(III) SPECTRUM USE AND MANAGEMENT |
174. As Patricia Hewitt told us, radio spectrum is
a hugely important raw material for the communications sector;
it is a valuable economic and social resource; decisions about
its management will have a huge impact.
Clauses 110 to 139 and paragraph 1 of Schedule 1, Schedules 4
to 6, paragraphs 5 to 25 of Schedule 7, paragraphs 1 to 13 and
22 to 26 of Schedule 11 and Part 3 of Schedule 13 make provision
about the use and management of the radio spectrum. We have found
these some of the most difficult provisions to examine for several
reasons. First, the provisions seek to give effect not only to
policy proposals in the White Paper and requirements of the EC
Directives but also to some proposals in the independent review
of radio spectrum management issued by Professor Martin Cave in
March 2002, but we have had to conduct our inquiry in ignorance
of the Government's response to that review. Second, the provisions
on spectrum use and management are an exemplar of the wider problem
of a Bill that proceeds by amending earlier Acts, requiring those
seeking to understand the provisions to navigate through a thicket
of previous enactments. Third, spectrum management depends for
its success on a number of technical considerations relating,
for example, to interference management on which we do not purport
to have any expertise.
175. The preamble to the EC Framework Directive states:
"Radio frequencies are
an essential input for radio-based electronic communications services
and, in so far as they relate to such services, should therefore
be allocated and assigned by national regulatory authorities according
to a set of harmonised objectives and principles governing their
It is open to question whether the new
legislative framework, incorporating as it does elements of the
existing framework, provides "a set of harmonised objectives
and principles". Clause 3(1)(c) requires OFCOM "to encourage,
in the interests of all persons, the optimal use for wireless
telegraphy of the electro-magnetic spectrum". We have earlier
supported the inclusion of this concept in OFCOM's principal duty.
Section 3 of the Wireless Telegraphy Act 1998 and section 3A of
the same Act (as proposed to be inserted by Clause 117) require
OFCOM to have regard to "the desirability of promoting the
optimal use of the electro-magnetic spectrum" in the conduct
of auctions for wireless telegraphy licences and recognised spectrum
access respectively. This requirement could be read as compatible
with the general duty.
176. However, under section 2 of the 1998 Act (as
proposed to be amended by Clause 117 and paragraph 22 of Schedule
11) OFCOM is required to have regard to a different set of matters
in determining licence fees for wireless telegraphy licences and
recognised spectrum access. Under the system of administrative
incentive pricing under that section OFCOM is enjoined to have
regard to demand and criteria relating to efficiency, economic
benefits, innovation and competition.
To complicate matters further, OFCOM will be able to have regard
to these narrower, economic criteria in making arrangements for
auctions, but is not required to do so.
OFCOM will thus inherit two sets of criteria, one principally
economic - under section 2 of the 1998 Act as amended - and one
centred on the phrase "optimal" which is designed to
encompass a broader range of social and technical considerations.
We recommend that the Government ensure that the final Bill,
including amendments to the Wireless Telegraphy Acts, provides
OFCOM with a set of harmonised objectives, consistent with the
general duty and incorporating the factors under section 2 of
the 1998 Act, in undertaking its functions relating to spectrum
management and use.
177. In transferring responsibility for spectrum
management from the Radiocommunications Agency (and thus in law
the Secretary of State) to OFCOM, the draft Bill faces a new problem
of seeking to define the distinction between the functions of
the independent regulator in this area and the powers of the Secretary
of State. With the exception of certain functions relating to
spectrum trading, the Framework Directive does not specify which
powers have to be exercised by the independent regulator.
Clause 112 proposes to grant to the Secretary of State essentially
unlimited powers (subject to retrospective approval by both Houses
of Parliament) to issue directions to OFCOM to ensure that spectrum
management takes place "in the wider public interest".
These general powers of direction were welcomed by the Consumers'
178. The Cave review, while accepting that OFCOM's
performance of its functions under its own duties might run counter
to the wider public interest, contended that the powers of direction
ought to be limited in scope, ensuring clear freedom of action
for OFCOM in the specifics of spectrum management.
Professor Cave restated this view in oral evidence and suggested
that a line could be drawn between strategic direction by the
Secretary of State and technical functions for OFCOM by the removal
of subsection (4) of Clause 112.
John Forrest, Chairman of the Spectrum Management Advisory Group,
also raised the important issue of what sources of advice would
be available to the Secretary of State in exercising these powers,
given that the staff of the Radiocommunications Agency would become
part of OFCOM.
179. Patricia Hewitt reaffirmed the importance of
strategic decisions on spectrum use, including those relating
to analogue switch-off, being taken by Ministers. With regard
to Professor Cave's concerns, she drew attention to the difficulty
in drawing a dividing line between strategic and specific issues.
There is a wider public interest in the allocation, assignment
and management of spectrum that OFCOM, even with its duty to further
the interests of all citizens in its optimal use, may not be best
placed to judge. It is important, however, that directions under
Clause 112 concentrate on the purposes to be achieved, rather
than the details of the means of achieving those purposes, and
we recommend that the Government consider carefully whether Clause
112 could be amended to reflect this. We further recommend that
any order containing a direction under Clause 112 be laid before
Parliament in draft for approval by both Houses before coming
into force unless the Secretary of State is satisfied, on grounds
such as commercial confidentiality, that the procedure set out
in subsection (6) for retrospective approval of such orders needs
to be followed.
180. The current system for spectrum management regulates
the use of radio frequencies by the licensing of apparatus for
the transmission or reception of wireless telegraphy signals.
Clauses 115 to 118 and Schedule 4 provide a framework for giving
effect to proposals by the Cave review for a complementary system
of spectrum management based on the grant of Recognised Spectrum
Access. The Cave review advanced two main arguments for this additional
management tool: first, a move away from apparatus licensing would
give greater freedom to operators in the choice of equipment and
services to deploy in assigned spectrum; second, it might help
to resolve issues relating to rights to spectrum shared between
terrestrial and satellite systems, in cases where the latter is
not subject to domestic licensing.
The Government's accounts of these provisions refer almost exclusively
to the second issue and to the potential of the proposals to encourage
satellite operators to face the opportunity cost of the spectrum
181. The proposals in the draft Bill provide a framework
only: the actual value and operation of a system of Recognised
Spectrum Access will depend upon secondary legislation which is
at an early stage of discussion.
The Cave review accepted that a wide range of spectrum use by
satellite is the subject of international agreements as a result
of which there is no opportunity cost. In the advocacy of Recognised
Spectrum Access there is a tension between the approach which
emphasises the provision of a voluntary system as a service to
users subject to interference from other use of shared spectrum
and the emphasis on the potential of this mechanism to overcome
the alleged problem that terrestrial operators who pay a licence
fee are "at a competitive disadvantage".
If the system is indeed intended to be "voluntary",
it is worthy of note that some current users of geostationary
orbit satellites see no interference problems that the system
If the system is designed to remedy competitive disadvantages
for terrestrial operators, it is worthy of note that, in the case
of broadcasting, some costs to a satellite operator might be passed
onto organisations that are also terrestrial operators.
182. After we concluded evidence-taking, the Government
published, on 15 July, a consultation paper on Recognised Spectrum
Access. This paper emphasised that the system could "provide
satellite operators with similar assurances about spectrum quality
and security as licensees, regardless of whether transmitters
are located in space or in the United Kingdom". It noted
that such protection from interference was not guaranteed by international
agreements. It reaffirmed the non-mandatory character of the system,
so that it would only be adopted by operators if the benefits
outweighed the costs. Finally, it confirmed the impression that
use of Recognised Spectrum Access other than in the context of
satellite services was at a much earlier stage of consideration.
183. Clause 119 of the draft Bill provides for the
Secretary of State to make payments to OFCOM for Government use
of radio spectrum. Payment by Government departments is not new;
statutory provision is needed now because responsibility is moving
from within Government to an independent regulator. The provisions
of the Wireless Telegraphy Acts do not bind the Crown and so Government
departments do not require licences for spectrum use.
Prior to the Wireless Telegraphy Act 1998, the Ministry of Defence
(the principal Government user of spectrum) paid the Radiocommunications
Agency for the direct administrative costs of spectrum management.
Following the introduction of administrative incentive pricing
for licences under the 1998 Act, Government departments agreed
to pay a fee on a comparable basis to commercial users, subject
to exemptions where no alternative use was available. In consequence,
the Ministry of Defence paid £25 million for spectrum use
in 2000-01. The
Cave review proposed that the Ministry of Defence ought to pay
the full opportunity cost for spectrum currently subject to administrative
pricing, and charges for radar usage. With payments rising in
consequence to over £100 million a year, Professor Cave argued
that the Ministry of Defence would have real incentives to use
spectrum more efficiently.
The Ministry of Defence might engage in leasing Recognised Spectrum
Access or could conceivably hand back spectrum use for primary
assignment by auction.
184. The precise operation of arrangements for incentivising
the Ministry of Defence to use spectrum efficiently will not depend
upon provisions in the Bill, although a framework for Recognised
Spectrum Access may be a prerequisite for leasing arrangements.
One initially disconcerting aspect of the terms of Clause 119,
as Professor Cave noted, is that the level and method of payments
is to be determined by the Secretary of State rather than by OFCOM.
We were told that existing arrangements for negotiation based
on comparable charges in the private sector would continue and
Professor Cave was satisfied that this system could function effectively.
There is, however, a difference in kind between negotiations between
two bodies subject to political control by Ministers and negotiations
between a Government department and an independent regulator.
We recommend that the Government ensure, by means of amendment
to Clause 119 if necessary, that there is transparency about the
means by which payments by Government departments are calculated.
185. The Communications White Paper stated that the
Government did not see the broadcast use of spectrum as being
exempt from the general pressure to use spectrum efficiently and
from the role of the price mechanism in applying such pressure.
The Government specifically proposed that spectrum used by broadcasters
should be valued, while acknowledging that any payment mechanism
would need to take account of the particular circumstances of
The Cave review argued that the Government should go further,
proposing that market-based spectrum management tools should be
applied to the broadcasting sector so that all broadcasters are
exposed to the full opportunity cost of spectrum use, and advocating
the phased introduction of spectrum pricing for analogue spectrum
use by all public service broadcasters - the BBC, S4C and Channels
3, 4 and 5.
186. Witnesses from the broadcast sector were overwhelmingly
critical of the proposals in the Cave review. Four main criticisms
were levelled. First, it was suggested that the proposals failed
to take account of the radically different methods by which public
service broadcasters acquire spectrum rights. Second, it was argued
that transmission costs already provided broadcasters with every
incentive to use spectrum efficiently. Third, it was contended
that diversion of costs to meet spectrum charges would further
delay the development of digital television. Finally, it was argued
that broadcast use of spectrum was determined by public policy
considerations relating to universal coverage and the timing of
analogue switch-off, over which the broadcasters themselves had
no direct control.
187. With respect to analogue broadcasting, we are
not persuaded by the arguments advanced by Professor Cave in his
review and his oral evidence for the application of spectrum pricing,
at least until digital switchover is imminent. There would appear
to be only marginal scope for genuine reductions in the public
service broadcasters' use of analogue spectrum prior to digital
switchover, and there would be difficult transitional issues.
For instance, the concept of "compensation" for such
costs advanced by Professor Cave would be hard to impose when
one public sector broadcaster is directly funded by the taxpayer
(S4C), another is funded through a licence fee (the BBC) and the
third relies on commercial revenue (Channel 4), while the private
sector broadcasters (Channel 5 and ITV) have effectively negotiated,
and will be paying, a substantial price for their spectrum access
for some years to come.
However, we agree with the principle that broadcasters should
be expected to pay for the spectrum they consume, in the same
way as other spectrum users, and believe that the transitional
issues may prove surmountable over the longer timeframe implied
by focusing on the transition to all-digital broadcasting and
subsequent digital spectrum use.
188. We return in paragraphs 354 and 355 when we
consider broadcasting licensing arrangements to the payments which
ITV licensees and Channel 5 may be required to pay before and
after digital switchover. However, in the case of the BBC, Channel
4 and S4C, we have concluded that early introduction of spectrum
charging would provide no clear benefits and might even undermine
the Government's efforts to achieve early analogue switch-off.
We recommend that no incentive-based spectrum charges be imposed
on the BBC, Channel 4 and S4C in respect of spectrum use for analogue
transmissions, until at least shortly before digital switchover.
189. The allocation of spectrum for radio astronomy
is a use which is effectively without scope for gains in efficiency
in spectrum use, or for the application of incentives. Radio astronomers
have spectrum allocated by the ITU or, if they need other spectrum,
it is dictated by the laws of physics rather than economics. It
seems to us, therefore, that this, alongside analogue spectrum
for terrestrial television broadcasters, is in a category of spectrum
use which should be charged only the costs directly incurred in
spectrum management by OFCOM, but not to apply incentive pricing.
190. Perhaps the most significant new element in
spectrum management foreshadowed in the White Paper was the introduction
of spectrum trading - a system whereby the holder of a wireless
telegraphy licence or Recognised Spectrum Access sells rights
to the use of spectrum to another business.
The principle of spectrum trading was welcomed by respondents
to the Cave review consultation process, although some felt that
its success would very much depend on the detailed mechanisms
at work. The review itself strongly supported early implementation
of spectrum trading and the British Government was to the fore
in ensuring that it is permitted by the Framework Directive.
Clause 124 of the draft Bill provides a basis for the introduction
of spectrum trading.
191. Given the crucial role of spectrum trading in
the Government's vision of a more market-based approach to spectrum
use and management, the provisions of Clause 124 have attracted
remarkably little comment during our inquiry, although contributors
to our online forum expressed some concerns about the proposals.
The Clause provides an enabling power: the capacity of OFCOM and
the Government to cope with the real risks associated with spectrum
trading which the Government itself has identified will depend
upon the regulations made by OFCOM under this power as spectrum
trading is gradually phased in.
BT argued that the powers granted under Clause 124 were too broad
and discretionary and suggested that this Committee ought to revisit
this area after the Government's position was clarified by the
Government's response to the Cave review.
192. Not only have we been unable to comment on the
Government's response to the Cave review, which is still awaited,
we have not had an opportunity to examine the Government's consultation
document on spectrum trading issued on 15 July. This indicates
that trading might be introduced for some licence classes by the
end of 2004. We
believe that the Government's developing plans for spectrum trading
and spectrum management more generally would repay closer parliamentary
scrutiny than it has been possible for us to undertake given the
limited time available to us and the uncertainty surrounding the
Government's policy prior to publication of its response to the
Cave review. We envisage that this scrutiny might be undertaken
by the Trade and Industry Committee of the House of Commons.
330 Q 978. Back
Framework Directive, recital (19). Back
Memorandum submitted by Radiocommunications Agency. Back
Memorandum submitted by Radiocommunications Agency. Back
Framework Directive, Article 9. Back
Policy, paras 7.4.1-7.4.4. Back
Ev 470. Back
Cave Review, pp 92-95. Back
QQ 448, 454. Back
Q 422. Back
Q 978. Back
Cave review, pp 95-100. Back
Policy, para 7.3.1 - 7.3.6; EN, paras 222-227. The Government
has also referred to the potential role of Recognised Spectrum
Access in the context of leasing of spectrum currently used without
licence by Government Departments, Policy, para 7.3.7. Back
QQ 140-145. Back
Cave review, pp 138-141; QQ 144, 436; Policy, para
Q 144; Ev 539, paras 4.1-4.5; Ev 223, paras 25-27. Back
Q 419. Back
Introducing Recognised Spectrum Access: A Consultation Document,
Radiocommunications Agency, July 2002, paras 3.7, 5.2, 4.7.1,
Memorandum submitted by Radiocommunications Agency. Back
Q 131. Back
Memorandum submitted by Radiocommunications Agency; Q 131; Cave
review, p 149. Back
Cave review, pp 155-156; Q 458. Back
Policy, para 7.3.7; QQ 133,139, 425-428, 458, 461. Back
Q 459. Back
QQ 132, 455, 549. Back
Cm 5010, para 2.7.3. Back
Cave review, pp 163-165, 166-172. We have not examined
the potential application of the Cave proposals to commercial
Ev 214, para 4.10; Ev 190-191, paras 17-21; Ev 177, paras 4.7
- 4.10; Ev 205, para 4.51; QQ 409-413. Back
Q 466. Back
Cm 5010, para 2.74. Back
Cave review, pp 106-107; Cm 5010, para 2.7.5; EC Framework
Directive, Article 9, paras 3-4; Q 126. Back
Jacqui Brookes (Federation of Communication Services) and James
QQ 126, 128, 429; RIA, paras 12 and B1-B19. Back
Ev 103, para 13.1. Back
Implementing Spectrum Trading: A Consultation Document,
Radiocommunications Agency, July 2002, para 4.3. Back