Spectrum Pricing: Implementing the second stage - A Consultation Document September 1998

Contents Page

CHAPTER 1 Purpose and Summary

CHAPTER 2 Background

CHAPTER 3 The Approach to Implementing Administrative Pricing

CHAPTER 4 Public Telecommunications Services

CHAPTER 5 Private Business Radio Proposals

CHAPTER 6 Fixed Links Proposals

Appendices

APPENDIX 1A Private Business Radio Congestion Map

APPENDIX 1B Common Base Station Congestion Map

APPENDIX 1C 4GHz Fixed Link Congestion Map

APPENDIX 1D 7.5GHz Fixed Link Congestion Map

APPENDIX 1E 13GHz Fixed Link Congestion Map

APPENDIX 2 Implementation Plan

APPENDIX 3 Proposed PBS Licence Evolution

APPENDIX 4 Summary Of The Modifiers Group Recommendations

APPENDIX 5 Nera/Smith Executive Summary

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Chapter 1 : PURPOSE AND SUMMARY

Purpose

1.1 This is the third consultation document aimed at seeking the views of customers of the Radiocommunications Agency on the implementation of administrative spectrum pricing under the powers of the Wireless Telegraphy Act 1998. It addresses changes proposed to become effective from July 1999.

1.2 Please provide views and comments by end of December 1998 to Licensing Policy Unit or by E mail to des.daly@ra.gsi.gov.uk. The Agency proposes to compile and publish a summary of comments received, so please indicate if you would not wish your views to be made public. A draft Regulatory Impact Assessment is being issued under separate cover and will also appear on the website www.radio.gov.uk . Comments on this assessment will also be welcomed.

Summary

1.3 In July 1999 it is proposed to implement the second set of changes to the administrative fees for licences to use radio equipment issued under the Wireless Telegraphy Acts. The proposals reflect the background of previous rounds of consultation and outputs of working groups and economic studies outlined in Chapter 2. The proposals focus on the following business sectors of radio use:

Public Telecommunication Networks;
Private Business Radio;
Fixed Links.

1.4 These changes are part of a three year programme to introduce spectrum pricing principles to all sectors of radio use, including to Government users. Proposals for other sectors will be the subject of further consultation documents to be issued later.

1.5 Chapter 2 of this paper recaps on previous work and consultation exercises and general background to applying the pricing principles. In the light of earlier responses to these consultations, the Agency has established a number of ad-hoc industry and user working groups to help develop and test the proposals and sub-groups were formed to tackle the issues of congestion and other factors by which fees might be modified. The work of these consultative groups is reflected in these proposals.

1.6 Chapter 3 aims to demonstrate how general pricing principles are to be applied in the second stage being implemented in 1999. The chapter also covers issues about licence accounting, application to the Channel Islands and the Isle of Man and other wider topics. Chapters 4, 5 and 6 address the proposals for each sector.

1.7 For the Public Telecommunication Networks Sector the intention is to continue to use the existing "Public Mobile Operator" licence class, but to adjust the charging basis to reflect the value of the spectrum used rather than the cost of administration. In 1999 it is proposed to:

- introduce new pricing rates for public paging services, national data networks and for public access mobile radio services to reflect the modified values of spectrum used;

- make further adjustments to the rates paid by public radio telephony operators, beyond those set in 1998 to start to reflect modified values of spectrum used. It should be stressed that these new rates apply to the operators of services, and the effects for individual subscribers, if passed on to their subscriptions, are likely to be fairly insignificant (e.g. the 1998 proposals would equate to 5 pence per subscriber per week);

- adjust the rates for common base stations to reflect congestion factors and modifiers for channels used.

Chapter 4 addresses the detail of the proposals for public mobile operator and common base station licence fees.

1.8 The intention for the Private Business Radio Sector is to continue the change of moving from prices based on administrative cost to prices reflecting the value of spectrum used. In 1999 it is intended to:

- develop further the pricing regime for the new class of On-site PBR to reflect congestion. In 1998, the "On-site PBR" licence class was introduced with a flat fee charged per system per site. In 1999 it is intended to make further changes to the fee structure;

- introduce a new "Wide area PBR" licence class for services up to a typical 30 km operating range;
- introduce a new "National / regional PBR" licence class for more extensive systems and private networks.

For each of the 3 classes mentioned, there will be new pricing structures. The details of the proposals are set out in Chapter 5.

1.9 The intention for the Fixed Links Sector is to continue the existing "Fixed Point-to-Point Links" class for terrestrial microwave link networks. (These are the services which provide the network infrastructures for public and private systems like telephony, broadcasting and for national private services.) It is proposed in 1999 to establish a new fee scale and licence for each point-to-point link based on the value of the spectrum used by the link and whether or not frequency band is congested. The details are given in Chapter 6.

Further Consultation

1.10 A further consultative document will be issued later to cover outline proposals for the future implementation of spectrum pricing in other sectors of radio use not covered by this document. During passage of the Bill, assurances were given that pricing arrangements for radio fixed access point to multipoint services would not be disturbed for a while, and these and related pricing issues for point to multipoint services will also be separately addressed.

Licensing Policy Unit
Radiocommunications Agency
New Kings Beam House
22 Upper Ground
London SE1 9SA
Email: des.daly@ra.gsi.gov.uk
25 September 1998

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Chapter 2 : BACKGROUND

Wireless Telegraphy Act 1998

2.1 The Wireless Telegraphy Act 1998, which recently came into force, is the most important change to spectrum management legislation in nearly 50 years. It provides the Agency with important additional tools to manage the spectrum more effectively and to promote its optimal utilisation.

2.2 The Act introduces new ways of setting licence fees for radio spectrum. Previously, fees were linked to the costs of issuing licences. This was economically irrational, as it gave little or no incentive to use spectrum more efficiently, and unfair to smaller businesses, who pay far more pro rata on a cost recovery basis than large users of spectrum, such as mobile telecommunications operators. Instead, the Act provides for licence fees to be set by regulation (administrative pricing) or by auction to reflect spectrum management objectives.

2.3 Ministers repeatedly emphasised during the passage of the Act through Parliament that spectrum pricing will be driven by spectrum management considerations. This is underpinned by the Act, which requires the Secretary of State, in exercising the powers, to have regard in particular to specified spectrum management factors. The administrative pricing provisions were amended during the passage of the Act to strengthen the linkage with spectrum management.

Administrative pricing

2.4 For the majority of licences, fee charge rates are determined by the Secretary of State and are set out in regulations which are required to be laid before Parliament. Under the new legislation, fees must have regard in particular to:

the balance between the availability of spectrum and present and future likely demand;
the desirability of promoting:

- the efficient use and management of the radio spectrum:
- any economic benefits from the use of radio, which includes benefits to consumers;
- innovation; and
- competition in telecommunications services, which are widely defined to include, for example, broadcasting and private business radio as well as telephone services.

Auctions

2.5 The Act also provides for licences to be auctioned, having regard to the desirability of promoting the optimal use of the spectrum. Ministers have made clear that auctions will be applied selectively, probably for new national or regional services where there are more potential network operators than can be accommodated in the spectrum available. For example, it is not planned to auction individual licences issued to the generality of small or medium sized businesses, including self-provided systems. Nor will existing operators be required to enter an auction for the right to continue to provide existing services within existing assignments.

2.6 The Act also provides for licensees to be given enhanced security of tenure and for selective financial assistance for spectrum efficiency improvements.

This document concerns the use to be made of the administrative pricing powers, and information about auctions and the other provisions will be published later .

Previous Consultation

2.7 In its consultation document "Implementing Spectrum Pricing" in May 1997, the Radiocommunications Agency invited views 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. Constructive and helpful comments and feedback have been received at each step from a wide cross-section of leading players and users in the radio industry, including manufacturers and suppliers, trade associations and public sector organisations.

Need for new fee regime.

2.8 There was general agreement from most respondents to the May 1997 consultation document 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, did not provide the Agency with the tools it required to manage radio spectrum and to meet the demand of a dynamic and growing industry. The proposals were believed by many to be a logical progression towards a more effective market-based form of spectrum management. However, there was concern that the proposals should be linked to the Agency’s long-term spectrum management objectives, with equitable treatment for all services and transparency in the valuation of radio spectrum for different users. There was broad-based support from both the public and private sectors for the introduction of administrative pricing and the need to use market-based mechanisms as a means of promoting good spectrum management practice. Spectrum pricing proposals were regarded as a starting point for the evolution of a robust system of pricing radio spectrum in the future, which should be carried out in full consultation with the industry.

Pricing

2.9 One suggestion was that moves by the Agency towards greater transparency in its licensing procedures and processes, would be assisted through further development of spectrum pricing values expressed in terms of the Spectrum Tariff Unit (STU) enabling pricing comparisons across different parts of the spectrum. However, in pursuing the development of administrative pricing a number of issues required further consultation with radio users and industry; including the need to examine in greater detail issues surrounding congestion, competition and choice. As explained in 2.14 below a special consultation committee was set up under the aegis of the Civil Land Mobile Radio Committee (CLMRC) to address these issues in the mobile sector. A similar dialogue was set up with the Microwave Fixed Links and Satellite Committee (MLFSC) sub-group to address issues for fixed links (para 2.16 refers).

Congestion

2.10 The Agency’s initial scoping of congestion outlined in the May 1997 consultation document, was regarded by the respondents as giving insufficient resolution to define areas in which there is congestion. It was considered crucial for the Agency 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. It was considered that the Agency should:

make known its objective congestion criteria for exclusive and shared channels, based on information relating to the availability of radio spectrum.

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 mobile services enabling common charging mechanisms to operate on a national or regional basis.

use monitoring to provide data that could be used to assess congestion by region and frequency band. Channel occupancy about levels also needed to be considered in this process in order to provide information about the maximum loading of shared channels; and on the possibility defining the minimum acceptable loading.

Competition and choice

2.11 A number of respondents suggested that spectrum pricing might erode the competitiveness of some businesses, particularly those facing very strong competition and high demand. It was also suggested that existing historic frequency allocations are already giving rise to some competitive anomalies within the PCN and Cellular spectrum allocations. It was thought that the Agency should take these and other factors into account in valuing spectrum and setting fees. Other factors included: propagation characteristics; interference; international co-ordination 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.

The basis for further consultation

2.12 In order to give further consideration to these issues and others raised in response to the May 1997 Consultation Document on Administrative Pricing, the Agency embarked upon further consultation with Industry; including the formation of sub-groups to look at issues relating to congestion, monitoring and the need to consider the effect of spectrum pricing upon competition and choice. The fee proposals contained in this consultation document reflect that further consultation and outline the Agency’s approach in the second stage of administrative pricing.

Mobile Radio Issues

2.13 During 1997, the Agency held a series of bi-lateral and multi-lateral meetings with the cellular telephone operators, among the first to be affected by Spectrum Pricing in the 1998 Act. Using the initial proposals for the value of a spectrum tariff unit, it was inferred that the fee per kHz of spectrum assigned would need to be increased some 9 to 11 times in order to reach a level commensurate with other mobile services, particularly those in the Private Business Radio area. The initial step which was agreed with all four operators was an increase of 120% on the 1997 fee rate, subject to any allowances under existing phasing-in escalators for services which should continue to be applied proportionally. This action was introduced in the July 1998 Fee Regulations.

Modifiers

2.14 A CLMRC sub-group concerned with the concept of "modifiers" was established and extensive discussions were held, to consider any mitigating factors which could legitimately command a reduction in the fee level. The concept of "modifying factors" is explained in Appendix A4. The full report of this working group is available from the RA Library and also appears on the RA Web pages www.radio.gov.uk . A list of candidate modifiers was reviewed and it was agreed that five of these would be appropriate to apply to the pricing model. Proposed values are shown in the Appendix. It is proposed to start applying these modifiers in 1999 with further adjustments in 2000.

2.15 The same sub-group also considered how modifiers should be applied to Private Business Radio. The results of this work is reflected in the detailed proposals set out in Chapter 5.

Fixed Links issues

2.16 Separately from the CLMRC consultation, there has been full and open consultation on the development of fixed links administrative pricing proposals through an ad-hoc group of the Microwave Fixed Links and Satellite Committee (MFLSC) representing their industry. This sub-group has considered and advised on a wide range of issues culminating in the development of a pricing model and licence fee structure for point-to-point fixed links. This has enabled us to set up an initial model which can be further refined as experience of the impact of the new regime is obtained.

Consultation for 1998 first implementation

2.17 In April 1998, a short consultative paper "Introduction or New Pricing Arrangements Under the Wireless Telegraphy Act 1998" was issued concerning the proposals being implemented in July 1998. This paper proposed to address the worst distortions arising from the move from cost-based fees to spectrum value fees. It proposed a 120 % increase in the fees paid by the national radio telephony operators and introduction of the new On-site PBR licence class at an initial introductory price of £125 per system.

2.18 For July 1998, new fee regulations were introduced based on these proposals, but with an adjustment to the On-site class. Following consideration of views made and detailed analysis of the impact, Ministers agreed to change the proposal to be £100 per system per site. This will result in over 10,000 (over 80%) current on-site users enjoying a decrease in fee of £40 or more, to reflect the efficiency of these systems with a small coverage area - typically within 3 km range. Only users with large numbers of sites will be likely to pay more, reflecting their greater spectrum use. Some users e.g. supermarkets have more than 200 sites, and some of these may pay more.

2.19 As explained in Chapter 4, the fee regime for public mobile operators is proposed to evolve further, and as explained in Chapter 4, the fee regime for on-site systems is proposed to reflect further spectrum factors.

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Chapter 3 : THE APPROACH TO IMPLEMENTING ADMINISTRATIVE PRICING

Principles

3.1 Managing the growing demand on the spectrum is an increasingly complex task. The new legislation aims to give a more balanced approach to spectrum management by using pricing to encourage new, innovative and efficient uses of spectrum and to deter inefficient use. It will also help to sharpen choice between services. In passing the Wireless Telegraphy Act 1998, Parliament agreed that these powers should be used as an effective tool for good spectrum management.

3.2 Section 2 of the Wireless Telegraphy Act 1998 sets out some of the key criteria to be considered by the Secretary of State in determining new administrative fees. These include those factors outlined in paragraph 2.4 above:

"the balance between the availability of spectrum and present and future likely demand"

- the Agency aims to approach each business sector through the objectives set out in it’s spectrum strategy, commissioning economic appraisals and forecasts where appropriate, and by conducting widespread consultation with industry groups and customer representatives.

the desirability of promoting:

- the efficient use and management of the radio spectrum;
- any economic benefits from the use of radio, which includes benefits to consumer;
- innovation;
- competition in telecommunications services.

Chapter 4, 5 and 6 describe the approach to these issues in relation to the 3 business sectors for which fee changes are planned for 1999 and are therefore addressed in this consultation. Appendix 5 contains the executive summary of the review and update of the spectrum pricing models for these sectors undertaken by NERA/Smith on the Agency’s behalf. The introduction of administrative pricing for other sectors will be addressed in a later consultation paper to be issued next year.

3.3 In setting prices for all sectors, it is aimed to introduce fee scales, which address the objectives outlined above, but are also fair and as simple as possible to operate in practice and for customers to understand.

3.4 Fairness sometimes involves using a number of factors, which may not be easy to relate to spectrum value. For instance many common spectrum allocations are made for a range of services on an equal footing see the reference to pre-packaged licences explained in paragraph 3.10 below, although some of these services may have much more economic power than others. In the past the Agency has sometimes tried to differentiate fees on some equitable basis (e.g. in the example of licensing aircraft where large aircraft pay a higher fee than small ones despite there being little difference in the use of radio spectrum), but in an era of spectrum pricing the Agency now generally takes the approach that the same fee should be applied to all comers to reflect that all have the same access. Applying the same fee is also simpler to operate. This is an issue on which your views are especially welcome.

3.5 In moving from cost-based fees to spectrum pricing, inevitably there are going to be major distortions, e.g. the current fees for large established public networks were based on a relatively low maintenance but for a wide band spread. By contrast some private systems which use little spectrum have paid a relatively high fee for the administrative cost. It is intended in the interests of fairness to phase in the changes over at least three years where this leads to a significant change in fee. It is also intended that fees are determined on a basis, which is as fair as possible to all users of spectrum. The fees that are prescribed by regulation will apply to all users of that type of service on the same basis.

European Licensing Directive

3. 6 The process for determining administrative prices must also take account of the European Union’s Telecommunications Licensing Directive. The implementation of this Directive was subject to a consultative paper issued in late 1997 and implementing regulations became effective on 1 January this year. Under the Directive, which covers licensing of all radio based services for telecommunications, the Agency is required to act in a fair and transparent manner. The Regulations also lay down minimum criteria for publicising new services, issuing, varying or for revoking licences. In relation to fees, the Directive permits fees to be set by cost or by spectrum factors. Careful account has been taken to ensure that the proposals in this document comply with the requirements of the Directive.

Detailed pricing factors and modifiers

3.7 The May 1997 document (paragraph 4.5) set out the approach to measuring spectrum by:

( i ) the bandwidth used,
( ii ) the area of usage, and
( iii ) reflecting whether that usage is on a shared or exclusive basis.

In addition, it proposed that account may be taken of whether:

(iv) the user is occupying all the spectrum in a band, or
(v) at a location which is the subject of congestion or there is potential for congestion.

Detailed work has been undertaken to study how these factors might be applied to each of the 3 sectors through the working groups described in Chapter 2.

3.8 In response to the May 1997 document, and as described in paragraph 2.7 above and Appendix A4, respondents asked for other modifiers to also be taken into account in setting fee prices. The detailed application of these factors and modifiers is set out in Chapters 4, 5 and 6 below. Views on the implementation and fairness of these details are invited, either generally or by reference to a specific sector.

3.9 One factor raised by a number of respondents is whether there should be a modifier for licensees who self-manage spectrum. The Agency considers that having access to a band of spectrum allows the licensee considerable advantage in giving them the freedom to manage it for their own commercial benefit. The Agency therefore considers that no additional modifier should be allowed and that licensees who self manage spectrum should be charged on a similar basis for the spectrum they occupy.

Generic forms of licence class

3.10 The Agency organises its licence classes within each of its business sectors. As part of its plans to rationalise and standardise licence classes under the unified licensing project (RULES) and as part of the plans to introduce spectrum pricing, these classes are changing as indicated below. It is proposed that licences are to be organised and priced according to whether they are:

(i) Pre-packaged licences:
All the parameters are agreed in advance for pre-set frequencies. No further frequency assignment is involved. Licences will be simple. Fees will normally be a simple flat fee on a scale reflecting the need to cover administrative costs only unless there is good reason to include some other factor on the lines explained in paragraph 3.4 above.

(ii) Customised licences:
These licence classes involve agreeing or clearing specific frequencies for each station or site in which the licensee operates, and the details are set out in technical schedules. The spectrum used will vary for each licence so consequently the fee should vary to reflect different factors, such as number of stations, channels, geographical coverage and congestion. If these factors produce a fee below a threshold equal to the direct cost of administration, then it is proposed to apply that minimum value. If the fee starts to grow significantly above threshold levels, then moderators will be considered where appropriate, and if necessary the changes may be made progressively.

(iii) Spectrum licences:
These licences cover the authorisation of frequencies (often for networks) for broad geographical areas, or UK wide. The licences may not need to detail each base station (although customers may need to clear and/ or notify them through the Agency, unless they fall below certain operating limits). They tend to apply to public networks and to larger private systems. Under spectrum pricing, fees for the network operators will be determined by the value of spectrum authorised, subject to any appropriate modifier, or in some cases by competition or auction. It is often appropriate to exempt end-user terminals from the system being licensed, provided they meet the appropriate standards.

Government use of spectrum

3.11 An undertaking was given during debate on the bill that public sector use of spectrum would be treated in a comparable way to other users. For those Departments and Agencies who have access to bands of spectrum, the intention is to charge for that spectrum on a comparable basis as other users. For government users who apply for ‘off the shelf’ or customised licences they will continue to apply as would anyone else and pay the prescribed fee (this is already the practice). The Agency has commenced negotiating with government users of spectrum bands to migrate to comparable fee payment arrangements over the same 3 year timescale as other changes on spectrum pricing outlined in this document.

Fee Collection and customer accounting arrangements

3.12 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 licence holder 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.

3.13 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 billing facilities 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.

3.14 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 licence holders 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.

3.15 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. It is proposed to start introducing these arrangements in 1999, when the Agency expects to have new systems for handling accounts.

Charging when licence variations occur.

3.16 The service in a licence may change for a number of reasons. Customers may for instance, apply to move stations, or to add stations within a service, or to remove stations which are no longer used. Over the years some different policies have arisen for different sectors, but with the implementation of spectrum pricing, the Agency intends to apply the same principles to all sectors. It is proposed in future that where new charges would lead to an increase in the fee calculated, that fee will be chargeable from the date on which it occurs to reflect the spectrum usage. If this occurs between renewal dates, the fee will be apportioned on a basis of one twelfth of the annual fee for each complete month or part thereof of use and collected at the next renewal date. If a service ends between renewal days it will not however be the Agency’s policy to give any refund, because that spectrum does not immediately become available for other use.

3.17 However if a service is transferred to a new licence, and is notified in advance, the Agency is considering allowing proposals to let that credit be transferred to the new licensee. It is intended to give further publicity before this change occurs but views are welcome about this proposal.

Implementation Timing

3.18 All the fees proposed to be introduced in 1999 are payable on issue of a licence and thereafter on renewal at annual intervals and on renewal of existing licences. It is proposed to implement the new fees from the normal date of renewal, unless a customer wants to harmonise renewal dates for a number of licences, in which case a proportion of the fee may be payable to achieve this, based on the number of months to the adjusted date.

3.19 Appendix 2 sets out the timetable proposed for implementing spectrum pricing for all licence sectors.

Fees in the Channel Islands and Isle of Man.

3.20 The Wireless Telegraphy Act 1998 has now been extended by Order in Council to include the Islands. For the new services introduced in 1998 it was necessary to have separate regulations for the Islands because the Order was not ready before the UK regulations were proposed. However in future years it is intended to do regulations for the UK and Islands together. Generally, we would expect the same licence classes and fees to apply, except for national fees which would clearly not be appropriate. For publicly subscribed services applied to the islands, it is proposed to pro rata administrative fee scales on a comparative population basis to the equivalent national service on the mainland. Specific proposals for each set of fee regulations will be included in our consultation process and published in local island papers at the same time as being issued in the UK national gazettes.

Fees for Charities

3.21 The agency proposes to continue the present policy of charging 50% of the fee for charities whose objectives are the safety of human life. This was a commitment given during the passage of the Bill.

Implementation of spectrum pricing by Business Sector

3.22 The Radiocommunications Agency organises its services by 10 business sectors:

Aeronautical;
Amateur and Citizens Band;
Broadcasting (and Multimedia);
Fixed Links;
Maritime;
Private Business Radio;
Programme Making and Special Events;
Public Telecommunication Networks;
Space Services;
Technology Development.

3.23 As outlined in the May 1997 document, it has been the intention to introduce spectrum pricing in three sectors first:

Point-to Point Fixed Links;
Private Business Radio;
Public Telecommunication Networks (formally called Public Mobile Communications).

3.24 The May 1997 document explained why the approach was being made selectively, and at the time the legislation was still being considered in Parliament. As outlined in previous Chapters, it was subsequently agreed in the legislation that the criteria set out in Section 2 of the 1998 Act would apply to all administrative pricing. It will apply to all the sectors listed above in 3.22 and it is also being applied to civil and government use of radio (including defence and emergency services). However the first three sectors are those where the distortions are most severe and it remains the intention to deal with them first, and to implement changes in the other sectors later. The application to Government services has already commenced on a comparable basis.

3.25 Following the 1998 Act coming into force on 18 June (three months after it received Royal Assent), the first Regulations came into effect on 20 July, and it is proposed to follow them at annual intervals. An additional set of Regulations is also being proposed to extend the first Regulations to the Channel Islands and Isle of Man.

Future Steps and further Consultation Papers proposed

3.26 Proposals for the July 1999 Fee Regulations will be finalised in the light of consideration of responses to this document. Notice of the regulations will then be published in the Gazettes and the Regulations themselves be laid before Parliament well before implementation in July 1999. It is also intended to give additional publicity beforehand.

3.27 For the other seven sectors, it is aimed to publish an outline consultation later this year followed by detailed consultation well before implementation of any changes in July 2000. Additionally in 2000 it is intended to take further steps for the first three sectors on the basis outlined in this document, but subject, where necessary, to further consultation concerning the detail.

3.28 For the other sectors, changes resulting from spectrum pricing are likely to be less marked than for the first three sectors. Except in Broadcasting, for which regulation and competition is also determined by other legislative processes, most services use spectrum for which there is less competition, or is determined for shared use on an international basis. However, it is intended to review all sectors, and it is also intended to continue the process of rationalising licence classes, and making our products as clear as possible to customers. This review has started in some sectors, and involves detailed work with representatives of customer groups and radio industry representatives.

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Chapter 4: PUBLIC TELECOMMUNICATION SERVICES

Introduction.

4.1 The aim in this second phase of spectrum pricing implementation is to facilitate the introduction of a wider range of public telecommunications services into the framework of the new legislation, and to further migrate the level of fees for cellular telephone operators towards the anticipated end values, subject from 1999 to the allowance of modifier scaling factors. It is expected that the work to derive an appropriate level for fees in 1999 will again be via discussions, both individually and collectively, with the public mobile operators concerned.

Licence Classes

4.2 The classes to which it is proposed to apply spectrum pricing policy for 1999 include:

(i )- The Public Mobile Operator class, which covers:

Cellular Radio Telephones;
Public Mobile Data;
Public Paging;
Public Access Mobile Radio (PAMR).

(ii)- Common Base Stations (CBS)

4.3 CBS is provided in four principle bands (low, mid, high and UHF1) and at present the degree of demand for assignments produces similar patterns of congestion irrespective of the actual CBS band requested. Therefore, to simplify matters, a generic map has been produced that is valid for all CBS bands, shown in Appendix 1B.

The Classes not being considered until after 1999

4.4 The following classes are not being considered until later:

- Radio Fixed Access (point-to-multipoint);

- Remote Meter Reading.

4.5 Licences have been awarded to run Radio Fixed Access services. In order to avoid disrupting the operators’ business plans and in the interests of promoting competition, at present we do not intend to change the pricing for these services.

4.6 Remote Meter Reading is a new service class that has been introduced this year. It is proposed that spectrum pricing will be applied to this service on an equitable basis. However, in recognition of timing issues, it is proposed that charges be phased in over a three year transitional period starting in the year 2000. Further information will be in later consultation documents .

Spectrum Allocation for Public Services

4.7 Spectrum for public mobile networks is allocated on an exclusive basis and normally for national coverage of the UK. Currently this procedure is normally through public consultation/competition managed jointly by the RA and DTI; in the future this may be augmented by the new facility under the 1998 Act for auctioning spectrum (which will be subject to separate consultation). Other consultative documents will continue to address the competition aspects of each service and address any telecommunications regulatory issues as well as spectrum management. Operators wishing to apply for such spectrum allocations are required to submit detailed business cases to the Agency, outlining operational details such as their projected customer base and the spectrum required to meet their anticipated traffic levels. The public network licensees are normally required, as a licence condition, to provide coverage to a high percentage of the UK population.

4.8 Once the initial allocation is made, further spectrum is only allocated to that operator based on demonstrable need - and assuming that additional spectrum is available. After that process is completed, all the spectrum identified for that service will have been allocated and there is no further possibility for an additional allocation. Thus national channels for the public mobile services can be considered to be "congested" because they have already been fully allocated to meet the operators’ traffic demands and there is no further spectrum available for these services. The use of "congestion" as a factor in fee calculations is therefore inappropriate for these services.

4.9 CBS assignments are made on the express understanding that new entrants will establish a defined level of traffic loading within a stated time period. Failure to meet the required channel loading could result in the Agency recovering the assignment. Requests for additional channels to be added to an existing CBS operation are subject to supporting monitoring data which demonstrates that the application qualifies for consideration of additional channels; this, together with a supporting business case, is necessary before further assignments can be made. It is through this mechanism that effective use of exclusive CBS channels is ensured.

Phasing in of the Pricing Regime

4.10 As detailed in the calculation for PBR services, the STU for mobile communications of £1.65 per MHz - sq. km yields a value of £9,900 per 2 x 12.5 kHz channel nationally. Table 4.1 below shows the migration of Public Telecommunications Networks from their current levels to achieve an end value equivalent to this £9,900 rate, proportionate to the bandwidth used. It is aimed to phase in fees over at least 3 years, but assuming the full rate is achieved in the financial year 2001/02, the columns for 1999/00 and 2000/01 assume interim points to allow licensees time to adapt to the new structure.

Modifiers and Congestion factors

4.11 The Modifiers Sub-Group have considered various criteria to be used and have agreed a list of five modifiers which might be applied to pricing values. Appendix 4 gives further information about this work. In some cases the modifier values need to be quantified for respective service categories and work on this is ongoing.

4.12 As mentioned in paragraph 4.8 above, the "congestion" factor is not appropriate for public mobile network operators, but it will be applied to the CBS service as described in paras. 4.19 - 4.20 below.

4.13 Paragraph 4.10 above summarises the proposed pricing regime for this sector. As well as the proposed value for each service, agreed modifiers will be applied and so the actual fee may be less in some cases. It is proposed that the "choice and diversity" modifier will be applied to PAMR and CBS to reflect the market for those services. The Agency proposes that a modifier of 0.7 be applied to these services. The resulting CBS and PAMR charges are shown in Table 4.1 below.

Cellular Radio Telephony

4.14 In the May 1997 document, the national channel valuation of £9,900 for 2x12.5 kHz based on the mobile STU of £1.65 was explained, and remains the base valuation for all mobile services. In the document it was proposed that cellular and PCN spectrum be regarded as congested on the basis of all channels being assigned for national use to the four exclusive users, and work in the industry group has accepted this view.

4.15 As stated in earlier consultation documents, the full spectrum pricing fees for existing operators will be phased in progressively over a period of at least 3 years to reach the national rate, but to take account of modifiers. The first steps in this programme were taken in the July 1998 Fees Regulations and dialogue is continuing with the operators to agree the fees to be set in the July 1999 Regulations.

Public Mobile Data

4.16 On a similar basis to national telephony, the national standard value of £9,900 would apply. It is also proposed to migrate fees towards the final rate over 3 years commencing in July 1999.

Paging

4.17 As with mobile telephony, there is strong competition for use of paging spectrum at both national and regional levels. On a 3 year migration of fees commencing in 1999, the national rate of £9,900 should be achieved in 2001/02. On a regional basis, typical fees for a region with a reuse factor of 5 are indicated in Table 4.1 for illustration, but consideration of a more sophisticated approach based on either population or geographical spread is being considered and will be subject to further investigation.

PAMR

4.18 A modifier value of 0.7 should be applied to reflect choice and diversity so that the national standard rate of £6,930 should apply at the end of a 3 year migration commencing in 1999. These figures apply for analogue services; digital services (TETRA) will be subject to an escalator to help phase them in over a number of years. On a regional basis, again for illustrative purposes a reuse factor of 5 is indicated; but, like paging, a more sophisticated approach might be considered in the future.

Common Base Stations (CBS)

4.19 CBS are assigned customised licences on a similar basis to the proposed private business radio wide area class (see Chapter 5) except that whereas the reuse factor of 20 applies for wide area PBR, a reuse factor of 10 is proposed for CBS. This reuse is based on a 60km radius protection area. At a later date it is intended that this be reviewed and charging may be based on the actual coverage area.

4.20 A similar approach for congestion is also being taken as for private business radio (as explained in Chapter 5), except for a reuse factor of 10 regions (rather than 20 for wide area PBR) because of the greater coverage and need for greater protection between services and because the criteria for congestion is based on channel availability rather than channel occupancy. A modifier of 0.7 for choice and diversity is also applied to the overall charge. It is intended to introduce the new fees as shown in Table 4.1 progressively over a 3 year period from 1999.

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Table 4.1 Proposed Migration of Public Telecommunication Services Fees

The table is based on the equivalent of 2 x 12.5kHz of spectrum

*Values with modifier (choice and diversity) of 0.7 applied.

+ assumes a theoretical re-use of 5 for a regional channel across the whole UK.

~ figures are for PAMR analogue services; digital services (TETRA) will be subject to an escalator

# assumes a theoretical 10 regions of use for a CBS channel across the whole UK and that:

i) the PBR fee ratio of 1:2:4 for non-congested: congested: heavily congested areas holds also for CBS;

ii) Heavily congested means all channels assigned

Congested means > 90% of channels assigned
Non-congested £ 90% assigned.

iii) One heavily congested area - London (within M25)

four congested areas - Home Counties, Manchester, Birmingham,
Northern Ireland
five non-congested areas.
(Further details are in the map in Appendix 1B)

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Chapter 5 : PRIVATE BUSINESS RADIO PROPOSALS

5.1 As detailed in the May 1997 consultation on administrative pricing, the aim of spectrum pricing for mobile communications is to promote the efficient use of spectrum, so that users are encouraged to consider the availability of alternatives (both by service and frequency band) and also to assist in the promotion of spectrum efficient technology. Using as its basis for future fee calculation, the principle of the least cost alternative outlined in the 1997 consultation and looking at values proposed at the end of a 3 year transitional period, the Agency has determined an average Spectrum Tariff Unit of £1.65 per MHz per square kilometre for all mobile communications spectrum.

Congestion Modifier

5.2 As explained in Chapter 2, an Agency/Industry Working Group on Congestion (WGC) was set up to develop objective congestion criteria for exclusive and shared channels, based on spectrum availability and other methods which reflect channel loading. The Group developed two methods for determining congestion: the first is applicable to public telecommunications services (e.g. cellular/PCN, public paging, national trunked radio and CBS) and the second is applicable to private business radio (e.g. shared and exclusive PBR). The methods for private services are outlined below and for public services in Chapter 4.

Congestion on channels for Private Mobile Services

5.3 The Congestion Working Group developed a calculation method for defining the level of congestion experienced across the UK for the frequency bands used for private mobile services (i.e. shared and exclusive PBR). Details of the calculation method have been confirmed using monitoring data for the same areas. The method is used to assess the overall channel loading (i.e. traffic levels) during busy hours for the wide area shared user PBR channels in 10km x 10km squares, based on the loadings for all the systems which have coverage in each square. The level of channel loading in a square is then used to define each 10km x 10km square as non-congested, congested or heavily congested. The following definitions of congested and heavily congested channels were used to establish quantitative threshold levels:

Heavily congested: The level of traffic on a particular channel which results in users making several unsuccessful call attempts and/or causes unwanted call termination’s due to co-channel interference.

Congested: The level of traffic on a particular channel which is sufficiently high to cause some inconvenience to users wishing to make calls. This is manifested as occasional unsuccessful call attempts and occasional co-channel interference problems.

Non-congested: The level of traffic causes very little inconvenience to users wishing to make calls.

5.4 The thresholds given in the Table 5A, below are used to define the level of congestion on an individual channel in a particular area. To determine whether a particular 10km x 10km square is congested, the proportions of each type of channel in that square are compared to the area threshold levels which are given in Table 5AA below:

Table 5A - Congestion Thresholds for Individual Channels

Table 5AA - Congestion Thresholds for Squares

Designation of Areas

5.5 The calculation method has been used to draw up lists for the frequency bands to identify the 10km squares as heavily congested, congested or non-congested based on shared channel usage data. The following table shows the current designation of squares across the UK for VHF High Band, UHF Band 1 and UHF Band 2, as illustrated in the map in Appendix 1A

Table 5B

5.6 The remaining bands - Band 1, Low Band, VHF Mid Band and Band III - are considered to be non-congested throughout the UK at present. This list of congested areas has been drawn up using the most recently available licensing and monitoring data. The list will be updated as further data becomes available - in particular monitoring data which confirms the usage parameters for shared channel users. Therefore, the list may contain slightly more or slightly fewer congested areas for the different frequency bands by the time administrative pricing is introduced. After the initial implementation date the list will continue to be reviewed - at least on an annual basis - and will be revised as necessary.

Effects of congestion criteria upon channels used for PBR

Users of Wide Area Shared Channels

5.7 Initially, for licensees using shared wide area PBR channels, it is the location of a system’s base station which will determine whether the system is operating in a heavily congested, congested or non-congested area. Table 5AA above and Appendix 1A indicates the designated areas proposed initially, based on RA’s monitoring of usage. In the longer term it is intended that more sophisticated methods using coverage prediction will be used to determine the proportions of a system’s coverage in heavily congested, congested and non-congested areas.

5.8 An exclusivity modifier (as described in 5.17) will also be applied to the PBR wide area shared channel users to reflect the proportion of the channel traffic which they are likely to generate; the value of this modifier will be derived from the number of mobiles operated by the user and their business type (See Tables 5C3 and 5D4).

Users of National and Regional Exclusive Channels

5.9 Exclusive channels - either with regional or nation-wide coverage - are available in frequency bands which are also used by shared channel users. Therefore the designation of an exclusive channel will depend on whether areas have been designated as congested or not for the shared channel users in the same frequency band. Only those national exclusive channels which are available in a frequency band which contains no heavily congested or congested squares will be considered as non-congested channels. The fee for national exclusive channels in bands which do contain heavily congested and/or congested squares will reflect the presence of these heavily congested and congested areas. The designation of regional exclusive channels will depend on the particular frequency band and region used by the channel and will be considered on an individual basis by the Agency.

Users of On-Site Channels

5.10 Shared channels, (either single or dual channel), with limited coverage (typically within 3 kilometres from a given point ) permitting intensive frequency re-use. Fee changes already introduced under spectrum pricing in July 1998, have separated the licences and pricing of on-site from wide area systems; leading to the separate licensing of each on-site system at a flat rate fee of £100 per system per site. It is now proposed that a three tier fee (each being a flat rate) will be levied for each channel assigned on-site. Each fee will vary according to whether the on-site system is located in a heavily congested, congested or non-congested area, but the low flat rate fees will mean that under spectrum pricing the rates will remain at each minimum threshold, regardless of location.

Users of UK General Channels

5.11 Simplex channels, typically without base stations for use anywhere in the UK. The Agency proposes to introduce a flat - rate fee, (which will be dependent upon the number of channels used by the service ) for access to a number of pre-assigned frequencies which will be set aside for the service for all users to share .

Illustrative Fees

5.12 Table 5C below provides illustrative PBR channel fees derived from the value of the Spectrum Tariff Unit; adjusted to reflect the congestion and exclusivity modifiers.

Table 5C

# Minimum fee applies

Calculation of PBR channel rates

5.13 The national channel rate for PBR in typical frequency bands where some congestion occurs is calculated using the value of the Spectrum Tariff Unit (described in Chapter 3) for mobile communications:

Value of STU for mobile communications = £1.65 per MHz per square kilometre

Area of UK = 240,000 km²

Therefore, rate for 2 x 12.5 kHz national channel = £.1.65 x 240,000 x 2 x 0.0125

= £9,900

5.14 The individual area rates are then calculated assuming a nation-wide channel re-use factor of 20 for the PBR wide area channels: Although in theory it would be possible to re-use a standard wide-area PBR channel (assuming a coverage radius of 30km) many more than 20 times across the United Kingdom, in practice the need to provide a degree of separation between systems to reduce interference and the fact that some areas of the country will sustain few, if any, PBR systems leads to the re-use factor of 20. These 20 re-uses are assumed to include some coverage in any congested or heavily congested areas which are present in the frequency band.

5.15 Therefore, using the congested and heavily congested areas which have currently been identified (as listed, Table 5B), the fee for a PBR national exclusive channel in VHF High Band, UHF Band 1 or UHF Band 2 is made up of the fee for one heavily congested channel, the fee for one congested channel and the fee for 18 non-congested channels.

5.16 The ratio between the fees for heavily congested, congested and non-congested PBR channels is 4:2:1, i.e:

Heavily congested channel fee = 2 x Congested channel fee = 4 x Non-congested channel fee

Therefore, the fee for a PBR national exclusive channel in one of the frequency bands which experience congestion is made up as follows:

5.17 For Band 1, Low Band, VHF Mid Band and Band III - which are considered to be non-congested throughout the UK at present - the 20 re-uses are all in non-congested areas and so the non-congested national channel fee is made up of the fee for 20 non-congested channels:

Exclusivity Factor

5.18 The exclusivity factor is a modifier which is applied to the fees of the users of wide area shared channels in order to reflect the proportion of channel traffic which each user is likely to generate on a shared channel. Table 5D relates the exclusivity factors to numbers of mobiles for the different types of users of PBR wide-area shared systems. The numbers of mobiles corresponding to each exclusivity factor for different types of business have been calculated using usage characteristics (such as average transmission lengths during busy hours). These usage figures have been based, wherever available, on monitoring work and further monitoring work will enable the figures to be reviewed - at least on an annual basis - and revised as necessary.

Table 5D

N.B. The exclusivity factor and corresponding thresholds of mobiles will apply independently to each of the channels which a licensee uses - e.g. if a local government PBR licensee uses two channels, with 100 mobiles on each, then an exclusivity factor of 0.5 will apply to the fees for each channel.

Licence evolution : Proposed licence structure for Private Business Radio Licences

5.19 The Agency has published in its Strategy for the future use of the Radio Spectrum in the UK (1996), its intention within the Land Mobile Area, to "make its licences more understandable" and is required by Ministers to adopt a deregulatory approach wherever possible. The Private Business Radio industry has been consulted as to the licence classes industry wishes the Agency to administer in the Land Mobile Sector. The proposals are shown below:

Phased evolution of PBR licences.

5.20 Evolution will be achieved through a phased migration of licence products to be covered by successive Fees Regulations, shown in Appendix 2, leading to the structure proposed in Table 5E. The creation of a new licence class in July 1998 - PBR On-site , will be the eventual home of the On-site PMR activity currently housed in the PMR (Standard) Licence. This will enable the Agency to complete administrative tasks, necessary to re-classify those licences currently containing a mixture of On-site and Wide Area assignments. The planned evolution will lead to the establishment of 6 main licence classes within the PBR sector, which will house a variety of PBR activities (or products). These are described more fully below:

Private User Spectrum Licence
A new licence class, for like users who share national channels under the auspices of self-management arrangements. The licence class may also include systems using channels on a ‘regional’ basis.

Wide Area Private Business Radio
A new licence class to include the following licence products: single national channel users and the standard Wide Area Shared PMR product, available for the carrying out of a particular type of business such as taxis and couriers or mixed business users. This licence class will include the Private Wide Area Paging product used to license Wide Area Paging systems.

On-site Private Business Radio
A new licence class to include On-site PMR, On-site Paging and Local Communication activities.

PBR Radio Suppliers Licence
A new licence class, established under the April Fees Regulation enabling radio dealers to undertake a number of differing activities under a distinct licence class. It includes the short term hire of PMR and Paging equipment. Also PMR Parking & Demonstration, enabling PMR equipment to be used for demonstration purposes for a period of up to 7 days without prior notice to the Agency; and allowing suppliers to temporarily install PMR systems for customers awaiting the assignment of a radio frequency or the installation of a permanent system.

Short Range Business Radio to be replaced by PMR446 (see below)
Short Range Business Radio (SRBR) allows the use of low power speech and paging systems over short distances. There are separate channels for speech and paging, which are designed for use anywhere within the UK. The SRBR licence is unique, in that the licence fee is for a period of three years, rather than for one year as with other PBR licences. The licence is not perpetual and licensees must apply for a new licence at the end of the three year period if they wish to continue to use SRBR.

Following the identification of a European harmonised frequency band for a Europe-wide, general PMR, voice-only service using only handportable equipment (which meets ETS 300 296 and operates at no greater than 500mW EIRP), the RA proposes to introduce a new licence exempt service called ‘PMR446’ to replace SRBR. The introduction of PMR446 is dependent on the completion of formal European agreement. Once PMR446 is introduced, RA will stop issuing SRBR licences; however, existing licensees will be given a reasonable period to change their equipment to operate the new PMR446 service. It is also planned to hold a separate consultation to determine how to manage the current SRBR paging channels.

PBR pre-assigned frequencies
This pre-packaged licence class would also enable the following customer activities: UK General licence activity; PMR Road Construction, introduced to take account of the special requirements for use at road construction sites; authorising the use of radio where contracts are issued by the Department of Transport and the Local Authority Emergency Alarm authorising the use of emergency systems, enabling the elderly or infirm to make contact with wardens at base stations or control points in the event of an emergency.

Table 5E: Proposed PBS licence categorisation 2000 +

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Chapter 6: FIXED LINKS PROPOSALS

Spectrum management objectives

6.1 The trend over the last few years of ever increasing demand for fixed links is expected to continue into the foreseeable future as operators of new or upgraded telecommunications services seek to interconnect their systems. The Agency will need to match this growing future demand against the available fixed services spectrum allocations. There is a clear need to ensure maximum access to, and usage of, all available fixed links spectrum, including that currently self-managed by major operators on an exclusive basis.

6.2 To implement this policy the Agency will be adopting a package of measures for fixed point-to point links, including the commissioning of an updated channel assignment computer tool (FILSM) to cover all fixed link frequency bands, rather than just the 38GHz band covered by the pilot project. The introduction of administrative pricing will support the wider spectrum management objectives by setting an appropriate level of licence fees for point-to-point links in those bands where assignment difficulties or limited options for new links becomes evident. Currently the frequency bands used primarily for trunking networks are the problem areas, and the proposals set out in the following paragraphs reflect this situation.

6.3 Proposals for fixed point-to-multipoint links and scanning telemetry links will be included in proposals being considered for implementation in year 2000 (see 3.23 above) and be subject to further consultation later.

6.4 The major aim in the fixed links sector is to encourage operators and users to promote the use of spectrally efficient equipment.

Responses to consultation

6.5 The pricing structure for point-to-point fixed links as originally set out in the May 1997 Consultation Document has received broad-based support from industry as a sensible way forward. In the resulting pricing model and fees package full account has been taken of the technical design and characteristics of fixed systems and as a result there are divergences in detail from the approach adopted for the mobile sector.

6.6 The main concepts behind the fixed links spectrum pricing model are that it should be as simple and transparent as possible, have a sound technical justification, and be capable of being fairly and equitably applied to the sector as a whole. During the ad-hoc MFLSC discussion it has been accepted that due to the technicalities of radio a perfect engineering model for calculating fixed links spectrum prices is not feasible. A pragmatic solution based on sensible compromise and some approximations has therefore been agreed and developed.

6.7 Fixed links fees have been based on the amount of spectrum "used" by a link, with frequency band, geographic location and equipment standard being other parameters taken into account. For the purposes of launching fixed links administrative pricing it has been decided that congestion will be geographically dependent and deemed to exist within a fixed link band when assignment difficulties or limited options for new links becomes evident.

6.8 Details of how the overall concept has been applied to fixed link spectrum and the proposed fees for each band are explained below. The changes to existing fixed link fees will be phased in over a four year period, with the first step (year 1) being implemented in July 1999. Full details of the proposed phasing of the annual fee changes for each band (increases and decreases) are set out in tables 6A to 6F below.

Pricing

6.9 The basic pricing element will remain an individual link, with a rate for national channels only being initially implemented in special cases as an interim arrangement (essentially where historic self-management arrangements currently apply). The Agency will keep this policy under review and will in the longer term assess the need for and feasibility of national channel pricing arrangements for the fixed link community as a whole. In the case of uni-directional links these will continue to attract a fee which is 75% of that applicable to an equivalent bi-directional link, while where equipment uses cross-polar working on the same channel and with the same bandwidth, the second link will be priced on the basis of half the fee of the initial link.

6.10 Further work by NERA/Smith (see Appendix 5) on the marginal values of fixed link spectrum has confirmed that the £925 Fixed Link Reference Fee adopted in the May 1997 Consultation Document remains representative. This figure has therefore been carried forward into the fixed links pricing structure, rather than the £940 baseline which subsequently emerged from RA work on an appropriate level for a possible generic Fixed Link Tariff Unit.

Congestion

6.11 To prepare for administrative pricing the Agency has undertaken additional work to confirm the congested fixed links bands and to delineate the geographical areas involved in the case of the 4, 7.5 and 13/14 GHz private user bands. Maps showing the congested areas for these three bands are at Appendices 1C, 1D and 1E respectively.

6.12 The congestion threshold for the 7.5GHz band was determined by a statistical method, whereas the 13/14GHz band threshold was calculated by adjusting the 7.5GHz level to reflect the difference in size of reference areas above and below the 11.7GHz point, as well as differences in propagation between the two bands. The calculation of congested areas has been based on 25 x 25 km national grid squares for bands falling below 11.7GHz and 10 x 10 km squares for bands above this level. The methodology has been discussed and accepted within the ad-hoc MFLSC group.

6.13 Where the band has been classified as congested (i.e. the 4, 7.5 and 13/14GHz) and the link begins or ends in a congested area the licence fee will be calculated using the appropriate algorithm, there being one for spectrally efficient state of the art equipment and an alternative formula for less spectrally efficient equipment. These algorithms are as follows:

Pricing Algorithms for Congested Fixed Link Bands

A) Fees per link will be calculated using the following formulae:

1. State of the Art Spectrally Efficient Equipment

Licence Fee = Fixed Links Reference Fee x Frequency Band Factor

x Adjusted Bandwidth Factor

Notes:

a) Fixed Link Reference Fee : £925.

b) Frequency Band Factor : this factor takes account of the different use of the frequency bands and puts them into similar groups. ; The factor is 1 for the 4, 7.5, 13, 14GHz and 15GHz Bands; 0.95 for the 18, 22, 25 and 28GHz Bands; and 0.75 for 38GHz Bands. When it is applied to the 1.4GHz Band, the factor will be 1.5.

c) Adjusted Bandwidth Factor (BW) : this factor takes account of the different bandwidths available in the frequency band. It takes account of there not being a linear relationship between bandwidth and the number of links that can be installed in any geographic area. In other words if 8 x 3.5MHz links are installed in a specific grid they place more limitations on other assignments than a single 28MHz link. The bandwidth-dependant factor is 0.75 for 3.5MHz, 1 for 7MHz, 1.55 for 14MHz, 2 for 28MHz and 3 for 56MHz.

ˆ

d) To keep the initial launch of spectrum pricing for fixed links as simple as possible, it has been decided that EIRP or other equipment power related parameters will not be included in the algorithm but will be further considered as a possible later refinement.

2. Mature Technology Equipment

Licence Fee = Appropriate Fee for Spectrally Efficient Equipment

Note:

x = the bandwidth of the equipment actually installed.

y = the bandwidth for standard equipment is based on the most spectrally efficient equipment for each frequency band. For the lower frequency bands up to and including 15GHz, typically 16QAM modulation is the most efficient and for 18GHz and above it is 4QPSK modulation.

6.14 For currently self-managed spectrum (see table 6F) which has been classed as congested a further formula has been developed to include channel re-use factors and the ratio of links in congested and uncongested areas when calculating national channel fees as follows:

Generic Formula for the Calculation of a Fee for Spectrum Allocated Exclusively to One Operator

Licence fee per National Channel = ( CRC x REC ) + ( CRU x REU)

Total Fee = Fee per National Channel x Number of Channels.

Abbreviations:

* Channel reuse factors for congested and uncongested regions are derived from the overall reuse factor for the band.

6.15 In those cases where the band is congested but the link is in an uncongested area there is no requirement to take into account the spectral efficiency of the equipment, and in these cases the standard reference fee will be used for the first year, with the fee under present plans then being reduced over a three year period.

6.16 Similar arrangements will apply to the uncongested bands, apart from the 58GHz uncoordinated band where the "pre-packaged" licence fee will be set at £50 per year. [along the principles set out in 3.10(i)]

Intended impact

6.17 These proposals build on the existing fixed links band/bandwidth fees policy and will be a significant step towards establishing a level playing field as regards charges for access to fixed services spectrum. The heaviest impact is expected to be on the major providers of commercial telecommunications services, who have often built extensive network infrastructures to support their operations. It is to be expected that such established operators will begin to look critically at their network requirements, especially their need for longer distance trunk links. As a result it is anticipated that spectrum will be gradually released for use by new emerging operators.

Details

6.18 Details of the proposed fees for each fixed link band are set out in tables 6A to 6 F on the following pages below:

Table 6A Congested Region - 4GHz

Table 6B Uncongested Region - 4GHz

Table 6 C Congested Region - 7.5GHz and 13/14GHz

Table 6D Uncongested Region - 7.5GHz and 13/14GHz

Table 6E Uncongested Region - 22GHz and 25GHz

Table 6 F Uncongested Region - 38GHz

Table 6G Other Bands

1.4 GHz Band.

The 1.4 GHz Band is not considered to suffer from congestion problems at this stage. As this frequency band has only recently been allocated to Fixed Services, and it is assumed that spectrally efficient equipment will be deployed, the existing fees for this ‘low capacity’ band will be retained in Year 1 and reviewed in subsequent years.

Fees:

Two-way link whose bandwidth is not more than 50 kHz - £ 255.
One-way link whose bandwidth is not more than 50 kHz - £ 191.
Two-way link whose bandwidth is more than 50 kHz - £ 380.
One-way link whose bandwidth is more than 50 kHz - £ 285.

In the case of residual 2GHz fixed links the existing fees structure will also be applied

National Channels and Self Managed Spectrum.

Lower 6GHz, Upper 6GHz, 11GHz and 15GHz Bands.

Fees for operators with exclusive spectrum in the Lower 6 GHz, Upper 6 GHz, 11GHz and 15GHz Bands will be charged using the formula detailed at para 6.14. The Year 1 to Year 4 reference fees and channel re-use factors for the bands are listed below:

Reference fees for all bands:

Uncongested area Congested area
£ 925 in Year 1. £ 925 in Year 1
£ 825 in Year 2. £ 1025 in Year 2.
£ 725 in Year 3. £ 1125 in Year 3.
£ 625 in Year 4. £ 1225 in Year 4.

Channel Re-use Factors:

Uncongested area Congested area
Lower 6GHz = 40 Lower 6GHz = 60
Upper 6GHz = 80 Upper 6GHz = 20
11GHz = 65 11GHz = 35
15GHz = 57 15GHz = 113

18GHz Band.
There is no congestion in this band at the present time, and subject to annual review of the overall availability of similar spectrum, reference fees will follow those adopted for the 22 and 25 GHz bands as set out in Table 6D. The initial channel re- use factor will be 200, and the national channel fee will be : channel re-use factor x reference fee.

50GHz / 55GHz
The 49.2GHz to 50.2GHz Band is currently self managed. The fees for the band reflect the fact that limited interest has been shown in the similar 55GHz co-ordinated band. The fee per national 56MHz channel uses a reuse factor of 50 and the following reference fees will apply:

Year 1 - £ 380
Year 2 - £ 300
Year 3 - £ 220
Year 4 - £ 140.

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