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OFTEL
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1. OFTEL supports the ongoing work of the Radiocommunications Agency to implement Spectrum Pricing for radio spectrum use within the UK. Effective Spectrum Pricing will reduce spectrum congestion, improving services to consumers, and release underused spectrum for new services or providers, increasing choice and competition.
2. OFTEL notes that this consultation document does not include any firm proposals for the use of spectrum auctions for new allocations in the services detailed. OFTEL continues to commend to the RA the use of spectrum auctions as an effective method of allocating spectrum to the most efficient user.
3. OFTEL notes that the timescales for implementation of spectrum pricing in several sectors are proposed to be extended. Such a delay will extend the period when fees are below economic levels and hence there is congestion in those parts of the spectrum.
4. OFTEL believes that for a number of services the arguments presented for the adoption of regulatory administrative spectrum pricing rather than incentive administrative spectrum pricing were not persuasive and that clearer justifications are therefore necessary. OFTEL believes that incentive administrative spectrum pricing should be assumed to be appropriate unless a strong case is made that regulatory administrative spectrum pricing is the best solution for the licence type.
5. OFTEL believes that as much information as possible should be available concerning the spectrum allocations and fees paid by significant spectrum users. This is vital to ensure consumers and other spectrum users are well informed.
1. OFTEL notes that the timescales for implementation of spectrum pricing in several sectors are proposed to be extended. Such a delay will extend the period when fees are below economic levels and hence there is congestion in those parts of the spectrum. Most of the sectors covered in this consultation will not be brought into the spectrum pricing regime for another 18 months, and it is disappointing that although these have been consulted on now, they will not be included in enabling legislation at the first opportunity in the summer of 2000. The extension of the implementation period for Cellular and PCN operators to ease the effect of the increase in fees over a longer period is stated as having been agreed last year, but it is not explained whether this was agreed only with the operators or after a wide consultation.
1. OFTEL recognises the considerable work which has been carried out in ongoing consultation with industry in committees such as the Spectrum Pricing Committee and Modifiers Working Group. The use of the Spectrum Tariff Units and Modifiers developed will provide consistent, fair prices across a variety of services and licence types.
1. OFTEL notes that this consultation document does not include any firm proposals for the use of spectrum auctions for new allocations in the services detailed. OFTEL continues to commend to the RA the use of spectrum auctions as an effective method of allocating spectrum to the most efficient user. The information required to set prices which accurately reflect supply and demand conditions for spectrum is prohibitive. Administrative prices will therefore always be sub-optimal and this can lead to inefficient resource allocation. In comparison a market-based approach such as auctions, in which the prices charged for spectrum reflect the demand for it, will tend to allocate spectrum to the most efficient user. This is because the more efficient user will normally expect to make the greater profits from using the spectrum and hence have the highest willingness to pay for it. Such a user will be prepared to outbid rivals in an auction.
2. OFTEL recognises that the nature of some of the services detailed in this consultation is different from the services already subject to spectrum pricing following the first two consultation stages. They include services that do not experience such severe congestion; or do not have exclusive frequency allocations but share spectrum with another service; or which cannot use alternative, more spectrally efficient, technology due to international agreements. However, OFTEL is concerned that in many cases regulatory administrative spectrum pricing seems to have been proposed because it is assumed to be the default solution, rather than because it was considered the best solution for that sector or service. OFTEL believes that clear justifications should be given as to why incentive administrative spectrum pricing should not be used for a service, argued from an assumed position of incentive pricing for all services. This method should be used instead of the adoption of regulatory administrative spectrum pricing due to a failure to make a strong case for the use of incentive pricing. Clearly, where incentive pricing is not appropriate it should not be applied, but OFTEL felt that in several cases the arguments presented were not persuasive.
3. OFTEL believes that some of the problems identified in certain services for which regulatory administrative pricing is being proposed, could in fact benefit from a more serious consideration of the application of incentive pricing. These include areas of congestion such as the commercial coastal station channels in the maritime service. One of the arguments given by the RA in the relevant consultation appendices for such services is that an inability to use more spectrally efficient technology (for example due to international harmonisation of technology) prevents economic prices being charged for use of congested spectrum. The work of the consultative group on spectrum pricing modifiers as reported in 1998 suggests that this argument has been rejected for other services already subject to spectrum pricing, such as the GSM Cellular services.
4. OFTEL believes a fuller justification should be given as to why incentive administrative pricing would not be suitable for services that are operating in UK only allocations or for which other market uncertainties exist, such as Fixed Multipoint Links and Terrestrial Flight Telephony System. The consultation document takes the position that the introduction of incentive spectrum pricing would upset a delicate market and should not be introduced until the markets in question are established. OFTEL would propose that correct spectrum pricing should reflect the market in question and should help to resolve market problems. In the case of the 31.0 – 31.8 GHz Fixed Multipoint Links, it could be argued that leaving the fees unmodified could accidentally encourage migration from economically priced bands into the uncertain 31 GHz band. Whereas application of economic prices at 31 GHz could encourage migration into other bands whose future is more certain, or demonstrate the real value of the spectrum to those licensees which choose to remain.
1. It is stated in this consultation that the RA believes there is "fierce market competition" in the mobile market and from this assumption the conclusion is then drawn that increased licence fees are not likely to be passed on to consumers. There is certainly increasing competition in the mobile market but OFTEL’s recent assessment of the market found that there is not yet effective competition in an economic sense as two players have positions of market power. Nevertheless, OFTEL agrees with the conclusion reached that increased fees are unlikely to result in increases in retail prices.
1. OFTEL agrees with the RA that the government sector should be subject to the same spectrum pricing criteria as all other spectrum users. The process of agreeing licence fees with Government Departments should be a transparent process and it should be possible for other licensees to see and understand the fees charged. OFTEL believes that more information should be available concerning the spectrum allocations and fees paid by significant spectrum users. This is vital to ensure consumers and other spectrum users are well informed.
1. Given the delay expected in implementing spectrum pricing for other services, OFTEL is glad to see that the RA propose implementing spectrum pricing for Fixed Wireless Access at the first opportunity in July 2000. In the interests of promoting competition in the local loop OFTEL would be concerned if the fees were set too high in relation to willingness to pay and bearing in mind other barriers to entry for new operators.
2. Although the introduction of spectrum pricing into this sector will be an effective measure against operators failing to implement networks in spectrum held, OFTEL believes that the RA should consider the use of additional measures to address this problem and prevent anti-competitive hoarding of spectrum. For example, would it be possible to impose increased fees where provision of service to customers is delayed, particularly where the licensee is an incumbent local loop operator, or impose some other "use it or lose it" provision ?
1. OFTEL welcomes the RA’s intention to review the implementation and effect of spectrum pricing. Of course, the effectiveness of spectrum pricing so far will reflect the actual fees charged, so conclusions should be related to the fees implemented rather than solely to the principle of spectrum pricing.
2. OFTEL believes that it is important that the issue of spectrum pricing is understood by a wide audience, especially considering the key role that can be played by use of radio spectrum in delivering the best deal for customers. To ensure transparency and enable the general reader to understand the issues, OFTEL would suggest that the following are included in future consultations and reviews of Spectrum Pricing:
The above should enable a clearer view of spectrum pricing implementation as a whole and place particular arguments for particular services in context.
3. OFTEL believes that it is vital that more detailed information is made available concerning the frequency allocations of major spectrum users. The RA’s Spectrum Strategy document and set of information sheets giving allocation tables provide information on the services operating in each band. These publications should be supplemented by details of assignments, where possible, or at least detail the amount of spectrum used by the most significant users. This would provide transparency to spectrum users of all types, from network or system operators to consumers, of the consistency of application of spectrum pricing, of the demand and use of congested spectrum, and of the allocations used by the largest and more controversial spectrum users. OFTEL understands that this may be a significant initial task, but once carried out there should be few remaining difficulties to publishing such information. With the setting of fees based on economic grounds, there should be less cause for such information to be considered commercially confidential, and there are ways of presenting the necessary data without compromising national security.
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