Report on Modifiers to be used in determmining Administrative Pricing Fee Charges for Mobile Services

Contents

1. Introduction

2. Scope

3. Background

4. Review of Candidate Modifiers

4.1 Review of Competition Modifier

4.2 Review of Spectral Efficiency Modifier

4.3 Review of Quality of Service Modifier

4.4 Review of Spectrum Usage Constraints Modifier

4.5 Review of Technology Choice Modifier

4.6 Review of Congestion Modifier

4.7 Review of Self Management Organisations Modifier

4.8 Transitional Arrangements

4.9 Area Sterilised

4.10 Infrastructure Costs

4.11 Interference

4.12 Frequency Band

4.13 Efficient Technology

4.14 Shared Use

5. Proposed list of Modifiers and suggested values

5.1 Competition Factors

5.2 Spectral Efficiency

5.3 Quality of Service

5.4 Spectrum Usage Constraints

5.5 Technology Choice

5.6 Congestion

5.7 Self Management Organisations

6. Proposals

6.1 Modifiers to be used in calculation of charges.

6.2 Summary of proposed charges for mobile services.

Annex 1 Terms of reference

Annex 2 Glossary of Abbreviations

Annex 3 List of documents considered by the Sub-Group

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1. Introduction

A number of the responses to the RA's consultative document "Implementing Spectrum Pricing" have made the case that the licence fee should be determined by using an equation of the following nature:

Licence Fee = [STU] x [bandwidth] x [area] x [modifier]

The last element in the above equation is a further development from the general proposal contained in the Consultative Document that "the fee depends on the amount of frequency used (bandwidth), on the amount of area sterilised (sterilised area), on the amount of use (exclusivity) and on whether or not the occupied band (frequency band) and area (location) are congested". Responses proposed a number of potential modifiers both technical and commercial.

The Agency agrees that the majority of these are relevant to the setting of fees under Clause 2 (2) of the Wireless Telegraphy Act. However, it should be recognised that many of these are not susceptible to precise numerical quantification for inclusion in an algorithm. The Agency would propose to take this into account in a qualitative sense as described in more detail in section 4 of this document.

It was agreed in the RA's CLMRC Committee that a special committee be established charged with developing proposals for implementing spectrum pricing for the mobile services. Subsequently, three sub-groups were charged with developing specific aspects, this report has been produced by the Modifiers sub-group and reviews the proposed modifiers and provides guidance on the applicability and significance of the various proposals.

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2. Scope

The sub-committee's terms of reference are attached to this report as Annex 1. Annex 2 contains a glossary of abbreviations used in the report and Annex 3 contains a list of documents considered by the Sub-Group.

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3. Background

The development of a uniform charge for all mobile spectrum, based on a standard "Spectrum Tariff Unit" (STU), received general acceptance as this was regarded as a transparent and equitable valuation of the mobile radio spectrum.

A uniform price is justifiable where mobile services are perfect substitutes or where mobile allocations are interchangeable and whilst neither assumption is strictly true it was felt to be a useful tool to have one base price for all mobile spectrum. It was further recognised that differential charges might need to be applied to reflect a variety of factors by introducing appropriate modifiers to the standard charge. Responses to the consultation have, for example, included modifiers based on choice, competition, spectral efficiency, quality of service, spectrum usage constraints and self-management of spectrum. The proposed modifiers are reviewed in section 4.

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4. Review of Candidate Modifiers

The review of candidate modifiers is based on responses to the consultation document augmented with further proposals from industry during the discussion and development of this document.

The Modifiers which were reviewed are listed below:

4.1 Competition Factors

4.2 Spectral Efficiency

4.3 Quality of Service

4.4 Spectrum Usage Constraints

4.5 Technology Choice

4.6 Congestion

4.7 Self Management Organisations

4.8 Transitional Arrangements

4.9 Area Sterilised

4.10 Infrastructure Costs

4.11 Interference

4.12 Frequency Band

4.13 Efficient Technology

4.14 Shared Use

The sub-group recognised that following the review some of the modifiers would be invalidated, being either inappropriate or impossible to implement, and that some others would be combined to merge two or three candidate modifiers into one. The sub-group also recognised that there was a wide range of mobile services with differing technical and operational characteristics and therefore not all of the final short-list of modifiers were applicable to all types of mobile services. The mobile services considered by the sub-group were:

a) PBR Wide Area

b) PBR On Site

c) SRBR

d) CBS

e) PAMR Analogue

f) PAMR Digital

g) DATA

h) Cellular 900MHz

g) Cellular 1800MHz

i) Paging National

j) Paging Local

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4.1 Review of Competition Modifier

4.1.1 New entrants to the market

The UK has been and remains one of the leading countries in introducing measures to liberalise the telecommunications market. A key objective of this policy is to promote competition and choice in the market. To foster competition with dominant operators the Government has adopted policies that acknowledge that in the early start-up phase a new operator may be investing heavily in network infrastructure with, initially, modest revenue streams until the subscriber base grows. One example of the special treatment that may be appropriate in these circumstances is the use of a fee escalator which allows the new operator to pay low fees in the early years of the escalator, increasing year by year to reach the full fee after an agreed period. These would apply only in cases where a Spectrum Auction would not be appropriate.

Notwithstanding these competition factors, the Agency recognises that the use of allocated spectrum for a national network will be consistent with role-out obligations, i.e. it is acknowledged that there are practical issues involved in building a major national network and, therefore, it may be deemed reasonable to scale fees to reflect use.

In determining whether an escalator is appropriate, there is an underlying assumption that escalators are primarily used in situations where the new entrant will be making a substantial investment to provide any new network that will provide greater competition in a market sector currently dominated by an established operator(s). The investment and planning needed to implement these networks are substantial and there is a considerable element of risk given the dominant position of the incumbent operator(s).

Under these assumptions, the RA, in consultation with colleagues in DTI and OFTEL, accept the principle of a fee escalator but note that each case would need to be considered on the merits of the case. Some commentators have raised the question of whether escalators should not also apply to other cases, such as, the roll-out by existing operators of national networks utilising new technology, e.g. paging operators implementing ERMES networks. RA's view is that such cases would not qualify under competition considerations but may qualify under spectrum use or technology considerations. The principle of a fee escalator in each case would need to be considered on the relative merits.

4.1.2 Consumer welfare issues, e.g. mobile service operator business viability

Comments from the cellular and PAMR sectors suggest that spectrum pricing might erode the competitiveness of some businesses, particularly those in an environment of very strong competition and with high demand substitutability. Particular attention is drawn to the CBS and PAMR services, where the proposed fees (as stated in Annex E of the Spectrum Pricing Report 1997) result in an increase of some 10-20% of their annual operating costs.

Information from industry and commentators indicate that these fee increases could not be passed on to the subscriber and whilst these services may in some cases be less spectrally efficient than some others, they may deserve special treatment on the basis that they provide choice and diversity in the market. It is clear that there is a demand for private mobile communications from users that cannot afford self-provision or cellular telephony services and/or do not need the functionality offered. PAMR and CBS provide services which are optimised to meet the requirements of a particular niche market where the benefits of fast call set-up, separation of users from customers and fixed costs are particularly attractive to closed user group operators such as fleet management and control.

The RA, in considering these issues, takes the provisional view that if certain services are deemed to qualify for special consideration on the grounds of market choice the implications of possible distortions in the demand for spectrum by users of these services may be a factor in the underlying reasons for a particular band being congested.

There was general support for such a modifier but it was noted that it would be very important to guard against distorting the underlying principle of spectrum pricing. If marginal users of spectrum are protected from the price mechanism, there will be no movement in the market towards more economically efficient users of spectrum. It was also felt that the Sub-Group need to distinguish between choice and diversity in the market and social welfare issues of, for example, providing service in remote rural areas.

The decision on whether a service qualifies for special consideration by using a competition modifier would need to be taken by RA after consulting colleagues in DTI and OFTEL.

4.1.3 Equitable treatment of mobile services

i) PCN/RFA/DECT

The Government has been keen to promote competition in the local loop using radio access and to this end have licensed a number of Radio Fixed Access operators in various bands above 2 GHz. Some of these operators are competing directly with the incumbent fixed wire telephony operators BT and Cable and Wireless Communications (formerly Mercury Communications) as well as cable operators. As new market entrants, and in view of the substantial start-up and other costs faced by the RFA operators in competing directly with the incumbent UK PTO, the Agency has stipulated that the RFA sector is not appropriate for increased fees under spectrum pricing at the present time.

The FCS and the PCN operators have drawn attention to the competition aspects between RFA and PCN (although it should be noted that RFA is restricted to fixed operation only). They have also highlighted the fixed/mobile convergence and developments in relation to UMTS. The Agency accepts that concessions to RFA operators should be time limited and that convergence will be a factor that will require further investigation but this is seen as a factor which will be dealt with through the Clause 2(2) process of the Wireless Telegraphy Bill.

Concerning DECT, current regulatory policy on the licensing of DECT systems prevents this technology from being used for wide area coverage, and hence restricts DECT from competing directly with either PCN or RFA services. UK regulatory policy allows 2 modes of operation of DECT; self -provided systems (for instance, domestic cordless phones, PBX's etc) and localised third party services, where DECT PBX systems can be provided by a third party in local areas such as office blocks, factories, campuses etc but roaming between such systems is not permitted. This is therefore distinct from the PCN environment where unlimited wide area mobility is being offered. Furthermore, the DECT spectrum is not planned in the same way as cellular/PCN spectrum, in that all DECT services (self provided and third party) are provided within a common frequency allocation (20 MHz from 1880 to 1900 MHz) and, therefore, the necessary planning certainty associated with the provision of public networks is absent.

The MRUA has commented that there is an issue between DECT and on-site PBR systems. However, the RA view is that for the reasons stated here, the price differential is justified, i.e. the on-site user pays £125 but, for this modest fee, the assignment is planned to minimise interference and, if interference occurs, the RIS investigate and resolve problems.

ii) Public Paging vs. Mobile (data)

Initially it was considered that spectrum pricing would not be an appropriate spectrum management tool for paging. This was because it was considered that there were no congestion problems within this sector, both because of the large number of subscribers that can be supported on paging systems and because the paging industry appeared to be stable, if not in slow decline and, therefore, did not present additional future spectrum requirements. The situation has fundamentally changed with demand forecasts indicating that more spectrum is required and congestion might well be an issue in the future. In addition, there are other mobile services in the bands where paging systems operate that are regarded as congested, and thus being subject to increased fees. In particular, data operators see themselves closer to the paging industry than to the mobile voice industry and actively compete with the paging operators through their short messaging service (or two-way paging); data operators thus claim that spectrum pricing would put them at a disadvantage with respect to paging operators.

The paging industry has proposals to implement two-way paging in the near future and this will herald a convergence between paging and data services (and cellular).

For these reasons, RA now propose that spectrum pricing should play a part in determining fees for paging spectrum.

iii) TETRA /GSM

TETRA and GSM are 2nd generation technologies respectively for public access mobile radio and for cellular telephony. Operators are currently incurring significant costs to migrate their analogue customers onto their digital networks. GSM operators thus see that any favourable treatment for TETRA licences as anti-competitive, given that the market that TETRA will address is potentially the same market. The RA view is that the TETRA operator should be entitled to an escalator as they will provide increased competition and they should benefit from the same treatment that the GSM/PCN operators received, i.e. an escalator.

iv) Competition issues in public mobile telephony

Although differences in the marginal valuation of spectrum, as estimated by Nera/Smith, between cellular and PCN operators are eroded with the introduction of a uniform price (to the advantage of cellular operators and disadvantage of PCN operators) The RA needs to consider, in consultation with all four cellular/PCN operators, whether reasons exist that justify a price differential between the 900 MHz and 1800 MHz bands and whether current competition considerations might justify some temporary concessions for the newer entrants.

It can be argued that the competitiveness of the various network operators is affected by the following factors:

Vodafone and Cellnet

Vodafone and Cellnet have less spectrum than One-2-One and Orange;

Vodafone and Cellnet still benefit from being first to the market
and are still considered to lead in the mobile telephony market; however,

Vodafone and Cellnet are facing high costs of migration of their
analogue users onto the GSM networks;

Fragmentation of the Vodafone and Cellnet allocations introduces
capacity limitations and planning and infrastructure logistical problems.

One-2-One and Orange

One-2-One and Orange have more spectrum than Vodafone and
Cellnet and it is in contiguous blocks;

rural area coverage costs are higher for One-2-One and Orange;

One-2-One and Orange have been at a disadvantage in providing
roaming onto foreign networks since relatively few countries other
than the UK have until recently licensed PCN services (and dual
band 900 MHz/1800 MHz handsets have only recently become available);

There are more international networks operating at 900 MHz than 1800 MHz,
thus GSM 900 operators have a large potential base of customers to roam on
to their networks.

Contributions from Cellnet and Vodafone have highlighted the impact fragmentation has on their trunking efficiency. Both operators have fragmented allocations, requiring them to cater for three phases of GSM development - the original GSM band (P-GSM), the extended GSM band (E-GSM) and the 1800 MHz band (DCS 1800). As a consequence, Cellnet and Vodafone will have a mix of handsets - the existing handsets which only work in the P-GSM band, later versions will operator in P-GSM and E-GSM and dual-band handsets will work in P-GSM and DCS 1800 initially.

The RA view is that there is a prima facie case that fragmented spectrum has less utility. As such, the RA accept that fragmented allocations is an appropriate modifier. In the case of Cellnet and Vodafone, the degree of fragmentation will ease over the next few years and, therefore, for simplicity it may be appropriate to use one 'average' value for the modifier to be used for the duration of the transitional period in which this modifier is relevant. However, this is a complex issue which, if the parties concerned wish to define with greater accuracy, will require detailed analysis of their network planning implementation together with traffic loading data.

One-2-One and Orange now both provide service to over 95% of the GB population and are growing their subscriber base rapidly. It is believed that the PCN operators now account for approximately 34% of the total digital cellular subscriber base, up from 21.4% last March. One of the PCN operators is now carrying more digital traffic than the 900 MHz operators. Therefore, whilst spectrum expenses per customer are higher for the PCN operators than for the 900 MHz operators, the difference is being eroded fairly rapidly. This process will further accelerate with the wider availability of dual-band handsets (noting One-2-One's comment that it will be an expensive exercise to replace their existing handsets with dual-band), the implementation of DCS 1800 networks in a growing number of countries and the introduction of number-portability which may bring benefits to new entrants.

v) Frequency band charging differentials

Frequency band charging differentials, that reflect the level of congestion, may affect competition between operators of similar services on different bands that are being subject to different spectrum charges. This is a matter of concern for data operators, some of which operate in bands currently designated as congested and some in bands designated as non-congested. In the case of data operators, and recognising that by removing the differentials, erroneous pricing signals may be sent to the market, the RA's view is that differential charges, based on whether a band is congested or not is consistent with the principles underlying spectrum pricing and, therefore, price differentials are defendable and would only be brought into question if the fees resulted in any significant loss of competitiveness which is unlikely given the marginal costs of spectrum relative to their overall operating costs providing data services.

The Sub-Group decided a satisfactory case existed for including this modifier.

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4.2 Review of Spectral Efficiency Modifier

As mentioned above, the philosophy is to have the same pricing regime for all mobile services. The limitation of fee increases to certain sectors proposed in the May 97 consultation document was thus viewed by some as unfair; in particular, some operators mentioned the cases of RFA and paging which are currently exempt from fee increases. The future charging of TETRA spectrum is also an issue of concern for competing GSM operators. Having a level pricing regime is also key to resolving the issue regarding any charging difference between 900 MHz and 1.8 GHz spectrum. Finally, the fact that differentials in frequency band charging arrangements, to reflect the level of congestion, may alter the competition scenario is also of concern to some operators.

Current pricing proposals reward spectral efficiency on the basis that fees are directly related to bandwidth and area sterilised, therefore there is a clear incentive to use spectrally efficient technology as this reduces the charges. In addition, the spectrum charges proposed have been brought closer to the premium price of spectrally efficient technology so that users have more incentive to implement spectrally efficient systems.

It is also suggested that shared PBR systems should be charged reduced fees in view of the poor quality of service that they get. This could be reflected by using the degree of exclusivity experienced by a system as one of the modifiers. On one hand, the lower the required quality of service, the more users can be accommodated, i.e. this is the same argument as rewarding greater spectral efficiency. On the other, the shared use of spectrum is of less value to users than the exclusive use because users cannot optimise its use at will, i.e. this is the same argument as compensating users because they are constrained in improving spectral efficiency.

Furthermore, in the case of shared PBR systems it is reasonable to suggest that the total fee for a channel spread over all the users sharing it should be the same as the fee if the channel was allocated on an exclusive basis. This means that quite apart from a quality of service modifier as discussed above, a modifier from the full fee is justified for a shared channel user depending on the use the user makes of the channel, as is the case with current licensees.

RA's view is that there is already a clear incentive to use spectrally efficient technology as the fees are directly related to bandwidth and re-use and therefore a modifier is not appropriate.

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4.3 Review of Quality of Service Modifier

It has been suggested by NB3 that Quality of Service should only be applicable as a modifier if particular levels of service are mandated. They give as an example a mandated Grade of Service of 2% would require more spectrum than 5% to support the same number of mobiles. RA support this qualification to the applicability of quality of service as a modifier.

The Sub-Group decided a satisfactory case existed for including this modifier noting the caveat that it should only apply in cases where the Q.o.S is mandated.

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4.4 Review of Spectrum Usage Constraints Modifier

Three main spectrum usage constraints have been identified for fee discounts: propagation characteristics, interference and international co-ordination agreements and vacating of spectrum. Other factors mentioned are topography and the unavailability of technology choice.

4.4.1 Propagation characteristics

Differential pricing depending on the value of the spectrum for mobile use in the non-congested areas may be subject to discussion. As mentioned in 4.2 above, special attention is drawn to the valuation of 900 MHz versus 1.8 GHz spectrum in rural (non-congested) areas.

In fact, the only proposals received by the Agency in relation to propagation characteristics have explicitly addressed the 900/1800 MHz issue. Responses from Cellnet, Vodafone and One-2-One have proposed solutions, but viewed from different perspectives. Vodafone make the case that the entire country could be covered within a 3 MHz bandwidth at any frequency. The additional spectrum allocated to operators is used purely to provide additional capacity and that spectrum at 900 MHz and 1800 MHz has the same utility for this purpose. It is then proposed that a modifier of 0.5 should be applied but only to the 3 MHz required for national coverage purposes, the remaining 27 MHz (in the case of PCN) would attract a modifier of unity. This results in a proposal modifier of 0.95 for the PCN 1800 MHz operators. One-2-One maintain that propagation considerations apply to urban, suburban and rural areas and that there is significant difference between 900 MHz and 1800 MHz propagation in urban and suburban areas, with 1800 MHz at a disadvantage. They affirm that PCN networks require additional infrastructure, to give the same field strength as GSM networks and to provide good in-building coverage and that suburban regions at 1800 MHz require twice as much infrastructure as at 900 MHz. However, technical research on the subject of in-building coverage suggests that there is not a significant difference between 900 MHz and 1800 MHz further study is required on this subject.

Regarding the value of 900 MHz spectrum and the value of 1.8 GHz spectrum, it would be reasonable to say that there are no significant technical/economic differences between the use of the different blocks of spectrum for mobile telephony in urban congested areas. It is in rural areas where there is a technical/economic difference between 900 MHz spectrum and 1.8 GHz spectrum since it can be argued that wide area coverage in rural areas can be more effectively provided in the 900 MHz band. In fact, the PCN operators argue that the fact that the propagation conditions at higher frequencies are worse should be reflected in the licence fee. The greater expenditure in infrastructure required at 1.8 GHz compared to that required at 900 MHz might justify lower fees in the non-congested areas at 1. 8 GHz.

RA's view is that 1800 MHz is appropriate for a modifier to reflect the additional infrastructure costs to provide national coverage.

4.4.2 National co-ordination and associated restrictions

There are a number of national co-ordination and other restrictions on mobile radio spectrum, which have the effect of limiting the mobile operators access to spectrum in certain geographic areas or restricting the operator from transmitting above a certain field strength limit, below the normal licensed ERP. Nationally imposed restrictions fall into 2 broad categories; those imposed as a result of military (MOD) activity and those due to other UK civil spectrum users or spectrum sharing requirements.

The requirement to protect MOD spectrum interests tends to result in civil spectrum users being subject to co-ordination zones within which operators have to adhere to reduced field strength limits, or, in some cases, geographic exclusion zones within which civil operation is not permitted at all on some frequencies. This particularly affects operators with national spectrum allocations, for instance the cellular operators in the ETACS at 900 MHz, where there are certain frequencies within each operators allocation which the operators are excluded from using in certain areas of the country. MOD restrictions can also have the affect of operators having to rollout services within a non-optimal allocation, for instance in the case of TETRA where the full allocation is not available at present due to MOD.

Spectrum usage constraints can also occur between civil spectrum users, where for instance operators may have to co-ordinate services with those in adjacent spectrum, or co-ordinate their rollout with an incumbent spectrum user, or are required to share with a new user. Compatibility problems often exist due to adjacent band operation, and examples of this include ERMES/PBR compatibility at VHF, GSM/low power devices at 900 MHz, DCS1800/TFTS and DCS1800/DECT. The extent of interference or usage constraint varies according to circumstances.

Co-ordination or restrictions due to incumbent users often occurs when a new frequency allocation is agreed (often agreed on a European level within CEPT), and existing users have to relocate to other bands to make way for the new service, or the new service has to co-ordinate their network rollout with the incumbent service. In some cases the complete withdrawal of existing users from the band can take a number of years, especially if it is a deregulated (unlicensed) service - for instance low power or short range devices. This has occurred for instance in the 900 MHz band where the UK has had a low power device allocation (for anti theft equipment) for a number of years in the band now designated for E-GSM. Existing cellular services do not currently use 1 MHz of the GSM band due to these devices. Other examples of situations where incumbent users have been relocated are at VHF, where PBR services were relocated from the ERMES band, and DCS1800, where fixed links used by Home and Scottish Offices are being relocated.

In relation to national co-ordination issues, the majority of the responses have come from the cellular operators and have drawn attention to a number of specific issues that they believe should be considered, eg band clearance costs, guard bands, low power devices, ISM interference, co-ordination with the MoD at certain locations.

The RA view is that these are relevant factors but they need to be determined in relation to the practical impact these constraints have on network planning and capacity. The allocation of blocks of spectrum to the cellular operators allows them considerable flexibility and capacity constraints are only relevant in urban hot-spots.

4.4.3 International co-ordination and restrictions imposed by MOU’s

The Radiocommunications Agency is obliged to undertake Memorandum of Understanding (MOU's) with the spectrum administrations of neighbouring countries (e.g. France and Ireland) to limit interference to/from UK services. MOU's are developed on a service by service basis, e.g. Band 1, Band 3, TETRA, ERMES, GSM, DCS1800.

Where identical services operate in the two countries party to an MOU, the MOU tends to be developed on the basis that the available frequency band is divided equally between the 2 countries into preferred and non-preferred frequencies, and field strength limits imposed for the preferred and non-preferred channels respectively. Operators in both countries can then establish base stations without co-ordination, provided that the field strength does not exceed the agreed limits. The field strength limits are set so that the preferred limit is higher than the non-preferred, so that operators can use the preferred frequencies with less restriction.

The consequence of this is that UK operators have to ensure that base stations along the south and east coast of Great Britain conform with agreed UK/France limits, and that those in Northern Ireland conform with UK/Ireland limits. In some instances, MOU's have been agreed to co-ordinate frequencies between the UK mainland and the islands such as the Isle of Man and the Channel Islands. This then affects base sites at the coastline on the UK mainland near these islands. The operators' frequency plans are thus affected in coastal and border areas since non-preferred channels are subject to low field strength limits, and higher interfering fields strengths will also be received channels from the neighbouring country on the non-preferred channels (since these are the neighbouring countries preferred channels).

Where sharing occurs between dissimilar services of neighbouring administrations, MOUs can be more complex. The most intrusive sharing arrangements are where the service deployed by the neighbouring administration is high power e.g. broadcasting. Similar but distinctly different problems arise where the use of spectrum in mainland Europe differs from that in the UK. In the case of UHF bands where mainland Europe is frequency reversed compared with the UK, high powered base stations in mainland Europe directly interfere with the base station receive sites in the UK under certain climatic conditions. In these circumstances, the interfering field strength can be higher than wanted signal from the UK service.

The extent to which an operator is constrained due to MOU's depends largely on the terms of the MOU and the field strength thresholds applied. A contribution from One-2-One, for instance, suggested that half of their assigned channels are unusable over the region from Dover along the south coast of England, due to co-ordination with the French DCS1800 operators. In the case of UHF bands, continental interference can affect services in the whole eastern part of Great Britain and in most southern countries. Under extreme climatic conditions, the bands can be completely unusable for UK mobile radio services.

The RA's view is that MOU's are necessary to avoid interference between UK and its neighbours and therefore negotiations between the UK and neighbouring administrations concerning the terms of MOU agreements focus on reaching an agreement which does not unduly constrain operators network infrastructure planning, ensuring that operators are able to roll out networks in an efficient way.

4.4.4 Clearing of spectrum

Comments have been received from Cellnet and Vodafone in relation to clearing fixed links from 1800 MHz. The RA’s view is that the operators accepted the costs of migrating existing services when they accepted the award of the 1800 MHz allocation following the consultation. However, Cellnet and Vodafone argue that this was before Spectrum Pricing costs were considered. However, the RA does not believe that it is appropriate to apply a modifier to this particular case. However, future band clearance may qualify as a modifier.

The Sub-Group decided a case existed for including this modifier in certain limited cases.

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4.5 Review of Technology Choice Modifier

All radio equipment is required to operate in accordance with agreed performance and emissions limits. Equipment performance is tested at type approval, and emissions limits are tested under the EMC Directive for pan-European EMC compliance. Equipment specifications for type approval are either determined on a UK level (MPT specifications) or, more typical nowadays, on a European level through ETSI.

In some cases, the technology choice for particular service is mandated through European regulatory recommendations (for instance EC rulings or CEPT recommendations). This has been the case for many second generation digital services, for instance TETRA, ERMES, GSM900 and GSM1800, where the technology is mandated so to provide pan-European service. The complete system specification for these pan-European services is then developed within ETSI.

The mandating of technology is in some instances felt to remove operators choice, and impose technological constraints on networks where operators may prefer to choose another technology. These arguments are however balanced by the benefits of mandating technology on a pan-European level, which include the creation of a European market for equipment, resulting in mass availability of equipment and lower costs for operators, widespread availability of standardised network equipment, meaning that operators can buy interworking equipment from a range of suppliers, and low cost user terminals.

The Agency's view is that whilst the impact of mandating technology varies from service to service the overall effect is negligible in the majority of cases. A contribution from NB3 echoes these sentiments and propose that when the RA mandates or otherwise restricts technology for a given band it implicitly applies constraints on efficiency of spectrum usage. A modifier should therefore reflect the degree of constraint applied.

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The following section is contributed to this report as an output of the working sub-group dealing with Congestion issues, and has not therefore been debated separately by the Modifiers sub-group.

4.6 Review of Congestion Modifier

The Modifiers Sub Group concluded that a satisfactory case exists for including congestion - i.e. whether or not a system is operating in a congested area and frequency band - as a modifier. The Congestion Sub-Group 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 Congestion Sub-Group has developed two main methods for determining congestion: the first is applicable to public mobile services (e.g. cellular/PCN; public paging and national trunked radio) and the second is applicable to private mobile services (e.g. shared and exclusive PBR; CBS). The methods are outlined below.

4.6.1 Congestion on national channels for Public Mobile Services

Spectrum is allocated on a national basis for public mobile networks, i.e. cellular/PCN, public paging and national trunked radio. Access to this public network service spectrum is normally through public consultation/competition managed jointly by the RA and DTI. Consultative documents consider the competition aspects of the services and any telecommunications regulatory issues as well as the spectrum allocation. Operators wishing to apply for such spectrum allocations are required to submit detailed business cases to the RA, 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 to provide coverage to a high percentage of the UK population.

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. Once this process is completed, all spectrum identified for that service is allocated and there is no further possibility for an additional allocation. The national channels for the public mobile services have been fully allocated on the basis of demonstrable need for capacity to meet the operators’ traffic demands and there is no further spectrum available for these services. Therefore, the national channels for the public mobile services will be considered to be congested.

4.6.2 Congestion on channels for Private Mobile Services

The Congestion Sub Group considered two calculation methods for defining the level of congestion experienced across the UK for each of the frequency bands used for private mobile services (i.e. shared and exclusive PBR systems, and CBS systems). While both methods produced similar results, the method finally selected gives results which can be more readily compared with monitoring data and appears to give more accurate results for the moderately congested squares. The chosen method (Method B) is used to analyse the overall channel loadings (i.e. traffic levels) for the shared user 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 the square as non-congested, congested or heavily congested. The following definitions of congested and heavily congested channels were used to establish quantitative threshold levels:

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.

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

Table 1

The thresholds given in the table above are used to define the level of congestion on an individual channel in a particular area. To determine whether an area is congested, the proportions of each type of channel in that area are compared to the following threshold levels:

The calculation method is used to draw up lists and maps for each of the frequency bands which show whether the 10km squares are heavily congested, congested or non-congested for the main shared users of the band. Further details of the calculation method, including the operational assumptions and examples are given in the table below.

Table 2

Areas of Congestion in VHF High Band for Private Mobile Shared Services

i) Shared channels

For licensees using shared PBR and CBS channels, it is the location of a system’s base station which will initially determine whether the system is operating in a heavily congested, congested or non-congested area. 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.

An exclusivity factor will also be applied to the congestion modifier for 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.

ii) National and regional exclusive channels

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 other national exclusive channels which are available in bands which do contain heavily congested and congested squares will be considered to be congested channels. 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 RA.

The Sub-Group decided a satisfactory case existed for including this modifier.

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4.7 Review of Self-Management Organisations Modifier

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

Factors which need to be balanced include whether spectrum management activities are more expensive to self-management organisations than the RA delegated management, taking into account flexibility, speed of response, transference of detailed knowledge and other advantages of self-management.

The Agency's view is that the benefits of self management outweigh any additional costs incurred, therefore a discount would not be appropriate and a satisfactory case did not exist for including this modifier.

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4.8 Transitional Arrangements

Transitional arrangements for introducing Spectrum Pricing will be managed over a period by successive Fees Orders discussed annually with Industry. No modifier should therefore be applied.

The following were seen as having been adequately addressed in the other Modifiers already considered.

4.9 Area Sterilised under Congestion Modifier, and also as a factor in the basic licence fee
formula.

4.10 Infrastructure Costs under Competition Factor Modifier

4.11 Interference under Spectrum Usage Constraints Modifier

4.12 Frequency Band under Spectrum Usage Constraints Modifier

4.13 Efficient Technology under Technology Choice Modifier.

4.14 Shared Usage under Spectrum Efficiency and Spectrum Usage Constraints Modifiers

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5. Proposed List of Modifiers and Suggested Values

Competition
[Spectral Efficiency]
Quality of Service (if mandated)
Spectrum usage constraints
Technology choice
Congestion
[Self Management Organisations]

In arriving at these shortlisted modifiers and values for them, a broadbrush approach has been necessary. However, the Sub-Group was able to call upon the experience of manufacturers, operators, users and trade associations in addition to the RA's own resources. The RA is confident that the figures represent a balanced opinion.

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5.1 Competition Factors

Whilst the RA agree that this modifier is relevant, it is felt that no predetermined values can be ascribed to it. The principle of a fee escalator is accepted by the RA but would need to be considered on a case by case basis.

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5.2 Spectral Efficiency

The RA's preliminary view is that there is already a clear incentive to use spectrally efficient technology as the fees are directly related to bandwidth and, therefore, a modifier is not appropriate.

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5.3 Quality of Service

The Sub-Group decided that a satisfactory case existed for this modifier but that it was in general only appropriate where a grade of service has been established.

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5.4 Spectrum Usage Constraints

Four main spectrum usage constraints have been identified for fee discounts: propagation characteristics, fragmentation of allocation, interference and international co-ordination agreements and clearing of spectrum. Other factors mentioned are topography and the unavailability of technology choice (as in section 4.5).

5.4.1 Propagation characteristics

Less than 100 MHz Proposed Modifier = 0.7

100 MHz - 1 GHz Proposed Modifier = Unity

1-2.5 GHz Proposed modifier = 0.7

5.4.2 Fragmentation of allocation

In recognition of the fragmentation of the Cellnet and Vodafone spectrum and associated migrational problems, a time limited modifier of 0.8 is proposed. The modifier would apply from 1999/2000 until 2003/2004. The Sub-Group recognised that this modifier may also apply to other services but each case will need to be considered on its merits.

5.4.3 Interference and international co-ordination agreements

Interference to cellular/PCN is not considered significant in relation to the overall allocations to each service - this applies to national and international constraints.

International constraints are more significant to UHF services that suffer from the band reversal problem and the Band III MOU imposes constraints that deserve recognition. A range of modifier values between 0.7 and 1.0 is proposed for ultra high frequency continental interference and 0.8 for Band III constraints in relevant locations.

5.4.4 Clearing of spectrum

Comments have been received in relation to clearing fixed links from 1800 MHz. However, the operators accepted the costs of migrating existing services when they accepted the award of the 1800 MHz allocation following the consultation. Therefore the RA does not believe it appropriate to apply a modifier to this particular case. However, future band clearance may qualify as a modifier.

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5.5 Technology Choice

The Agency's view is that whilst the impact of mandating technology varies from service to service, the overall effect is negligible in the majority of cases. NB3 propose that when the RA mandates technology for a given band it implicitly applies constraints on efficiency of spectrum usage. A modifier should therefore reflect the degree of constraint applied.

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As in the corresponding discussion at 4.6, the following section is also contributed to this report as an output of the working sub-group dealing with Congestion issues, and has not therefore been debated separately by the Modifiers Sub-Group.

5.6 Congestion Modifier

(The figures for the congestion modifiers are based on those given in Annex E of the RA’s consultation document on administrative pricing: "Implementing Spectrum Pricing", published May 1997.)

Table 3

⁽¹⁾ The exclusivity factor is applicable to PBR shared channel users and is derived from the number of mobiles operated by the user.

⁽²⁾ Maps and lists such as the ones shown for VHF High Band will identify which areas are highly congested, congested and non-congested for each band. The location of a system’s base station will initially determine whether the system is operating in a heavily congested, congested or non-congested area

⁽³⁾ The PBR national exclusive channel rate is based on a nation-wide channel re-use factor of 20; i.e. national channel users will be charged for use of 20 channels. The factor of 20 re-uses was calculated considering both the physical constraints of fitting a number of coverage areas into the UK and also the position of conurbations - and therefore, the areas where coverage is likely to be most desired - within the country. These 20 re-uses will be assumed to include coverage in any congested or heavily congested areas which are present in the frequency band.

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5.7 Self Management Organisations Modifier

The Agency's view is that the benefits of self management outweigh any additional costs incurred and, therefore, a discount would not be appropriate.

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6. Proposals

The proposals listed in this section of the report are directly based on the preceding review and discussion contained in this document.

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6.1 Modifiers to be used in the calculation of charges

The Sub-Group concludes therefore that a list of modifiers meeting the criteria for inclusion in this report are listed below:

Competition
Quality of Service (if mandated)
Spectrum usage constraints
Technology choice
Congestion

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6.2 Summary of proposed values for mobile services

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