Issue 7: February 2004
In this edition:
Radio-spectrum Management for
a Converging World (www.itu.int/spectrum)
evolving spectrum rights paradigm – The role of Ultra Wide Band and
2. Spectrum management in Guatemala
3. Spectrum pricing in
4. Major new consultancy study launched at the
Radio-Spectrum Management for a Converging World
was the topic of the latest workshop organized by the ITU Strategy and Policy Unit
(SPU) from February 16-18 2004. This
theme was chosen following a survey of ITU Member States and Sector
Members that ranked it a topic of high current interest. The workshop was the twelfth
in the series organized by the
Strategy and Policy Unit (SPU).A
number of case studies were presented, covering Australia,
Guatemala and the United
Kingdom. A publication based on the event will be
made available for sale through the ITU Sales Service
(firstname.lastname@example.org), and background information pertaining to the workshop is published on the ITU website at:
This series of ITU events and publications has been made
possible with the help of the Japanese Ministry of Public
Management, Home Affairs, Posts and Telecommunications (MPHPT).
1. The evolving spectrum
rights paradigm – The role of Ultra-wide band and privatization
Ultra-wide band (UWB) may fundamentally change the
way spectrum authorities look at spectrum rights. UWB is one of the most
anticipated radio frequency technologies because it can transmit data at
very high speeds by sending the transmission over a wide range of
frequencies at very low power levels. By employing a wide range of
frequencies, UWB allows for highly effective transmission through
objects, including walls and the ground. UWB can penetrate obstacles
that would severely hamper communication using traditional
higher-powered, narrow band radio waves. This is especially important
for radio applications that suffer from multipath problems.
One of the most striking elements of UWB communications is the ability to
communicate below the noise floor, often referred to as “underlay”.
In theory, this implies that UWB could operate at high speeds in the
same bands as licensed spectrum without causing any harmful
interference. UWB operates under a wide swath of licensed and unlicensed
frequencies and thus many current licensees are following its
development very closely. Not surprisingly, many licensees have been
sceptical over fears that an “unproven technology” will cause
problems in the bands they have paid for.
One of the most promising uses of UWB is home networking and other
short-range, high bandwidth applications. Limiting the power of the
pulse could make more effective use of underused spectrum in a home.
Much like small FM radio transmitters that broadcast within a few feet
to a car radio from a portable MP3 player, UWB could make use of the
spectrum in a small area to increase connectivity, without interfering
with the spectrum owner’s operation. Sample applications for UWB
include, home networking of phone, cable, and data through a building.
While individual technologies such as UWB have been
catching the attention of regulators and policy makers, the much broader
topic of privatization has been a key focus of spectrum research.
Economists have argued that the market will take care of many of the
current problems plaguing the system with the introduction of tradable
spectrum rights and its unrestricted use. Some have even called for a
"Big Bang" auction that could theoretically put all
frequencies on the auction block (see Box 1).
Under current rules around the world, a spectrum
licence is very specific as to how it can be used. Free-market advocates
argue that by allowing licensees freer use of assigned spectrum bands,
the efficiency of the band will increase. One technology that can help
make this possible is smart antennas. Smart antennas can track users and
send them narrow, targeted transmissions rather than broadcasting in a
360 degree radius. This can significantly decrease the amount of
interference to other users in the cell. Smart antennas can also pick up
targeted transmissions in a noisy environment, allowing for greater
overall spectrum use. This allows for more transmissions to be
"packed" into a frequency range and decreases the effects of
interference in the band. Operators could then offer new services (e.g.
data on mobile networks) inside the same spectrum band.
The economic connection between the introduction of
new technologies and property rights in spectrum is clear. Bid winners
have the incentive to use the most efficient technology to recover the
costs of their winning bids. If property rights are bought and sold on
the open market, bidders will theoretically bid up to the point where
economic profits are zero (i.e. earning a "typical rate of
return"). This creates huge incentives to use the most efficient
technology in order to be able to outbid, and outperform other potential
bidders for the band. Operators will do all they can to increase the
efficiency of the band. Or, if they cannot, someone with better
technology would be willing to pay an attractive price to the current
owner to take it over.
The impact of new technologies and spectrum
property rights is even more pronounced if the regulatory scheme allows
licence owners to divide their allotted frequency and sell it off in
parts. As technologies improve the licensee can use less spectrum for
the same service, and sell or rent the unused portion on the market.
This creates and incentive for licensees to use the most efficient
Despite the economic rational for free spectrum
trading markets, they are largely untested and may or may not produce a
more effective use of licensed spectrum. Opponents of spectrum trading
has recently used 3G licence auctions as examples of how markets have
led to ineffective use of spectrum, namely through the extremely high
bids for spectrum and the resulting inability of operators to afford the
infrastructure to roll out services. Indeed, many licensed 3G
frequencies have yet to come into commercial use, leaving a valuable
frequency untapped for the time being.
Because of the ambiguity several authors have
suggested using test bands open for free-market trading. Governments
could consider clearing new bands for an experiment that would allow
unrestricted use in the band by the licensee with the ability to trade
the spectrum. Just as with Benkler's spectrum commons experiment,
governments must include a recovery option for the spectrum if the
experiment does not work well.
Box 1: Technology and the
Big Bang Auction
Kwerel & Williams of the FCC
have called for a “Big Bang” auction of spectrum rights in the US
in order to make more efficient use of spectrum.
The auction would be announced a year in advance and current
licensees could decide whether they wanted to participate or not. If a
licensee decided to put the auction up for bidding, they still could
decide against accepting the final bid.
If the bid is accepted, the current licensee would receive the
bid money. From then on, markets would dictate the price of spectrum.
Proponents of the system want to ensure that spectrum is held by the
highest bidder, and hope this corresponds with the most efficient use.
New radio technologies would be
very much tied to the market allocation process. Operators could
implement new technologies such as smart antenna, spread spectrum, and
agile radios as a way to reduce their spectrum requirements. Any
spectrum that could be spared through better technology could then be
sold to the highest bidder on the open market.
Source: Kwerel & Williams,
"A Proposal for a Rapid Transition to Market Allocation of
Excerpt from the background paper "Radio
Spectrum Management and Advanced Wireless Technologies" [pdf],
presented at the workshop.
Spectrum Management in Guatemala
the enactment of the 1996 General Telecommunications Law in Guatemala,
the radio waves were owned and licensed by the State following the
licensing of radio spectrum model of the Federal Communications
The radio spectrum licence was a revocable authorization for the
licensee to use a given frequency band in a given manner.
The risks involved with the legal licensing scheme taxed the
development of the wireless sector in Guatemala.
The 1996 radio spectrum deregulation reform privatized, in
essence, the Guatemalan radio spectrum.
Owners of radio spectrum are allowed to lease, sell, subdivide or
consolidate their titles.
The results of the reform have been strongly positive, as can be
shown by comparing the growth of the mobile sector in Guatemala with
Latin America as a whole.
Radio spectrum management after the telecommunication reform of
The spectrum allocation system of Guatemala changed
dramatically with the “Ley General de Telecomunicaciones” of
1996. Allocation of radio
spectrum evolves from the bottom up. Private action comes first: any
person or company, national or foreigner, may request any spectrum band
not currently assigned to other users.
When conflicts arise — caused by interference from signals of
adjacent bands and/or intermodulation distortions — private parties
are encouraged to mediate between themselves.
If private mediation fails, specific rules are enforced by the
telecommunication regulatory body.[i]
Additionally, the injured party may sue for damages in existing
From the perspective of the theory of economics of
property rights, the most salient feature of the spectrum reform is the
creation of usufruct titles in lieu of Constitutional restraint. In the Guatemalan Civil Code, the usufruct carries the right
to use and enjoy the property of another to the extent that such use and
enjoyment does not destroy or diminish its essential substance.[ii]
The 1996 law specifically states that the Títulos
de Usufructo de Frecuencias (TUF)
may be leased, sold, subdivided or consolidated for a limited period
(fifteen years). In fact, the TUF
may be even used as equity exchanged for investment. The usufruct
term can be extended for an additional 15 years by a simple request at
no cost to the bearer, and so on.[iii]
The electromagnetic waves are infinitely reusable and are not
“destroyed or diminished” after being used.
Therefore, in all practical matters, the TUFs
are the closest approximation to private property rights in radio
spectrum that the Guatemalan law allows.[iv]
Regulation is limited to interfering emissions and reserved bands.
The physical TUF
is a security paper certificate listing the six following basic
variables on the front:
power emitted at the border of adjacent frequencies;
of right (beginning and ending).
The back of the TUF
is for endorsements which are required whenever the instrument is being
negotiated for property transfer. The
independent regulatory body established by the 1996 law, the Superintendencia
de Telecomunicaciones (SIT) is responsible for the TUF
registry. This computerized
database is easily accessible to the public.
Anyone may request a copy of the TUF
The adjudication process contained in article 61 of
the law is quite simple and has been implemented in practice as follows:
interested party surveys existing spectrum use in the spectrum
registry of SIT.
party applies to SIT
for the right to use a frequency band as specified in the
application is evaluated by SIT
which deems it accepted, incomplete, or rejected. SIT is
required, by law, to answer in 3 days or less. Grounds for rejection
include technical interference, request of reserved or radio amateur
bands. Reserved bands
are for government use only.[v]
the application is accepted, public notice is issued.
Parties objecting the new use file formal complaints.
Grounds for opposition are limited to technical interference.
are quickly adjudicated via binding arbitration. The adjudication process cannot exceed 10 days.
interested parties are allowed to file competing claims to requested
no competing claims are filed, then the petitioner directly receives
rights without auction gratis.
competing claims filed, then SIT
must schedule an auction 35 days after the end of the opposition
Before Guatemala essentially privatized the
spectrum in 1996, radio spectrum management was inefficient and
ineffective, and overwrought by the regulatory straight jacket.
property is inextricably linked with civilization,”[vi]
then we may add that property rights spontaneously “civilized”
(but also “energized”) the radio spectrum. The reform allowed a
poor country to make good use of a precious resource that was being
wasted. A centralized licensing spectrum allocation system is a
collectivist scheme that deprives persons of the freedom to organize
wireless entrepreneurial initiatives creatively and efficiently.
As Peter Huber says “[t]he telecosm is too large, too
heterogeneous, too turbulent, too creatively chaotic to be governed
wholesale, from the top down.”[vii]
Professor Thomas W. Hazlett has correctly pointed out that
regulatory agencies are susceptible to capture (see Hazlett op.
cit.). Ideally the
enforcement of the new law should have remained exclusively in the
hands of the existing courts. Alternatively, the law could have
contemplated exclusively private alternatives (e.g.
arbitration, mediation, private courts) for conflict resolution. See Benson (1990).
de Guatemala. Código
Civil, Libro II, De los Bienes, de la Propiedad y demás Derechos
Reales, Título III, Usufructo, uso y habitación.
This scheme to extend the life of the TUF, while practical, carries
some risks (e.g.
a future change in the law).
The TUF is not a licence,
it is a right. A licence
gives the licensee a specific permission to do so and so. A right simply defines the owners borders.
The law stipulates
that the Government
may at any moment request SIT to transform reserved bands into
See Mises (1998),
See Huber (1997), p. 206.
3. Spectrum pricing in Australia
The Australian spectrum pricing system
is conceived on the assumption that charges to the users of spectrum
should serve two objectives:
act as a rationing device and set
in a manner that encourages efficient use of spectrum, and
deliver a fair return to the
community for the private use of a community resource.
The radiocommunication licence taxes
(for transmitters and receivers) are based on a formula that takes into
the spectrum location authorised
by a licence (some spectrum bands are in higher demand and are
therefore more congested than other bands);
the amount of spectrum (bandwidth)
used by a licensee;
the geographic coverage authorised
by the licence; and
the power of the transmitter
(transmitters operating a low power will attract a discount).
Australian Communications Authority (ACA)
acknowledges that, in the interests of simplicity and accessibility to
spectrum users, the fee formula incorporates some compromises and a
degree of crudeness in the manner in which different factors are
measured and charged. Since introducing the fee formula in 1995, the ACA
has continued to monitor and adjust the fees. The ACA has a programme to
review fee levels, in particular in bands, which are experiencing
congestion and in which there is arguably a case for increasing fees.
Ideally, in spectrum bands and geographic locations where there is
scarcity and congestion, fees should be set at "market"
levels. However, the task of establishing those market levels is very
difficult. Methods by which values might be established that would match
supply with demand include:
shadow pricing against auction
shadow pricing against alternative
(non-wireless) service delivery mechanisms;
gathering evidence of market
values from observing trading in the secondary market, and
where there is evidence of
congestion (excess demand) in a band or location, gradually
increasing annual spectrum charges to the level which causes an
easing of that congestion.
In addition to commercial services,
the ACA levies spectrum pricing on a number of public users of spectrum.
For example, the Department of Defence pays around A$ 8.4 million each
year for spectrum reserved in the defence bands. It pays a further A$
979 000 for spectrum it uses outside the defence bands and A$ 245 000
for classified assignments. Although it may be difficult to make
judgements about opportunity costs in the defence environment, for
example security reasons may prevent full disclosure of the purpose for
which spectrum is used, the ACA nevertheless believes that charges for
defence spectrum should continue to be made on the same basis as for
other users. This provides the best assurance that there will be an
incentive for the Department of Defence to make efficient use of
spectrum, including surrendering spectrum that it no longer requires. It
should be noted that there have been several examples where the
Department of Defence has been willing to give up or share spectrum.
Excerpt from the ITU Country Case Study, Radiospectrum Management for a Converging World:
4. Major new
consultancy study launched at the ITU
Based on Decision 7 (Marrakesh, 2002) of the highest
decision-making body of ITU, the Plenipotentiary Conference, in 2002, and as
a result of ongoing work within the ITU Administrative Council (composed of
government representatives), ITU has chosen Dalberg Development to help the the organization respond to the fast-changing
telecommunications environment. Dalberg Development, a young and dynamic
firm which focuses specifically on working with the UN and its agencies, is
a professional services firm dedicated to making groundbreaking
contributions in the field of international development. As
well as having the big name private sector experience behind it,
illustrated strong awareness of the particular issues facing ITU, and
received excellent references from previous clients.
project will help ITU to translate the wishes of the membership into
concrete results, particularly in the way we present the budget, the way we
allocate costs, and the IS services we are able to offer to our members and our
project, which is being conducted with collaboration from ITU
management from all Sectors, the Group of Specialists, the Council Oversight
Group and a specially-created multipartite "Steering Committee", will
be reported on to the ITU Council at its session in June 2004.
further information on Strategy
Unit Monthly News Flash, please
contact: ITU Strategy and Policy Unit, International
Telecommunication Union, Place des Nations, CH-1211 Geneva 20
(Switzerland). Fax: +41 22 730 6453. E-mail: email@example.com
. Website: www.itu.int/spu/