Spectrum Management - Case Study on the United Kingdom

Spectrum Management for a

Converging World:

Case sStudy: on the United Kingdom

International Telecommunication Union

This case study has been prepared by Martin Cave < >, Professor and Director, Centre for Management under Regulation, Warwick Business School, University of Warwick (UnitedKingdom) as part of an ITU Workshop on Radio Spectrum Management for a Converging World produced under the ITU New Initiatives programme of the Office of the Secretary- General (OSG) in conjunction collaboration with the the ITU Radiocommunication Bureau (BR). The Wworkshop manager is EricLie <>, and the series is organized under the overall responsibilityorkshop is under the direction of TimKelly , Head, ITU Strategiesy and Policies Policy Unit (SPU), and is managed) by Eric Lie <. Other Further information and other case studies on spectrum management in the United KingdomAustralia and Guatemala can be found at:

The views expressed in this paper are those of the author and do not necessarily represent those of ITU or its membership.

1Introduction

Until about five years ago, the UK government Government of the United Kingdom practised what could be called a fairly conventional ‘“command and control”’ form of spectrum management. Allocations Allocations were derived from international agreements made at the global and European level; assignments were made using either “beauty contests” or the ‘“first come first served”’ approach; , and the management process was undertaken by a government department, the Department for Trade and Industry (DTI), although implementation was assigned to an agency within the Department, responsible to the Secretary of State, the Radiocommunications Agency or (RA). The interests of other government departments, including the Ministry of DefenseDefence, were co-ordinated through a Cabinet Office Committee, co-chaired by a senior Ministry of Defence official and the Chief Executive of the RA, and responsible to government mMinisters.

Throughout the 1990s, however, the pressure of demand for spectrum increasingly called the traditional framework into question. Extra demand came from many sources, including from the growth of mobile communications, which took off in the 1990s, from other telecommunications innovations, from digital broadcasting terrestrially and by satellite, from new defence capabilities —ever more reliant on communications, from the growth of civil aviation, from new safety of life applications, and so on.

The UK Government responded to the increasing disjunction between new spectrum needs and traditional methods of allocation and assignment by making proposals and bringing forward legislation to change the face of spectrum management. The foundations for these changes were provided by two major pieces of legislation, namely the 1998 Wireless Telegraphy Act and the 2003 Communications Act. These Acts were preceded by a wide-ranging policy debate and followed by major implementation projects, largely completed in relation to the 1998 Act and recently set in train in relation to the 2003 Act.

Because these measures have not been in effect for long, or are still at the design stage, it is not possible to evaluate their effects fully. Accordingly this paper outlines the reforms, sets out their rationales, describes their implementation, where appropriate summarises summarizes the attitude towards them of spectrum users in the public and private sectors, and records the first results in an ongoing process.

2United Kingdom facts and indicators

The United Kingdom has a population of 60 million, distributed over a land area of 242,000 Km2, generating a population density of 245 per km2. Its level of GDP per capita in 2002 was US$D 25,500, based on purchasing power parity (PPP) exchange rates.

3The communications environment in the United Kingdom

3.1Legislation

Its The UK communications sector is regulated by a variety of Acts, the two most recent of which are the Wireless Telegraphy Act of 1998 and the Communications Act of 2003, as mentioned above. These Acts are of special interest because, as outlined in more detail below, they introduced major reforms into spectrum management —– the former permittings the application of administered prices for spectrum and auctions, the latter enabling spectrum trading.

3.2Office of Communications (OFCOMOfcom)

TSince 29 December 2003, the principal body responsible for spectrum management has since December 29 2003 been OFCOMOfcom, an independent agency, which on that date took over the function from the RadiocCommunications Agency, a part of the Department of Trade and Industry. OFCOMOfcom’s duties and powers are described below.

OFCOMOfcom is responsible for spectrum management. Its predecessor, the RA, regularly published a Spectrum Strategy Document. OFCOMOfcom is also responsible for the issueissuing the various forms of licence and for their enforcement of licences. Such licences take various forms. In relation to the bulk of licensed spectrum, they these licences take the form of apparatus licences, which precisely define the radio station, its location and technical characteristics. Some licences are issued annually, subject to renewal; , while others are issued without specific time limitation, but are subject to revocation in certain circumstances.

3.3Terminology of spectrum management in the UK discussionsenvironment

To avoid ambiguity, the this paper will use the following terminology to describe different techniques of spectrum management, as which corresponds that that used in the UK debates as used in UK debates.

‘Ccommand and control’: the Government or its agency makes (or accepts from an international body) the allocation of a band to a particular purpose; spectrum within the band is assigned to a licensee or licensees via an administrative process; a charge may be levied on licensees, normally to cover administrative costs; the licence usually authorizes the licensee to utilize spectrum-using equipment specified as to location, power and other variables, the restrictions being designed to avoid interference with other licensees in adjoining geographical areas or bands.

‘aAdministrative incentive pricing’: allocation and assignment take place as above, but licensees are charged a fee for access to spectrum which depends on some estimate of the value of that spectrum to the economy or to society —– typically described as its ‘“opportunity cost”’ (see below); this is designed to encourage economy in spectrum use; unwanted spectrum might either be returned to the government Government or regulator, or there may be provision for the licensee to make it available by sale or lease to others via a market process.

‘pPrimary licence auctions’: this describes a method of assignment of a licence to firms or other organizations when a band is first made available or when it has been returned, for reassignment, to the regulator; instead of an administrative procedure being undertaken, an auction is conducted in which the highest bidder(s) are allocated the licence(s); hitherto, auctions have been conducted of for licences associated with specific purposes, such as 3G wireless or broadband fixed wireless access; auctions could, however, attract competitors proposing to utilize the spectrum for a range of different purposes, such as broadcasting and mobile telephony.

S‘secondary trading’: under this regime, licences (however first assigned) can be subsequently traded by buyers and sellers, without passing through the regulator’s hands; the transaction may take various forms: change of ownership only, with no variation to the use to which the spectrum is put; reconfiguration, such that the licence is broken up into different parts, by geography, time or frequency, and the parts as sold, or several previously separate licences are combined; and change of use, such that the spectrum to which the licence grants access is employed to produce a service different from its previous one; these three dimension of change can be combined in various ways (e.g. change of owner, reconfiguration and change of use); change of use will, however, require a modification of the conventional apparatus-licensing approach, as a new use will require different apparatus —– how this will be tackled in the United Kingdom is discussed below.

L‘licenced-exempt spectrum’ : access to spectrum does not require prior authorization; any user satisfying certain conditions — usually relating (normally) to the power of the equipment employed — may have access to the band in question; under this approach known also as the ‘“spectrum commons’commons”, there is a greater risk of interference and congestion.

The above mechanisms above can beare summarized in the following tTable 1 below: note also that they are not all mutually exclusive —– in particular, primary auctions and secondary trading can be combined with each other, and with administrative incentive pricing.

Table 1: Characteristics of spectrum management instruments

Individual licensing / Initial assignment / Secondary trading / User price
Command and control / Yes / Administrative / No / None (except administrative change
Administrative incentive pricing / Yes / Administrative / No / Yes (“‘opportunity cost’”)
Primary auctions / Yes / Auction / Not necessarily / Not normally
Secondary trading / Yes / Auction or administrative / Yes / Not necessarily
Unlicensed spectrum / No / None / None / None

Source:Martin CaveAuthor.

3.4Chronology of reform and legislation in the United Kingdom

The focus of this paper is on the period in the UK since 1998; it begins, beginning with the Wireless Telegraphy Act of that year, which made introduced two major changes: – it authorized spectrum auctions and tested conditions for administrative incentive pricing. The following is an extract from Under Section 3relevant sections of the Act:

“3. (1) Having regard to the desirability of promoting the optimal use of the electro-magnetic spectrum, the Secretary of State may by regulations provide that, in such cases as may be specified in or determined by him under the regulations, applications for the grant of wireless telegraphy licences must be made in accordance with a procedure which

…………….[…]

(b) involves the making by the applicant of a bid specifying an amount which he is willing to pay to the Secretary of State in respect of the licence.

…………...[…]

(3) Regulations under this section may make provision with respect to the grant of the licences to which they apply and the terms, provisions and limitations subject to which such licences are issued and may, in particular

(a) require the applicant's bid to specify the amount which he is willing to pay

(i) as a cash sum or by reference to a variable to be determined in accordance with the regulations (such as, for example, his income attributable wholly or in part to the holding of the licence), and

(ii) as the amount of a single payment or as the amount of a periodic payment,

(b) specify requirements (such as, for example, technical or financial requirements, requirements relating to fitness to hold the licence and requirements intended to restrict the holding of two or more wireless telegraphy licences by any one person) which must be met by applicants for a licence,

(d) specify circumstances in which such a deposit is, or is not, to be refundable,

(e) specify matters to be taken into account by the Secretary of State (in addition to the bids made in accordance with the prescribed procedure) in deciding whether, or to whom, to grant a licence,

(f) specify the other terms, provisions and limitations subject to which any licence is to be issued,

…………………………….[…]

(5) A wireless telegraphy licence granted in accordance with regulations under this section shall specify, or specify the method for determining, the sum or sums payable in accordance with the applicant’s bid for the licence; and those sums shall be paid to the Secretary of State by the person to whom the licence is issued in accordance with the terms of the licence.” ’

Under Section 1 of the Act states the following:

‘“1. (1) In this Act "wireless telegraphy licence" means any licence under the Wireless Telegraphy Act 1949 other than a television licence as defined in section 1(7) of that Act.

(2) On the issue or renewal of a wireless telegraphy licence and, where regulations under this section so provide, subsequently at such times during the term of the licence as may be prescribed by the regulations, there shall be paid to the Secretary of State by the person to whom the licence is issued

(a) such sums as may be prescribed by the regulations, or

(b) if the regulations so provide, such sums (whether on the issue or renewal of the licence or subsequently) as the Secretary of State may in the particular case determine.

…………..

……………[…]

(5) Regulations under this section shall not apply in relation to any licence granted in accordance with regulations under section 3.”’

The outcomes of auctions and of administrative pricing are described below. This represented a large considerable step forward, but it did not introduce spectrum trading. In 1998, the RA held a consultation entitled ‘Managing spectrum through the Market’. It set out a broad range of options for the introduction of trading,; but led to no immediate action.

In 2001, the Government commissioned an independent study entitled theReview of Radio Spectrum Management (published in 2002), which endorsed administrative pricing at opportunity cost levels and strongly supported spectrum trading. The Government’s generally favourable Response to the Review of Radio Spectrum Management was published in October 2002. Meanwhile the RA conducted another consultation entitled Implementing Spectrum Trading.

Most significantly, in 2003 the Communications Act was passed, which made major changes to spectrum management. It formed a new regulatory body, combining the RA and the telecommunications and the broadcasting regulators, to be known as OfcomOfcom. Section 3 of the Act set out Ofcom’s Ofcom’s duties as follows:

“‘ (1) It shall be the principal duty of OFCOMOfcom, in carrying out their functions

(a) to further the interests of citizens in relation to communications matters; and

(b) to further the interests of consumers in relevant- markets, where appropriate by promoting competition.

(2) The things which, by virtue of subsection (1), OFCOMOfcom are requiredto secure in the carrying out of their functions include, in particular, each of the following

(a) the optimal use for wireless telegraphy of the electro-magnetic spectrum;

(b) the availability throughout the United Kingdom of a wide range of electronic communications services;

(c) the availability throughout the United Kingdom of a wide range of television and radio services which (taken as a whole) are both of high quality and calculated to appeal to a variety of tastes and interests; (d) the maintenance of a sufficient plurality of providers of different television and radio services;

……………………… […] ”‘

As for more detail, Section 152 et seq imposed functions on Ofcom Ofcom in respect of radio spectrum.

‘“152General functions of Ofcom in relation to radio spectrum

(1) It shall be a function of Ofcom -

(a) to give such advice in relation to the use of the electro-magnetic spectrum for wireless telegraphy,

(b) to provide such other services, and

as they consider appropriate for the purpose of facilitating or managing the use of that spectrum for wireless telegraphy.

it shall be a function of Ofcom, in relation to the use of the electro-magnetic spectrum for wireless telegraphy –

to give such further advice,

to provide such other services, and

to maintain such other records,

as the Secretary of State may, for the purpose of securing compliance with the international obligations of the United Kingdom, require them to provide.

The advice, the other services and the records that Ofcom may give, provide or maintain under this section include advice, other services and records with respect to the use of the electro-magnetic spectrum at places outside the United Kingdom.

The powers of Ofcom to carry out research, or to arrange for others to carry out research, are to be exercisable, in particular, for ascertaining, for the purpose of carrying out their functions under this section, information about –

The demands for use of the electro-magnetic spectrum for wireless telegraphy in the United Kingdom;

The effects, in the United Kingdom, of any such use of that spectrum;

Likely future developments in relation to those matters; and

Any other connected matters that Ofcom think relevant.

154Duties of Ofcom when carrying out spectrum functions

(1) It shall be the duty of Ofcom, in carrying out their functions under the enactments relating to the management of the radio spectrum, to have regard, in particular, to

(a) the extent to which the electro-magnetic spectrum is available for use, or further use, for wireless telegraphy;

(b) the demand for use of that spectrum for wireless telegraphy; and

(2) It shall also be their duty, in carrying out their functions under those enactments to have regard, in particular, to the desirability of promoting

(a) the efficient management and use of the part of the electro-magnetic spectrum available for wireless telegraphy;

(b) the economic and other benefits that may arise from the use of wireless telegraphy;

(d) competition in the provision of electronic communications services.

……………………….[…]

156Directions with respect to the radio spectrum

(1) The Secretary of State may by order give general or specific directions to OFCOMOfcom about the carrying out by OFCOMOfcom of their functions under the enactments relating to the management of the radio spectrum.

157Procedure for directions under s. 156

(1) An order containing a direction under section 156, if it is not one falling within subsection (2) or (3) of that section, must state the purpose for which the direction is given.

…………[…]

(6) Where under subsection (5) the Secretary of State makes an order containing a direction under section 156 without a draft of the order having been approved, the order shall cease to have effect at the end of the period of forty days beginning with the day on which it was made unless, before the end of that period, it has been approved by a resolution of each House of Parliament.”’

In relation to spectrum trading, the Act provides the following:

‘“168Spectrum trading

Ofcom may by regulations authorize the transfer to another person by -

the holder of a wireless telegraphy licence, or

the holder of a grant of recognized spectrum access,

of rights and obligations arising by virtue of such a licence or grant.’

In accordance of this clause, in November 2003, Ofcom issued a Spectrum Trading Consultation, discussed in more detail below.

To summarizse the situation, the United Kingdom has had in place since 1998 a system of administrative incentive pricing for spectrum which is now likely to be revised and extended (see below). Three spectrum auctions have been carried out since 2000, including the very large scale third-generation (3G) licence auction. A consultation is now in progress on secondary spectrum trading. If the last latter is implemented, as seems likely, the largest proportion of the most valuable UK spectrum will be tradable by 2007, with the bulk of the remainder subject to administrative pricing.