Examination of Witness (Questions 120-139)|
MONDAY 27 MAY 2002
120. Would you see advantages in contracting
(Mr Goddard) As I say, we have already contracted
out where there is no detailed technical workfinding individual
frequencies for individual users for example, for some shipping
services, radios on ships, in the amateur radio service for example,
those services have become contracted out.
121. You say that you co-operate very well and
have done over the past series of years. I put again my question:
what then are the advantages in combining with them in one body
when you are working so well already?
(Mr Goddard) I might have implied that we are working
well but there is always the possibility in complex and difficult
organisations that there may be lobbying into different parts
of the government and the regulators. If there is a seamless,
single communications regulator, we will be able to produce a
coherent policy internally and speak that with one voice for the
benefit of the industry.
122. We have received a lot of evidence already
that despite all the fluffy end of the business you are the boys
that deal with where the real money is, where the power is, etcetera,
and this is the important part of what OFCOM is going to do. Have
you got enough powers within this Bill to do your job?
(Mr Goddard) I believe so. Certainly the role of spectrum
management is very important. You said yourself from the evidence
that it supports an enormous industry and enormous wealth of the
country, but the Bill is quite clear in terms of the responsibilities
to balance all the potential users of the radio spectrum in the
overall interests of the users.
123. The parts of the Bill that cover your areais
this mainly a transfer of EU legislation or is it separate UK
(Mr Goddard) It is a combination of things. It is
firstly bringing force to the EU legislation as it applies to
licensing in the various spectrum areas. Secondly, it transfers
the functions that we are carrying at the moment which we do under
the authority of the Secretary of State. They need to be explicitly
laid down in some detail in the provisions of Bill so there are
detailed provisions there that replicate what we are doing at
the moment. There are then some new powers dealing with spectrum
trading and what we call Recognised Spectrum Access. So it is
a combination of the transfer of existing functions and some new
124. But you have resisted any attempt to gold-plate
the EU stuff, which is often an accusation levelled at Whitehall?
(Mr Goddard) I do not think we would be accused of
gold-plating. We have supported the legislation in terms of its
transparency and fairness for dealing with the policy that we
manage. We have tended always to move ahead of a lot of the countries
in Europe in terms of the openness of our policy strategy. We
were the only country in the world until very recently that produced
a complete strategy for how we manage the radio spectrum. In terms
of openness, fairness and transparency, we are carrying out policies
already which are consistent with the Directives. That puts that
firmly into policy.
125. To go back to the question of Lord Pilkington,
you are the fifth regulator that has told us that you are happy
with the Bill, that you are happy with the powers and that you
are happy with the staff that you are going to be given under
this, and yet this is a Bill that the Government tells us is going
to be lighter of touch, slimmer, etcetera. Do you not think we
should start smelling a rat somehow about this Bill?
(Mr Goddard) I am not sure that is for me to answer.
Certainly, as I said earlier, we are seeing a lot of our existing
functions and activities transferred over. Already in the field
of radio spectrum management, we have been developing a lighter
touch than we did in the past. We did regulate very heavily and
we worked on the basis many years ago of deciding how spectrum
should be used. Now we are moving back to not determining who
has a licence but perhaps putting the spectrum out on the market
through auction or whatever. In the future with spectrum trading
we expect many more of the decisions to be taken in the market-place
and less by the regulator. If we were still working the way we
were 10, 15 or 20 years ago, the Radiocommunications Agency would
have to be double its current size. Although we have increased
in size, the number of licences we issue and the complexity of
the management of the spectrum and the business has grown enormously,
and I do not think the size of the Agency has increased proportionately
to that at all.
126. Clause 124 is a clause designed to permit
you to make regulations to bring in a new structure of spectrum
trading. We are coming to the stage where you might tell us something
about the process by which you propose to make regulations under
124. How confident are you that clause 124 has the structure that
is right for all the purposes that you might need in order effectively
to bring in spectrum trading?
(Mr Goddard) I do not think we can ever be totally
confident as to what the future will bring. This is a completely
new tool that has been planned. It is one that the Government
has committed itself to for some time now. In fact, we have been
taking the lead in Europe to ensure EU legislation includes spectrum
trading. We are waiting to see whether it will give more freedom
to users to get the best out of the licence they hold for the
spectrum. It will allow that licence either in whole or part to
be transferred to another user, which is not possible at present,
and we see that as a much more efficient use of the radio spectrum.
To some extent we have to second guess how to sort it out, but
we believe we have got the provisions there that will work in
practice that will give us a framework which will work effectively
as an enabling power for the future.
127. One of the general duties back in clause
3 relates to the optimal use of the spectrum for wireless frequency
purposes. How do you think you will be able to interpret that?
Does it relate directly back to section 2 of the Wireless Telegraphy
Act? Is it that kind of set of purposes that you would apply?
(Mr Goddard) It is a very difficult issue to define.
We are in the business of balancing a lot of different conflicting
requirementsthe commercial use of spectrum, non-commercial,
scientific, research, hobby, and so onand certainly when
I go to international meetings there is often a definition of
consensus that everybody is equally happy, or maybe everybody
is equally unhappy. To some extent it has to be measured by feedback.
We consult extensivelyand you have heard from Oftelon
virtually all our major policy decisions. It is a question of
getting the balance so that users are satisfied and we are meeting
the needs of different communities. How one measures whether you
have got that balance absolutely right is a very difficult question.
128. By its very nature left to its own devices
the market with respect to spectrum trading will seek to appropriate
the best use of that spectrum for particular individuals or undertakings,
but the structure of the general duty is "in the interests
of all persons", so you are going to have to use the powers
in clause 124 to try and operate a control over the use of that
spectrum and who it is traded to and what its purposes are and
so on. I am trying to get a sense of what is the structure in
the legislation after this Bill is passed that you will look to
say, "This is how we interpret `optimum use'". Is it
Section 2 of the Wireless Telegraphy Act because that was there
for the purposes of administrative pricing of wireless telegraphy
licences? Has it been used as the basis of a judgment in relation
to the auctions and will it be used as a judgment in relation
to spectrum trading?
(Mr Goddard) Let me say, first of all, on spectrum
trading we would not envisage having trading across the whole
spectrum from day one. It is an enabling power where we would
be looking through consultation at the process of applying spectrum
trading selectively as we have done in spectrum pricing, in that
it would apply in certain areas initially, probably phasing against
some experience with it. In terms of the defining of the basic
objectives of spectrum management, it has to be a subjective assessment
and if we are getting it right, then we are satisfying the different
129. At the risk of tiring the Chairman, I do
not think you have answered my question. We are not setting up
a subjective judgment by OFCOM, we are setting up a judgment by
OFCOM on the basis of statute. In statute what will be the judgment
you are applying? Is it the judgment of the matters which are
set out in section 2 of the Wireless Telegraphy Act which apply
to administrative pricing? Have they been applied to auction as
part of the third generation? Are they going to be applied as
a consequence of the structure of the legislation that is presented
to us to the exercise of spectrum trading?
(Mr Goddard) Excuse me one second. Those provisions
you refer to in section 2 of the Wireless Telegraphy Act are specific
to spectrum pricing. Those are statutory conditions for the specific
purpose of spectrum pricing
130. I think we will have to come back to it
because during the course of the Standing Committee, which I for
my sins was on, the then Minister expressly said that an amendment
was unnecessary because the matters referred to in section 2 would
automatically apply to section 3, that is to the auction. Perhaps
we should have a note from the Agency and the Bill team about
(Mr Goddard) We can certainly do that.
Baroness Cohen of Pimlico
131. Before I start asking anybody anything
about spectrum, I have to declare an interest. I am the senior
Non-Executive Director, indeed there are only two of us, on the
Defence Logistics Organisation of the Ministry of Defence and
in as much as the Defence Communications Agency are part of Defence
Logistics, although they operate MoD-wide, as it were the MoD
spectrum is mine. So you need to consider any questions of mine
against that background. As I understand it, the current position
is that the MoD does in fact pay something for its spectrum use
and clause 119 allows payment for use of radio spectrum by the
Crown. There is a set of questions around this. The first technical
one is why is it provided that the amounts will be fixed by the
Secretary of State rather than by OFCOM? If we are going to start
liberating the spectrum and persuading people to use it efficiently,
there being no suggestion that the MoD do not, why should OFCOM
not be in charge of pricing? Why has this to be left to the Secretary
(Mr Goddard) You are right in saying that the MoD
pays for spectrum now. The Radiocommunications Agency does not
and, indeed OFCOM will not in the future manage the MoD spectrum;
it manages most of the non-defence spectrum. The basis of the
payment in the past before the 1998 Act was very much on recovery
of some of the direct costs that the Radiocommunications Agency
incurred. We, for example, represent Ministry of Defence interests
in international negotiations. We notify to the international
bodies concerned in Geneva, military satellites, for example,
and co-ordination with other countries, so we have for a very
long time charged direct costs. In the 1998 legislation which
enabled spectrum pricing, the Government agreed that government
users would pay on a comparable basis. We introduced an increase
in the fee charged of the Ministry of Defence at that time. At
the same time as we introduced spectrum pricing for fixed and
mobile services, we did it on a comparable basis. That power in
the legislation is just a continuation of what we have been doing
for a considerable period of time.
132. I suppose the right question then is, is
this satisfactory that Secretaries of State, as it were, fix payment
for the Government's use of spectrum and OFCOM fixes the prices
for the rest? Does this make sense?
(Mr Goddard) I think the strict wording is that the
Secretary of State will make the payments of such amounts as he
considers appropriate. The way we do it at the moment is in the
same way in which we consult with the private sector on spectrum
priceswe sit down with the Ministry of Defence and effectively
negotiate a price, and that is done by mutual agreement based
on the comparative charges per unit to spectrum that we charge
in the private sector. I believe this is simply taking forward
that same principlethat the clause provides for payment
to be made by the Secretary of State.
133. And that will work? When you start trading
spectrum what does that do to this structure?
(Mr Goddard) I believe the provision would allow any
spectrum which is under the control and management of the Ministry
of Defenceand there will be provisions using this provision
of spectrum access for the Ministry of Defence to effectively
purchase the equivalent of a licenceto be traded if they
have the spare capacity and to sell it off to the private sector.
They would need spectrum access which is the equivalent to a licence,
which they do not of course need now because they are Crown exempt.
134. If OFCOM are in charge of licensing, will
they be taking a view on how much spectrum the MoD should have?
(Mr Goddard) Taking a view, yes, but not having the
power itself to change. That is exactly the same as the present
arrangement where the Radiocommunications Agency can put pressure
on the Ministry of Defence to change the spectrumand we
do that quite regularlybut the actual decision will be
through Whitehall and government as to how the spectrum is bought
and as to what proportion.
135. So none of that structure is established
by the Bill?
(Mr Goddard) We would expect that same Whitehall machinery
to continue although it does not need to be on the face of the
136. I take it from the evidence that you think
spectrum is a good in itself and not a good way of bolstering
the Treasury's coffers. If OFCOM is excluded from having any say
in the vast MoD spectrumand we have all been impressed
by the MoD's ability to manage large contracts on budget and on
timehow do you know that the MoD is managing its vast share
and indeed Lady Cohen is managing her share of the spectrum efficiently
and not depriving my colleague the Chancellor of vast amounts
(Mr Goddard) Two answers if I may. At the working
level we have built up an extremely good working relationship
with our defence spectrum management colleagues. The reason for
that is, as you say, we need to understand how they use the spectrum
so that we can make judgments, in particular because a large and
increasing amount of spectrum is shared between defence and non-defence
users. We have to know to a fair extent the details of MoD spectrum
usage. The other way in which it is done more formally is, as
I said already, there is an inter-departmental Cabinet Office
committee which is co-chaired, quite unusually, by the Chief Executive
of the Radiocommunications Agency and a senior colleague from
the Ministry of Defence, and that Committee has other government
departments represented. That is the ultimate authority at official
level, for example of spectrum use and determining UK spectrum
strategy, so the tensions between defence users and commercial
users can come out at that level, and clearly that feeds up to
137. Are you absolutely convinced in your own
mind that the mechanism you have, and the mechanism that is proposed
brings sufficient pressure to bear on the MoD to get the spectrum
they need as opposed to the spectrum they want?
(Mr Goddard) I think the evidence has shown over the
last decade or so that we have been able to exert a lot of pressure
on the Ministry of Defence to use the spectrum not on an exclusive
basis but on a shared basis. Most of the new spectrum that has
become available in competition in telecommunications, whether
it is fixed wireless access or additional mobile radio spectrum,
has come from spectrum that was previously exclusively defence,
so that is evidence that the present mechanism works, and from
my own experience of what happens in other countries I think we
have a very good arrangement for making sure that that continues
Chairman: In fairness to the question, if you
go back historically, that was not always the case and that is
why there may be a certain doubt in Mr Farrelly's mind. We will
move on. Tom?
138. I think the reason is we take the motto
of the Ministry of Defence as "what we have, we hold"!
(Mr Goddard) I think we are seeing that spectrum pricing
is having some impact.
Baroness Cohen of Pimlico
139. If I may, Chairman, there is an in-built
tension between how much licence you give the MoD which they can
then trade with the spare bits and how much you take the spare
bits off them. I do not know whether anybody has thought about
(Mr Goddard) I can say from my own contacts with colleagues
in the Ministry of Defenceand perhaps I should not be speaking
on their behalfthe message that is coming back is that
if there is spare spectrum they would rather hand it over to the
regulator to manage rather than be involved in trading it themselves.
That is the informal comment I have heard from colleagues.