Incentives for companies to share their networks
34. 3G services will require many more mobile phone
transmitters than existing mobile telephony, possibly as many
as 28,000, although many of the new ones will be placed on existing
structures. We asked whether the Agency would allow the mobile
telephone companies to share their networks as a way of meeting
public concern and to help reduce the companies' infrastructure
costs, thereby potentially helping those in rural areas obtain
3G and broadband coverage.
35. The Agency said that some months previously they
had agreed with the Department of Trade and Industry and Oftel
a statement of formal guidance they could give companies on sharing
infrastructure. So long as agreements for sharing infrastructure
respected competition law then there was a prima facie case to
allow those agreements to stand. The authorities would also look
for the advantage that the companies gained through sharing infrastructure
to be shared with the consumer. The Agency would look to see greater
benefits to consumers, for example a faster roll out of services.
They were working with operators to encourage them to share masts,
and were providing more information through their website for
people about masts in their localities.
36. Asked why they did not arrange for all masts
to be the responsibility of a single provider, the Agency said
they were not attracted to the idea of a mast operating monopoly.
Citing Railtrack, they did not see that having one entity would
improve efficiency. All masts were on sites which were owned by
different organisations and companies and they considered it better
not to stand in the way of the industry. Currently it was difficult
to get permission to put a new mast up so companies were forced
to try to share in order to roll out services quickly. The Agency
identified companies, such as Crown Castle and NTL, which run
mast businesses, acquiring mast sites and selling them on to 3G
Arrangements for trading spectrum
37. Some companies or licensees have been less successful
than others in attracting customers. We asked the Agency whether
they were going to allow licensees to trade surplus spectrum with
each other in the way farmers are allowed to trade dairy quotas.
They told us that they had been interested in spectrum trading
for several years, but a European Community Directive prevented
anyone in the European Union from introducing it at present. The
necessary legislative changes were going through the Council and
the European Parliament. The Agency were already drafting clauses
to put into the Communications Bill which they hoped the Government
would introduce, possibly in 2002.
38. As to whether there should be a market for trading
spectrum the Agency said that they would be introducing a market
in a cautious way because they wanted it to work properly. There
were spectrum markets in other parts of the world, so they could
look at what had happened there.
We asked whether it would be preferable to have stable spectrum
prices, maintained and overseen by Government, rather than prices
that fluctuated in the market place. The Agency's view was that
stabilising prices artificially could have perverse effects, and
they favoured a market that was free floating.
The use and pricing of the radio spectrum
39. The 3G auction was for only seven per cent of
the radio spectrum. In comparison defence and the emergency services
take up 28 per cent (Figure 2). The Agency said the industry would
generally agree that there were inefficiencies in the way these
services used their spectrum. If they could release more spectrum,
there could be opportunities for other successful auctions. There
were some constraints on spectrum allocated for defence purposes
due to international agreements for NATO use. Moreover, the Ministry
of Defence were conscious of the potential risks to future defence
opportunities of more Defence wave bands being sold.
40. There are wide variations in the way that spectrum
is priced. The Agency said that they had introduced spectrum pricing
to communications spectrum, but not to spectrum used for other
purposes like radar. Aeronautical users paid fees which covered
the Agency's costs of administering spectrum. To find out what
scope there was for further pricing, the Secretary of State for
Trade and Industry, and the Chancellor of the Exchequer, had set
up a joint independent review of radio spectrum management under
Professor Martin Cave, whose Report was published after our hearing,
in March 2002.
|Figure 2: The use and pricing of the radio spectrum
||Percentage of the total
||Licence fee per MHz
(£,000 per annum)
|Defence and Emergency Services
|Private Business Radio
|*Note: The fee for 3G spectrum represents the discounted annual value of the total auction receipts spread over the life of the licences.
|Source: Comptroller and Auditor General's Report (HC 233, 2001-02, Figure 5)
41. This Report made a large number of recommendations aimed at
encouraging efficiency and innovation in spectrum use, including:
- the application of spectrum pricing at more realistic levels
and more comprehensively across spectrum uses to ensure economy
and efficiency of use;
- the use of markets, through spectrum trading and auctions,
to allocate spectrum used commercially;
- that the Ministry of Defence should carry out a comprehensive
audit of their use of the spectrum, which they should periodically
update and share with the Agency;
- the introduction of spectrum trading in the UK as soon as
possible with trading rights granted free to all extant licences;
- the assessment of the case for the Government to levy a duty
on net gains from spectrum trades.
42. Asked how much scope there was for releasing more spectrum
for 3G telephony, the Agency said that they would be able to provide
extension bands in the same timetable for the release of spectrum
internationally. There was also spectrum currently used for second
generation mobile phones which could probably be reused for 3G
in the future. Some of the spectrum released when analogue television
was turned off, once digital television was fully rolled out,
could be used for this sort of technology. On whether releasing
extra spectrum would be resisted by some of the bidders who bid
on the presumption that spectrum was limited, the Agency said
that they had described in their Information Memorandum their
plans for further auctions.
43. Environmental concerns about the siting of masts can conflict
with the need for improved access to services. As well as taking
into account local issues, the planning authorities need to consider
fully the potential commercial and economic benefits of the development
of 3G services. The Government should ensure that local planning
authorities have the guidance necessary to achieve a satisfactory
44. The Agency acknowledged that, in the meantime, many rural
areas will be disadvantaged by continued lack of access to 3G
and broadband services, such as high capacity data transfer and
video conferencing. They nevertheless doubted whether licensees
could be required to invest in rural areas if it did not make
commercial sense. The Agency and Oftel should facilitate the sharing
of infrastructure to assist access to 3G and broadband services
in rural areas.
45. The Agency had worked with the European Commission to remove
the unintended prohibition on the trading of radio spectrum, and
hoped that new provisions for trading would be implemented in
this country through the Communications Bill in 2002. The Government
should make provision for spectrum trading in the Bill so that
spectrum can find the most advantageous uses.
46. The Agency should assess the case for a levy on net gains
from spectrum trades as recommended in Professor Martin Cave's
Report on radio spectrum management published in March 2002.
47. The defence and emergency services take up 28 per cent of
the spectrum compared to the seven per cent sold for 3G mobile
phone services. The Ministry of Defence should invest in a comprehensive
audit of their use of spectrum, periodically updating the data
and sharing it with the Agency, as recommended in Professor Martin
Cave's Report. The Agency should review the allocation of spectrum
and propose action to secure an optimal distribution among existing
and potential users.