the completeness of the Agency's databases for spectrum planning purposes. In addition, site or frequency clearance may be required, but this usually follows licence issue, rather than needing to be agreed in advance.

3.10 For spectrum licences, fees are calculated simply by reference to the amount of spectrum made available under the licence, whether on a national basis or on the basis of only partial coverage of the country (which, for convenience, is referred to as a "region"). It is proposed that fees will continue to be calculated on this basis - adjusted, where appropriate, to take account of the principles set out in Section 4. This way of charging fees is already generally used for major networks, and it is proposed to extend the approach to those networks where the operators currently undertake the detailed planning of the network and of the use of the spectrum block.

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SECTION 4 : PRICING PRINCIPLES

The current position

4.1 Currently, the fees for individual licence products are based simply on cost. This has led to much distortion in the scales of fees charged by the Agency. Not only do licence fees bear little relationship to the amount of spectrum used, the current fee scales are, in some cases, seen as discriminating unfairly between users. For example, the "per mobile" fee for private mobile radio systems is charged on the total number of the mobiles of all the systems operated by licenceholder rather than the mobiles of each discrete system - an approach which tends to favour multi-system users. Similarly, the omnibus fees charged to certain large users of spectrum whilst still cost related can mean that those users pay significantly less for their spectrum than users who pay the standard fees.

A new approach

4.2 The proposals in this document adopt a significantly different approach to the calculation of fees with prices being based primarily on the amount of spectrum used and with account being taken of actual or foreseen congestion (where appropriate). Fees will be charged consistently to all users of whatever size.

4.3 The intention is that the new pricing structure will be:

and so send clear signals to users about the relative demands for spectrum and influence their behaviour in a way which meets the spectrum management and other objectives of the proposed new legislation.

4.4 Annexes A and B and Annexes D and E set out the details of how the new pricing structure will apply in the areas of fixed point to point links and mobile communications. There are some differences in the way in which fees are proposed to be calculated - reflecting the different technical design and characteristics of "fixed" and "mobile" systems - but the basic approach in both areas takes account of the following factors in determining the price of individual licence products.

The pricing factors

4.5 The first three factors measure the amount of spectrum occupied by a user by reference to (i) the bandwidth used over (ii) the area of usage and reflecting whether that usage is (iii) on a shared or an exclusive basis.

(i) Bandwidth. This is normally the standard channel width for a particular usage.

(ii)Area sterilised. This measures the geographical occupancy. This is made up of the area coverage achieved by the particular system plus an appropriate share of the area which must be left vacant between systems occupying the same channel to ensure protection against interference. For national channels the area covered is the whole (or virtually the whole) of the United Kingdom. Regional usage indicates that a channel is occupied in only part of the country, and the licence fee would be the relevant proportion of the national channel charge.

(iii) Exclusivity. Within a defined coverage area the user will have either exclusive occupancy or will share a given channel with other users. In the latter case, each shared user will pay a proportion of the exclusive rate. This will be related, as far as possible, to usage although it is recognised that measuring actual usage on shared channels may be difficult, if not impossible.

4.6 In addition, there are two further factors which take account of whether the user is occupying spectrum in a band and in an area which is the subject of congestion or where there is the prospect of congestion in the near future:

(iv)Frequency band. Within an area of application, users favour some frequency bands over others (normally because those bands are more useful to users or have some other advantage). As a result congestion may occur in one band but not be a problem in another.

(v) Location. Demand for spectrum varies across the country. This factor will enable the Agency to take into account whether the radio system operates in an area of congestion.

Other pricing elements

4.7 It is proposed that the above factors will form the basis of the new pricing policy for licence products. Wider public interests may also need to be taken into account in arriving at the final price. This might cover matters such as competition considerations, the desirability of promoting innovation and the need to encourage diversity in the use of the radio spectrum. For example, it is proposed that the 50% discount on licence fees for charities providing safety of life services (e.g. the lifeboat service) will continue.

4.8 A strict application of the above pricing principles could, in some cases, result in licence fees that are abnormally low. This arises where, for example, the licence covers only a very small amount of spectrum which is often used on an exclusive basis (e.g. for on-site systems). In order to ensure that distortions of this kind are avoided, and to enable the Agency to provide a portfolio of suitably priced licence products, it is proposed that there should be a minimum fee. It is expected that this will apply in only a limited number of cases.

4.9 It is not proposed that a discount should be available to those who self manage their own assignments within a specific spectrum band (whether on their own or as part of a wider self-management arrangement). There is no change to the current position (except in relation to fixed links). In practice, those who undertake self management will generally have spectrum licences (and where this is not the case the Agency proposes to move to that approach) enabling them to make use of spectrum nationally or regionally and on a self planned basis. There are considerable benefits to those involved in self management arrangements (compared to the alternative of seeking individual customised licences from the Agency) including:

4.10 Whilst there are additional costs associated with self management arrangements, the Agency considers that, on balance, the commercial benefits of self management outweigh the additional costs of the users. Moreover to provide a discount to those who self manage spectrum would risk distorting the supply of spectrum and put those who cannot self manage (normally smaller users) at a potential commercial disadvantage.

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SECTION 5 : RELATED ISSUES

Spectrum management and regulation

5.1 Managing the growing demands on the spectrum is an increasingly complex task. The proposed legislation aims to provide the additional powers of spectrum pricing and granting financial assistance to complement the Agency's existing powers and so achieve a more balanced approach to spectrum management.

5.2 The existing regulatory powers will continue to be used in an appropriate way. In particular, the Agency will continue to develop its monitoring capabilities and carry out licence checks to ensure that its licensing records are up to date and that it has authoritative information about the current usage of the spectrum. The Agency will be placing greater emphasis in future on obtaining usage information (where this is readily available) directly from licenceholders and thereby evolving a more comprehensive and consistent audit approach to spectrum usage. This will also assist the development of the Agency's strategic plans for management of the spectrum

5.3 The Agency will also continue to take enforcement action, as appropriate, against those who use spectrum without the necessary authorisation; or who operate in breach of licence conditions. This is in line with the Agency's commitment to "keeping the spectrum clean" for the benefit of authorised users.

Customer accounting arrangements

5.4 In order to achieve greater transparency in the way in which it calculates fees and to ensure that users are clear about what they are paying for and why, the Agency proposes to introduce, over time, a new and more consistent approach to charging for radio systems. Currently, a user with a number of private radio systems (or fixed links) at different locations is issued with a single licence but with each separate radio system (or link) recorded on a different schedule to the licence. Contrariwise, a licenceholder with a private mobile radio system which also makes use of radio fixed links within the system receives separate licences for the private business radio system on the one hand and the fixed links on the other. The two licences are billed separately.

5.5 These arrangements have grown up over time and it is now appropriate to streamline them in order to provide users with more user-friendly customer accounting arrangements and to deliver a clearer and more consistent approach to licensing. It is therefore proposed that the Agency moves to a position whereby a user will be issued with a separate licence for each discrete radio system. In parallel, new customer accounting faciltities will be introduced to enable those with multiple licences (whether within a sector or across different sectors) to receive a single statement covering the renewal of all their licences and to pay for those renewals on a single date. Equally the Agency would intend to enable users with multiple licences to choose when licences are renewed (either all together on a single date or at different dates during the course of the year). This will require some existing multi-service licences to be "unbundled" and the Agency will, over the next few months, be consulting further with those users to see how this new approach can be brought into effect in an efficient and streamlined way.

5.6 To assist in this process, it is proposed to extend the current practice of issuing licences which are renewable at the end of the month and to enable licenceholders to request that a new licence is issued for a period of less than a year in order to achieve a common renewal date with an existing licence.

5.7 This more consistent approach to licensing and the introduction of more sophisticated customer accounting arrangements will help to ensure that the new pricing approach is adopted fairly and openly across all sectors. It will provide the Agency's customers (especially those with multiple systems) with an improved level of service.

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