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Spectrum Pricing: Implementing the Third Stage and Beyond |
1.1 This third stage document is aimed at bringing customers up to date on the Radiocommunications Agency’s implementation of administrative spectrum pricing through regulation under the powers of the Wireless Telegraphy Act 1998. It outlines changes proposed to become effective from July 2000 and beyond.
1.2 The outline of how the Agency proposes to move forward is contained in Chapter 2 with more details in Chapter 3. A recap on the reasoning and methodology for applying spectrum pricing is set out in Chapter 4. More specific details for each sector are initially contained in 7 appended documents being separately published on our website www.radio.gov.uk. Hard copies of any appendix document may be obtained from the RA library at the address below. Further consultations will follow later for sectors where more refinement of the proposals is required, but these later documents will not lead to changes before 2001.
1.3 Any general comments on this consultation process should be sent to by 31 December 1999:
Licensing Policy Unit
Radiocommunications Agency
Wyndham House
189 Marsh Wall
London E14 9SX
E-mail: spectrumpricing@ra.gsi.gov.uk
1.4 Specific comments on the details for each sector are invited as set out in the accompanying documents, as they are issued now, or at future dates over the next year. Each sector has its own contact point and times for comment.
1.5 Generally, the Agency reserves the right to make all comments publicly available including on the Radiocommunications Agency’s web site except where respondents indicate their input, or parts of it, is confidential. Respondents are requested to separate any confidential material into a clearly marked annex. Unconditional permission for publication will be assumed unless the author openly states otherwise and any copyright attached to responses will be assumed to have been relinquished unless it is expressly reserved.
1.6 It would be helpful if lengthy written documents could be supplied on disk or by e mail (preferably Word) . Copies of this document and accompanying documents can be obtained by contacting the Information and Library Service of the Radiocommunications Agency, or on the Agency’s website at www.radio.gov.uk
Next Steps
1.7 For any proposals that will be covered in Regulations intended for commencement in July 2000, the Agency intends to publish a further update on the website by the end of February 2000. Further updates will be issued nearer the time of implementation
Statutory Consultation
1.8 In accordance with the provisions of the Wireless Telegraphy Act 1998 the Agency will publish Gazette notices, detailing the substance of the proposed regulations in the London, Edinburgh and Belfast Gazettes, and equivalent publications in the Channel Islands and Isle of Man. For the July 2000 Regulations, this is likely to be by March or April 2000.This allows for a period of representation of 28 days from the date of publication of the Gazette notices. It is also intended to place copies of these notices on the Agency website.
Regulatory Impact
1.9 A Regulatory Impact Assessment (RIA) was drafted and published at the time of the Second Stage Consultation in September 1998. This still covers the main thrust of these proposals, but a specific RIA was completed for the July 1999 Regulations and a further one will be required for any changes that are made in July 2000. Specific points about the regulatory impact of proposals outlined here would be welcomed please. Copies of the RIA’s issued so far are available from the above address or our website.
CHAPTER 2: EXECUTIVE SUMMARY
Introduction
2.1 The second stage of spectrum pricing implementation commenced in July 1999. In this stage, the charges for Wireless Telegraphy Act licences started to move from being based on the administrative cost of spectrum management to a reflection of the economic value of spectrum based on the criteria outlined in the Wireless Telegraphy Act 1998. In the second stage, the emphasis was given to addressing the areas of greatest distortion in pricing in the public telecommunication network, fixed link and private mobile radio sectors of spectrum use. It developed work started in some of these areas in the first stage.
2.2 The Radiocommunications Agency is now starting to address the third stage of implementation. Consultants Smith Group of Guildford and NERA of London, who undertook the earlier work on spectrum pricing economic studies, have been commissioned to look at the remaining sectors in more detail. Their report is published on the Agency’s internet website, but in summary they concluded that incentive based administrative spectrum pricing could assist the spectrum management of the following sectors and classes of RA licence:
Fixed Point to Multipoint and Scanning Telemetry classes (see 3.1 and 3.2)
2.3 The Agency generally accepts the recommendations and as explained in Chapter 3, these are being developed into proposals. Accompanying Appendix documents for the latter two are available on our website. It is intended to issue further documents on scanning telemetry and satellite stations when further industry consultation has taken place.
2.4 Smith and NERA also looked separately at Broadcasting (see 3.11 to 3.30), for which they consider there is a good case for spectrum pricing, but because of the wider issues, explained in the next chapter, this work will be subject to a separate more advanced study later. The Smith and NERA comments are reflected into this document and are not separately published.
2.5 In other remaining sectors, Smith and NERA reported that there was too marginal a case to use pricing as a tool, or that spectrum pricing was not appropriate. They therefore recommended against introducing spectrum pricing for the following types of RA licence sectors or classes:
2.6 Smith and NERA recommended that spectrum pricing should be considered for UK coastal stations operating commercial channels and Terrestrial Flight Telephony Systems (TFTS). The Agency will further consider whether spectrum pricing for UK coastal stations operating commercial channels is appropriate in the light of how much congestion there may be. Further consultation will be undertaken if it is decided there is a case. For TFTS, the Agency proposes to await market developments before deciding whether there is any case to introduce spectrum pricing.
2.7 With the exception of these two cases, the Agency generally accepts all these recommendations as a starting point for considering pricing of these remaining sectors and classes. Where incentive spectrum pricing is recommended, detailed further consultation is proposed on how changes should be introduced. Where possible, price changes may start in July 2000, but in many cases it may not be possible to complete all the steps in time, so commencement will be delayed to July 2001. Each sector is explained in more detail in the next chapter.
2.8 In those sectors and classes where pricing is not recommended as an incentive, consideration will be given to simplifying the administrative licensing arrangements and the pricing structure, which in some instances may lead to some reductions in charges. Further details are also detailed in the next chapter and in appendix documents on our website.
Completing the sectors and classes commenced in Stages 1 and 2
2.9 In addition to the sectors and classes described above, further consideration is being given to completing the sectors and classes on which spectrum pricing commenced in Stages 1 and 2, which were outlined in the consultative document "Implementing the Second Stage" issued in September 1998. In this, and accompanying documents being published on our website, we indicate how it is proposed to complete spectrum pricing for Public Mobile Operator Classes (See 3.35), Common Base Stations (see 3.36), and Point to Point Fixed Links (see 3.37 to 3.39). Details for remaining Private Business Radio Class licences (e.g. private paging and road construction) are also covered (see 3.40).
2.10 Finally we cover how Government services are being treated on a comparable basis (see 3.41) and outline the longer term steps being taken for managing pricing (see 3.42).
CHAPTER 3: WAY FORWARD FOR EACH SECTOR OR CLASS
3.0 The following paragraphs outline how it is proposed to take forward pricing proposals in each class or sector.
Point to multipoint and scanning telemetry
Multipoint Links (private services)
3.1 Smith and NERA have reconfirmed that in principle all fixed links licences should be considered for spectrum pricing to reflect the high demand for most of the bands. However the use of the 31-31.8 GHz band for multipoint applications is peculiar to the UK and given the uncertainty as regards longer term availability of this spectrum, it is proposed that the situation be kept under annual review. For the year 2000 the fees (which reflect basic administrative cost levels) in force in the 1999 Licence Charges Regulations will therefore remain unchanged. If the position changes, detailed consultation would need to be undertaken before fees are changed.
Scanning Telemetry
3.2 The Agency has in principle accepted the Smith and NERA conclusion that administrative incentive pricing should be applied to the spectrum involved, with the mobile radio spectrum Standard Tariff Unit (see description in Chapter 4) being used when determining its basic price. In common with other areas of RA the concept of sterilised area will also be applied to this service.
Fixed satellite earth stations
3.3 A recent Smith and NERA study undertaken on behalf of the RA concluded that administrative incentive spectrum pricing should be applied to all licensing products in the satellite sector, and the Agency proposes to implement a suitable scheme on a phased basis commencing with the Permanent Earth Station (PES) classes in July 2001. This timing will permit consultation with industry on determining the best way forward before final decisions are taken and implemented.
3.4 The report has recommended that in line with spectrum pricing regimes in other sectors a concept of sterilised area should also be adopted for the satellite sector. This concept and related parameters will be refined in consultation with the licensees to formulate an agreed policy for the introduction of administrative pricing, initially for PES. The adopted pricing regime would be subsequently extended after consultation and any necessary adjustment to cover other products (ie Very Small Aperture Terminals and Transportable Earth Stations) during subsequent phases (year 2002 onwards). Licence fees during the intervening period will be held at the current levels set out in the 1999 Licence Charges Regulations.
3.5 In addition to the above classes, the Agency also proposes to introduce two new licensing products for the satellite sector. It is proposed these will be optional licences for certain classes of receive only earth stations, and a licence for Satellite Interactive Terminals and Satellite User Terminals (SITS and SUTS). These will be subject to further detailed consultation later in the year.
Other satellite stations
3.6 In common with many European administrations, UK Wireless Telegraphy legislation only permits the licensing of stations on earth, but it is not possible to licence spectrum used for satellites, nor the satellites themselves, despite the fact that most are co-ordinated and registered by administrations. In the UK it has been the practice to exempt receiver terminals and most mobile subscribers terminals from needing a licence. Other than the fixed earth stations covered above, it is not therefore possible to apply any form of spectrum pricing where there is no licence.
3.7 The satellite licensing regimes are currently under review in Europe, particularly by work initiated by the European Commission and being undertaken by CEPT. This may lead to some future change in the legislative and licensing arrangements, and if so we will need to look further at the pricing arrangements.
Fixed Wireless Access
3.8 Fixed Wireless Access (FWA), previously known as Radio Fixed Access (RFA), Fixed Radio Access (FRA), Wireless in the Local Loop (WLL) or Point to Multipoint telephony (PTMP) is currently licensed on a per-Base Station basis (value dependent on frequency band). This regime pre-dates spectrum pricing proposals and it would be sensible to bring these services into a common pricing regime. It is thought that a spectrum-based fee, introduced over a period of years via an escalator arrangement would also serve to incentivise the roll-out of services to the consumer.
3. 9 Detailed fee proposals are outlined in supplementary paper Appendix 1. It had previously been agreed not to alter fees in this class in the early stages of spectrum pricing, because of the early stage of roll out of the networks. It is believed that this position has changed, and the new proposals take account of the roll out of networks. Comments are invited (see contact details in Appendix 1)
Programme Making and Special Event Licences
3.10 Demand for licences in this sector continues to grow strongly, as does the demand for diversity of use. Smith and NERA suggest that account be taken of the mobile & fixed STU’s, but in view of a number of complicated factors, suggest that account also be taken of a demand study currently being undertaken. Details set out in document Appendix 2.
Broadcasting WT Act licence classes
3.11 Generally the Agency supports the principle that Broadcasting spectrum should be priced to reflect its economic importance and to use pricing to encourage its best management. The issues for implementing spectrum pricing are summarised below.
Use of Spectrum
3.12 The spectrum available for terrestrial television transmissions is from 470 to 854 MHz, excluding 590-598 MHz and 606 to 614 MHz. This spectrum is divided into 8 MHz channels, 46 of which are used to provide 5 analogue television services and 6 digital multiplexes (channel 36 and channel 38 are used for radar, radio astronomy and programme making whilst a number of video recorders use these channels for connections by cable to television sets). The large amount of spectrum required for terrestrial television reflects the need to provide (near) universal coverage.
3.13 If ,and when, analogue television transmissions cease, significant amounts of spectrum could be released for additional broadcasting services and/or for other services such as mobile communications.
3.14 Local Delivery Operators have access to the band 40.5 to 42.5 GHz for Multipoint Video Distribution Systems. This spectrum is also subject to a separate Agency consultation concerning spectrum for Broadband Wireless Fixed Access.
3.15 The frequencies allocated to analogue and digital sound broadcasting are detailed in the table below.
Frequency allocations for sound broadcasting |
|
| Service | Frequency |
| LW | 148.5 – 283.5 kHz |
| MW | 526.5 – 1606.5 kHz |
| SW | Various between 3.95 and 26.1 kHz |
| FM | 87.5 – 108 MHz |
| DAB | 217.5 – 230 MHz, 1452 – 1492 MHz |
3.16 Broadcasting spectrum is used by both commercial broadcasters and the BBC. For FM radio, spectrum is divided up into bands for BBC and non-BBC services licensed and regulated by the Radio Authority, though there is some sharing between the two (Capital Radio, for example, is in a BBC sub-band). The UHF bands are shared, for planning purposes, between the BBC and the Independent Television Commission (ITC).
Licensing of Broadcasting
3.17 Major commercial television and radio licences are awarded, by the ITC and the Radio Authority respectively, on the basis of competitive processes.
Planned Changes
3.18 Apart from some additional spectrum at 1.5 GHz for DAB, there are unlikely to be major changes to the broadcasting spectrum allocation, other than arising from the gradual switch-over from analogue to digital broadcasting.
Congestion
3.19 A feature of both radio and TV broadcasting is that spectrum limitations currently constrain the number of services which can be offered terrestrially. In the case of television and FM radio, the current spectrum allocation is more or less full. In a separate exercise the Agency, along with the BBC and Radio Authority, are reviewing the use of the FM band with a view to examining the potential for further stations to deal with the continuing demand to provide analogue services. The tenders for ITV and Channel 5 licences attracted multiple bidders. Similarly, commercial radio licence awards, particularly in the FM frequency band, are frequently contested by several applicants.
3.20 Demand for digital licences has so far appeared less intense. There were two applications, for the commercial Digital Terrestrial Television (DTT) multiplexes B, C and D and one, for multiplex A. Similarly, there was one application for the national Digital Audio Broadcasting (DAB) multiplex. A number of local multiplex offers have also attracted only a single bidder, although there were three applicants for the first greater London multiplex. This apparent limited interest is probably, according to Smith and Nera, largely due to the lack of installed base of digital reception equipment, with broadcasters unwilling to commit the necessary investment to roll out services without there being a proven market to recoup that investment. However, the Radio Authority are currently advertising a number of digital licences. Taken together with the BBC Digital service, the increasing number of digital commercial services available over the next couple of years, and falling prices of receivers will help to galvanise the market.
Change Possibilities
3.21 There are a number of possible methods open for relieving congestion of the spectrum, and the scope for alternative uses or users of the spectrum taking into account technical factors and any international co-ordination issues that may apply.
What alternatives do users have?
3.22 Over the longer term, analogue broadcasters could switch to digital transmission. In anticipation of this, provisions were made to grant existing TV and national commercial radio licence holders capacity on digital multiplexes for the purposes of simulcasting. There is insufficient capacity on the local digital sound multiplexes to allow the simulcasting of all local radio stations. Broadcasters are unlikely to be willing to end analogue transmissions until the installed base of digital reception equipment approaches that of analogue.
3.23 Broadcasters could also switch to alternative technologies including cable, satellite, Digital Subscriber Line (xDSL) or Microwave Video Distribution System (MVDS) although it is unlikely that the same level of coverage as the existing terrestrial network could be achieved economically in the foreseeable future using any one of these alternative delivery media in isolation.
Possible alternative uses/users of the spectrum
3.24 If and when analogue television broadcasting ceases, significant amounts of spectrum could be released for additional broadcasting services and/or for other services such as mobile communications. In the case of sound broadcasting, any spectrum released could be used for DAB or for alternative mobile radio uses.
Scope for Spectrum Pricing
3.25 In the case of analogue broadcasting, the large installed base of receivers (30 million plus TV sets and many times more radios) reduces the prospect of pricing resulting in short term changes in broadcasters’ use of spectrum.
3.26 Broadcast spectrum appears a prime candidate for spectrum pricing. There is congestion and potential alternative high value uses. Current users have the option of moving to more spectrally efficient digital technology which could release a significant amount of spectrum either for more broadcasting services or for other uses such as mobile communications. Broadcasters could also adopt alternative technology such as cable, satellite, or xDSL or millimetric frequencies.
3.27 There are, however, a number of significant policy difficulties associated with the introduction of pricing including the current lack of installed base of digital reception equipment and the fact that Channel 3, Channel 5 and national commercial radio operators have already paid significant sums for their Broadcast licences. (Ministers assured Parliament that account would need to be taken of these fees when implementing spectrum pricing in this sector).
3.28 In addition, the review of the Future Funding of the BBC by an independent committee chaired by Gavyn Davies creates further uncertainty.
3.29 The Agency proposes to develop a more detailed plan for pricing broadcasting spectrum. It is planned to use the same approach to valuing the spectrum as that which has been used in other pricing exercises. As part of this exercise further consideration will be given to alternative uses of the spectrum and their impact on its value as well as the availability of alternative platforms for determining broadcasting services. Once a notional value has been developed it will then be necessary to consider how to relate this to payments already made for licences. Similarly, it will be necessary to restructure Wireless Telegraphy Act licences to match more closely the Broadcasting Act licences and individual BBC services.
3.30 In view of the complexity of these issues and the importance of clarity about the process as for the switch-over to digital, the Agency will make the detailed plans for the pricing of broadcasting spectrum the subject of a separate consultation at the end of 1999. It will lay out specific plans for the pricing of broadcasting spectrum and arrangements for implementing them, from July 2001. This will take into account the terms of the announcement on 17 September (by the Secretary of State for Culture, Media and Sport) about the switchover from analogue to digital, including the Government’s objective to encourage a swift roll out of digital tv, whilst ensuring widespread access to the main free-to-air services digitally on affordable terms, before switching over completely to digital. Account will also be taken of responses to the review of BBC funding.
Amateur and Citizen’s Band
3.31 Smith and NERA have confirmed the Agency’s view that incentive spectrum pricing is not an appropriate tool for managing these classes. Document Appendix 3 provides details about the development of these classes and possible further simplification of licence administration and pricing (which would not involve any increase in fees).
Maritime and Aeronautical
3.32 Whilst potentially Smith and NERA consider there may be possibilities of using incentive pricing to encourage more efficient use of spectrum in these sectors, the scope for the UK to act alone is limited by the fact that spectrum is generally assigned for use on a common international basis. However, there is scope for some administrative rationalisation and simplification of the licensing and pricing, which is set out in document Appendix 4. The exception is the Commercial Coastal Stations, which Smith and NERA recommend for spectrum pricing. The Agency will further consider this exception.
3.33 On the basis that it is essentially a public telecommunication service, Smith and NERA identify the TFTS (Terrestrial Flight Telephony Systems) as a candidate for pricing on the same basis as other public mobile operator services. However, little interest has been shown in operating these systems, and additionally recent technological developments provide for alternative delivery means. The Agency therefore intends to keep the applicability of these services under review.
Technology Development
3.34 Test and development licences generally only have limited and temporary access to spectrum so Smith and NERA argue that the opportunity for using pricing is limited. The Agency is keen to ensure that such licences are well managed to promote innovation and development of spectrum use. Document Appendix 5 sets out some proposals for administratively simplifying the licensing and charges to encourage good management and compliance.
Public Mobile Operators
3.35 The Second stage consultative document set out proposals for implementing spectrum pricing for the Public Mobile Operators’ class. These proposals have generally been adopted for the fees in 1999, except that some further modifiers were agreed and the speed of implementation extended from three years to four. Document Appendix 6 reiterates and refines how these proposals might be completed in July 2000 and beyond.
Common Base Stations
3.36 Appendix 6 also sets out how it is proposed to complete spectrum pricing for Common Base Station licences. It is now aimed to complete this implementation in four years rather than three (as suggested in the Second Stage document).
Point to Point Fixed links
3.37 Under the July 1999 Fees Regulations administrative pricing was introduced within the Fixed Links business sector for all terrestrial point-to-point fixed links. The fees represented the first step in a four year cycle and it is proposed to implement the second step in the year 2000. This will mean a n increase in licence fees for links in congested areas, with fees for links in uncongested areas dropping from their 1999 level. Fees for this second year have already been set out in detail in the Tables annexed to Chapter 6 of the September 1998 second stage consultation document. In summary, the variations in fees range between £25 and £300 per link, with the higher increases applying to mature equipment in congested regions.
3.38 No changes are proposed in the year 2000 regulations in respect of the frequency bands and regions considered to be congested, or in the currently specified bandwidths and data bit rates. The impact of administrative pricing on the general availability of fixed links spectrum will be monitored throughout 1999/2000 to identify emerging trends and changes in the pattern of congestion, with any lessons being considered for implementation in 2001 and subsequent years. There will also be consultation through the normal fixed links consultation framework in respect of new parameters which have a possible role in further refining the fixed link pricing concepts; for instance by replacing the current restrictions on link length and parallel links by fee incentives to encourage the appropriate use of frequency bands, and including in the algorithm a parameter to reflect planned availability.
3.39 It is not proposed to alter the standard £50 fee for each un-coordinated link in the 58 GHz band.
Private Business Radio (PBR)
3.40 Most classes of Private Business Radio were changed to being fully priced by spectrum pricing factors from July 1999 following proposals set out in the Second Stage Consultative document. There remains a few classes for which this process needs to be completed, which are detailed in document Appendix 7. As it is intended to complete implementation of this sector in July 2000, views would be quickly welcomed. The proposals should in most cases lead to further fee reductions and administrative simplification.
Government Sector
3.41 In most cases, Spectrum Pricing is already being applied to Government use of Radio (e.g. Military, Emergency Services) in parallel with the first sectors described above. The general principle has been to apply the same mobile STU in a very similar way that it has been used in the mobile sectors. This is still being negotiated with a few remaining Departments but new fees have started to be collected from the military and some other significant users of exclusive band services. However, by far the majority of Government Departments do not have access to exclusive spectrum bands, and they are being charged the same class licence fees as everyone else (e.g. for PBR Wide Area licences).
Longer term Pricing issues
3.42 In response to our last consultation in 1998, a number of longer term questions were raised.
Processes for reviewing congestion
What happens at end of current implementation?
Use of modifiers
CHAPTER 4 : RECAP AND BACKGROUND TO SPECTRUM PRICING
The importance of radio spectrum and its management
4.1 The radio spectrum is a finite resource of considerable and fast-growing economic importance. It has been estimated that, in 1995-96, spectrum-based industries directly accounted for 0.5% of UK gross domestic product and generated £12-15bn consumer and competitiveness benefits. The recent Commission Green Paper on spectrum policy emphasised the strategic economic importance of spectrum to the EU as a whole.
4.2 Failure to make the best possible use of the spectrum resource can impose substantial costs, including loss of international competitiveness. These could amount to billions of £s. Effective management of the spectrum resource is therefore of great importance to building the knowledge driven economy.
The challenge for spectrum management into the 21st century
4.3 Although national circumstances differ, administrations worldwide face broadly similar spectrum management challenges. Demand for frequencies is increasing, especially in bands suitable for mobile communications. At the same time, technical and market developments, such as convergence, are accelerating in unpredictable ways and new types of service are constantly requiring access to spectrum. The challenge for spectrum managers into the 21st century is how to satisfy demand for spectrum that is simultaneously growing quantitatively and changing qualitatively. Unless that challenge can be met, there is a real danger that spectrum congestion and shortages will hold back growth and slow down innovation.
4.4 Spectrum managers have generally relied solely on regulation to manage spectrum and licence fees have tended to be set no higher than necessary to recover administrative costs. This worked reasonably well while spectrum was plentiful, technology relatively stable and demand could be met on a ‘first come-first served’ basis. But, as demand has grown and change has accelerated, the Agency is having to make increasingly difficult spectrum management decisions at the allocation and assignment levels. Some or all of the following harmful consequences could result.
4.5 It has become apparent that, in some cases, regulation, despite its advantages, is no longer sufficient by itself and needs to be augmented.
New spectrum management tools were needed
4.6 The UK, like several other administrations, is therefore making increasing use of market-based spectrum management tools, such as spectrum pricing. These work through the market and apply market-players’ private information to help achieve the optimal outcome in terms of spectrum distribution and are capable of responding dynamically to changing circumstances. However, it is important, to emphasise that market forces are being used as a complement to regulation, not a complete substitute. It would not be desirable to allow market forces total freedom. Regulation will continue to play a central role in managing radio spectrum in order to:
guarantee access to spectrum to meet the operational needs of essential public and safety-of-life services.
4.7 Regulation and market-based tools are being combined in the UK in a pragmatic manner. Different radio services have different characteristics and may require different approaches. Thus a combination of administrative pricing and regulation is being used to manage spectrum for most mobile radio and point-to-point fixed links, Third Generation mobile telecommunications spectrum is planned to be auctioned while regulation alone will continue to be sufficient for some other licence classes.
The introduction of Spectrum pricing in the UK
4.8 Spectrum pricing may be defined as charging fees for access to spectrum that reflect its value. The Wireless Telegraphy Act 1998, which entered into force in June 1998, substituted spectrum pricing for cost recovery as the basis for setting radio spectrum licence fees in the UK.
4.9 This approach is in line with standard economic theory that the distribution of a scarce resource, such as spectrum, will be optimised in terms of economic welfare if it is priced at its marginal value, thereby ensuring that it is assigned to those who can achieve most benefit from its use. If it is priced below this level, those who generate less benefit have little incentive to relinquish it in favour of those who can add more value; and businesses, consumers and jobs suffer. It is also likely that fees charged to recover costs will discriminate unfairly against small business users as the cost of administering a licence is unrelated to the amount or value of the spectrum occupied.
4.10 In accordance with article 11.2 of the EU Licensing Directive, it is a cardinal principle in the UK that spectrum pricing should be used to achieve spectrum management objectives, not to maximise licence revenue. Since other EU member states are also subject to article 11.2, the transposition of this provision into UK law and its mode of application may be of wider interest.
The Act introduced two forms of spectrum pricing:
4.11 ‘administrative pricing’, in which fees are set by regulation on the basis of spectrum management criteria and auctions, in which fees are set directly by the market .
4.12 The legislation was preceded by widespread public consultation, including a consultative document , White Paper and a study of the application of spectrum pricing. This consultation demonstrated widespread support for spectrum pricing in principle and helped construct consensus for reform. There has since been further extensive consultation on detailed implementation.
Administrative pricing
4.13 Administrative pricing involves the spectrum manager in setting the level of licence fees as a surrogate for market forces. Most licence fees are set by administrative pricing rather than auctions. Administrative pricing may included such variants as:
4.14 The 1998 Act requires the Secretary of State, in setting spectrum licence fees, to have regard in particular to various spectrum management factors. These are:
4.15 The legislation therefore ensures that spectrum pricing cannot be used as a form of taxation. Indeed, the Act ended the statutory requirement for licence fee regulations to be approved by the Treasury. Under proposals for administrative pricing in the UK, although some users with exclusive national channels or assignments in parts of the country affected by congestion will pay higher fees, tens of thousands of smaller business users will pay no more than previously or will benefit from fee reductions. Even where fees are increased, they will be no higher than necessary for spectrum management purposes.
4.16 It also follows that spectrum pricing is being applied in a focused way. Spectrum pricing is not an appropriate tool in some circumstances. For example, the use of spectrum pricing is not normally indicated where spectrum is not congested or technical standards, such as bandwidth and frequency, are mandated by international regulation and users cannot respond to price signals by adopting alternative technology.
Auctions
4.17 Compared to the alternative of comparative selection, auctions offer important advantages of:
4.18 However, auctions are not suitable in all circumstances. For example, they would be impracticable for high volume-low value licences for private business radio used by taxis or individual fixed links. The Government has made clear that auctions will be used selectively in the UK for new national or regional services where there are more applicants than can be accommodated in the spectrum available. Existing operators will not be required to enter a spectrum auction for the right to continue their existing services within existing allocations. Nor will broadcasters who have won their broadcasting franchises in an auction under the broadcasting legislation be required to enter a spectrum auction.
4.19 The new Third Generation mobile telecommunications meet the general criteria set out by Ministers and preparations to auction spectrum licences in the UK are well advanced for an auction in early 2000. Details are provided on www.spectrumauctions.gov.uk website.
Phased implementation of administrative pricing
4.20 The new regime is being implemented in stages, each generally being phased in over 4 years so that users have an opportunity to adjust, as follows.
4.21 The first stage of administrative pricing, which began in July 1998, tackled the worst distortions of the previous cost-based regime by increasing fees for mobile telecommunications networks and reducing them for thousands of users of on-site private business radio.
4.22 The second stage, which began in July 1999, extended spectrum pricing principles to other mobile radio and point-to-point fixed links. Fees for national telecommunications networks will continue to increase but smaller private business radio users will continue to benefit from fee reductions outside congested areas. Full details of proposals for this stage were set out in the September 1998 Consultative Document, which have generally been followed in the July 1999 Licence Charges Regulations.
4.23 The third stage, due to commence in July 2000, start to cover other licence classes as set out in Chapters 2 and 3 above.
Development of the Spectrum Tariff Units
4.24 As a means of deriving equitable fees, Spectrum Tariff Units were evolved for the mobile and fixed link bands. Details of the derivation of these units (STU)were set out in the May 1997 and September 1998 Consultative Documents on Implementing Spectrum Pricing. Each aims to give a value for spectrum as a raw material from which individual product values can then be calculated. The initial values have been conservatively calculated, and it is proposed to re-evaluate them after initial completion of spectrum pricing implementation.
Licence Exemption/Deregulated Services
4.25 Under the Wireless Telegraphy Act 1949 installation and use of radio equipment is only permitted under a licence or licence exemption. Any other use would be illegal and subject to enforcement action. Licence exemption is provided by Regulations (Statutory Instrument).
4.26 Licence exemption Regulations cite categories of equipment and state conditions which apply in order for the exemption to be effective such as frequency of operation, power, other general technical parameters, and non-interference to other authorised services. These conditions are much lighter and more general than those applying to licensed use of equipment. The majority of exemptions apply to equipment used in the domestic area and examples of factors involved in determining whether or not equipment should be licence exempt are:
4.27 Examples of equipment which are currently licence exempt are cordless phones, short range devices, mobile (terrestrial and satellite) phone terminals. As part of the effort to enhance harmonisation of regulatory practices in Europe, many of these equipments are also licence exempt in CEPT.
4.28 By the nature of exemption, the Agency does not have any record of how, when or where, exempt equipment is used. As there is no direct contact between Agency and users of these kinds of equipment, it would be difficult and impracticable to apply spectrum pricing to exempt services.
Regulatory Impact Assessments
4.29 The Agency has published detailed Regulatory Impact Assessments for the first and second waves of administrative pricing. These documents analyse the business sectors affected and the costs and benefits of the new policy with particular reference to small businesses. For the second wave, the Agency estimates that:
4.30 As can be seen, planned fee increases are modest. The figures convincingly demonstrate that spectrum pricing in the UK will not make radio too expensive for businesses to afford.
Spectrum pricing for the public sector
4.31 It has been a consistent feature of UK policy that the public sector, including the armed forces and emergency services, should be charged for spectrum on a comparable basis to the private sector. The public sector is a major user of spectrum. For example, the armed forces occupy more than 30% of the spectrum between 9 kHz and 30 GHz. It is seen as important that the public sector should also have incentives to use spectrum more efficiently and this has been a key factor in securing general acceptance of spectrum pricing.
4.32 Comparability is being achieved through the application of administrative pricing principles to public sector users, including the armed forces. The details of how public sector spectrum will be valued are under negotiation with the other Departments concerned but the principle is established as an essential component of the new regime.
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