Spectrum - Culture, Media and Sport Committee Contents

Conclusions and recommendations

Liberalisation of the 900 MHz licences

1.  The debate surrounding the liberalisation of the 900 MHz licences reflects the predictably polarised views that exist among mobile network operators. It also provides an example of the difficult judgements Ofcom has to make in order to balance the needs of consumers with those of fair competition. We are convinced that Ofcom made a considered decision based on thorough research, and that—overall—the liberalisation of the 900 MHz licences has not resulted in a significant or permanent distortion of competition. (Paragraph 28)

Spectrum trading

2.  The sale by Everything Everywhere of some of its spectrum allows a private company to profit substantially from the sale of a public asset. We acknowledge that unless companies can profit from the sale of their spectrum, there is no incentive for them to divest any of their holdings. However, we recommend that the Government and Ofcom investigate mechanisms by which a proportion of the proceeds of any sale could be used to the benefit of consumers. For example, Ofcom should explore whether it could compel Everything Everywhere to ring-fence a proportion of this windfall for investment in its network . (Paragraph 34)

Spectrum licence fees

3.  We acknowledge the concerns of some of the mobile network operators regarding spectrum licence fees. However in a commercial situation such as this, it is unlikely that all interested parties can be satisfied at the same time. We agree that Ofcom's proposals to link licence fees to the market value of the spectrum determined by the auction is the most likely way to ensure that the fees charged to MNOs are fair and appropriate to the market value of their spectrum holdings. (Paragraph 38)

The number of mobile network operators

4.  From the evidence we have heard, we believe that Ofcom's proposal to secure at least four mobile network operators after the next spectrum auction is an adequate measure to safeguard plurality of mobile network operation. We are reassured that four is a minimum rather than a limit, as imposing such an artificial constraint on the number of operators in the market would inhibit competition. (Paragraph 47)

Spectrum caps and floors

5.  Those mobile network operators with sub-1 GHz spectrum play down any advantage it may offer, stating that they are not immediately able to use it for 3G because the spectrum is already in use by 2G customers, who cannot simply be cut off. Those operators without sub-1 GHz spectrum claim to be frozen out of the market. These irreconcilable claims highlight the difficulties faced by Ofcom in overseeing competition in the spectrum market place. Ofcom's approach has been to liberalise spectrum allocation but there still remain some vestiges of a historical "command and control" approach to market regulation, which Ofcom itself has criticised. Not all operators start out on an equal footing, but by over-compensating for differences in their positions, Ofcom would risk reversion to the command and control principles from which it has been distancing itself since its inception in 2003. (Paragraph 54)

6.  We believe that the spectrum floors and caps proposed for the next auction are the best viable compromise to ensure a competitive tension in the market place in the context of the liberalised 900 MHz licences. (Paragraph 55)

Rural broadband: coverage obligations

7.  Attaching a coverage obligation to one of the 800 MHz licences may well result in that licence achieving a lower price at the auction; however, this will probably be off-set by the costs associated with increasing coverage. Increasing coverage will bring business benefits from attracting new consumers, which should encourage other network operators to follow suit. There is a risk that, by only applying a coverage obligation to one licence, consumers in the rural areas that would receive the extended coverage may still be limited in their choice of network provider. We recommend that Ofcom reconsider applying a coverage obligation to two or more licences. (Paragraph 67)

8.  The evidence we have received suggests that Ofcom's proposed 95% population coverage obligation on one of 800 MHz spectrum licences being auctioned is readily achievable. In fact, we consider the imposition of a 95% coverage obligation to be unambitious. (Paragraph 69)

9.  When deciding the level at which any coverage obligation is set, Ofcom must balance the cost to the network operator of meeting the obligation with the effect that it will have on competition. The objections we have heard to imposing a coverage obligation higher than 95% have cited the cost of improving the infrastructure, rather than the feasibility of increasing coverage. The evidence that we have heard suggests that a 99% coverage obligation, although achievable, would cost up to £230 million and we are concerned that that cost could be transferred to consumers. Therefore we support the unanimous decision made by the House in May 2011 and recommend that Ofcom imposes a coverage obligation of 98% on one or more of the 800 MHz licences being auctioned. (Paragraph 70)

Rural broadband: infrastructure

10.  We are encouraged to hear that mobile network operators are sharing their infrastructure in order to achieve a cost-effective solution to expanding their coverage. We believe that imposing a 98% coverage obligation will stimulate competition and the need for all operators to increase coverage. In turn, we think this will encourage more sharing and collaboration among the mobile network operators. (Paragraph 76)

11.  Backhaul infrastructure that connects mobile base stations with the main network is a vital component of mobile service provision. Lack of backhaul must not become a reason—or an excuse—for mobile network operators not to extend coverage into rural areas. We recommend that Ofcom and BDUK work closely with each other to ensure that backhaul is taken into account in any policy decisions relating to mobile network provision or extending access to broadband. (Paragraph 78)

12.  Market competition has led to mobile network operators, and others, coming up with innovative solutions to problems such as mobile not-spots. We welcome the Government's decision to invest £150 million to increase mobile coverage and we welcome projects such as Everything Everywhere and BT's rural pilot in Cornwall, and Vodafone's femtocell technology. We note that other mobile network operators have not been using femtocell technology and we are disappointed that they have chosen not to offer this service to their domestic customers. (Paragraph 91)

Public sector spectrum

13.  We welcome DCMS's consultation on the release of public sector spectrum. We urge DCMS to work closely with Ofcom and with the relevant international bodies to ensure that the spectrum that is released is internationally harmonised. (Paragraph 97)

14.  We are concerned that, because the emergency services are not in a position to bid for spectrum at auction, they could be overlooked in spectrum policy. It is vital that Ofcom and DCMS take into full account the spectrum needs of the emergency services in their spectrum policies. (Paragraph 98)

Programme-Making and Special Events and interference

15.  Ofcom's ability to procure public sector spectrum is vital for the success of the London 2012 Olympic Games, and might also provide a model of spectrum lending that could be used for other special events. We recommend that DCMS and Ofcom look into whether this could be done for other special events. (Paragraph 101)

16.  We welcome the Government's compensation regime for the relocation of PMSE spectrum use from channel 69 to channel 38, and the trial in Cambridge looking at interference by white space devices. However, these measures do not address the real problem of new spectrum users in the 800 MHz band causing disruptive interference to the PMSE sector. We recommend that Ofcom includes in the new 800 MHz licence conditions a provision that any significant interference to adjacent users be considered grounds for that licence to be revoked. (Paragraph 109)

Satellite spectrum use

17.  Given the growth, and consumer benefits, of mobile broadband provision, it is understandable that this has been the focus of recent spectrum policy. However, spectrum use by other sectors is also crucial to many industries and services including the emergency services, maritime services, and special events including the London 2012 Olympics. Some spectrum users are not in a position to bid competitively for spectrum and therefore it is even more important that their needs are not overlooked. (Paragraph 113)

18.  We are sympathetic to the concerns we have heard from the Programme-Making and Special Events sector. However, we think that Ofcom and DCMS are taking their concerns seriously and we welcome the trial in Cambridge that is looking at white space devices. (Paragraph 114)

19.  Given that spectrum is a finite resource, it is inevitable that some interference and inconvenience may occur for users as certain sectors expand faster than others. We are concerned about potential interference on digital terrestrial television caused by 4G mobile services, but we are satisfied that Ofcom is taking appropriate measures to mitigate this. (Paragraph 115)

20.  Spectrum is a valuable resource that many industries depend on. Ofcom has a very difficult role to play in balancing the interests of consumers, businesses and the public purse. On the whole, we believe that Ofcom is striking the right balance with regards to spectrum policy and management. However, we recommend that the Government widens Ofcom's remit to ensure that it will safeguard the interests of British business abroad as well as the interests of consumers and citizens, a measure that would not require legislation. (Paragraph 116)

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© Parliamentary copyright 2011
Prepared 3 November 2011